EUR/USD: End Of The Correction? Strong Nonfarm Payrolls May Trigger A Massive Sell-Off

All the gauges are flashing green – FXStreet’s Leading Indicators checklist for March’s Nonfarm Payrolls report are pointing to a positive outcome, and that may boost the dollar. The economic calendar is pointing to an increase of over 600,000 jobs last month, which would be the highest since October. However, it could be even higher.

The ISM Manufacturing Purchasing Managers’ Index shot up to 64.7 – the highest since 1983 and a sign of robust activity in America’s industrial sector. This forward-looking survey included a leap in the employment component. The mix of optimism around vaccines, reopening in several states, and stimulus checks have all contributed to hiring. The question is how much. Some analysts foresee a leap of over one million jobs, but that could be over the top.

These all-important labor market statistics are published on Good Friday, a holiday in many parts of the world. Trading volume is limited and the lack of liquidity could result in significant moves.

Leading toward this all-important release, the dollar has been on the defensive despite apparent economic strength in the US. Treasury yields remain in the driver’s seat and they dropped after President Joe Biden presented his massive $2.25 trillion infrastructure spending plan. Why?

First, funding for this expenditure is set to come from tax hikes, therefore lessening the need for more debt issuance. With fewer bonds circulating, they are worth more – and the result is lower yields and therefore a weaker dollar. Secondly, Republicans are opposed to the scheme and Congress may substantially modify Biden’s plan.

That dynamic may change if prospects of robust recovery raise inflation expectations and force the Federal Reserve to act sooner than later, and contrary to its current pledge. The next adjustment in markets depends on the NFP.

Moreover, if there is one currency the dollar has more to run against, it is the euro. Good Friday is a somber event in most of the old continent, which is under various forms of lockdowns. COVID-19 is raging in Europe and while vaccinations have picked up, they have reached roughly 12% of the population, in comparison to around 30% in the US and nearly half of Britain’s citizens.

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