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Pre-NFP Setups Show Strong Yet Vulnerable USDOLLAR

Pre-NFP Setups Show Strong Yet Vulnerable USDOLLAR

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- USDJPY posting an inverted hammer against its yearly high.

- USDOLLAR Index support comes in at 10689, the 8-EMA.

- August NFPs: +230K exp vs +209K prior.

The USDOLLAR Index is attempting to break through its yearly highs set in January, but an overextended bull run and softening technicals leave the greenback vulnerable to a weak NFP report. That's not to say a weak Nonfarm Payrolls report is expected - consensus estimates call for the seventh consecutive month of jobs growth >+200K, the best streak since 1997.

Instead, the fact that the US Dollar is both strong yet vulnerable is a testament to its recent seemingly non-stop rally. Ever since EURUSD lost $1.3335 in mid-August, buying pressure under the greenback has been rampant.

Considering that non-commercials/speculators were already their most short in two years coming into this week and then yesterday we saw the largest decline and volume day in EURUSD in over two years, it's possible that the supply of sellers of the Euro/buyers of the US Dollar may be in low stock.

Positioning is important as it could transform a meagerly disappointing NFP print into something magnified; the straw that breaks the camel's back and produces a wave of profit taking across the USD-spectrum. A strong NFP here, barring a print in excess of +300K, might find it hard to produce another string of fresh highs in the USD-pairs.

See the above video for technical considerations in EURUSD, USDJPY, and the USDOLLAR Index ahead of the US Nonfarm Payrolls report today at 12:30 GMT.

Read more: Trade Setups in EUR/JPY, EUR/GBP, EUR/USD Before and After ECB

--- Written by Christopher Vecchio, Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.