Dollar's Fate Rests with NFPs due to Positioning, Seasonality
- USDJPY holding near weekly lows, below key Jan-Mar uptrend.
- See the April forex seasonality report.
The economic docket is fairly quiet today but for a small spat of 'medium' ranked data on the DailyFX Economic Calendar, with the weekly US jobs claims data sticking out at 12:30 GMT. Beyond those numbers, it figures to be a quieter data as liquidity comes offline ahead of the long holiday week (global markets are generally closed on Friday and Monday due to Easter), although traders will undoubtedly keep an eye on the calendar tomorrow when the March US labor market reading is due.
Ahead of the print, the US Dollar is recycling some of its gains from this week, in particular against the Canadian Dollar and the Euro, thanks to growth concerns spurred on by yesterday's releases of the March ADP Employment Change and March ISM Manufacturing Index reports. With economists still forecasting the headline NFP figure to come in around +250K, the US Dollar's fate at the start of Q2 is very much contingent upon an affirmation of the current pace of jobs gains - simply 'meeting' the expectation might be as good as 'beating' the expectation, considering how dour market sentiment is regarding the state of the US economy.
Without a strong showing by the March US labor market report tomorrow, it would be easy to convince market participants to shed their USD-holdings. Net-long positioning remains near an all-time high among speculators in the futures market, despite seeing a -10.7% reduction to 71.2K contracts for the week ended March 24, 2015. A weak report could easily send trades rushing for the exits in a crowded trade, exacerbating a weak seasonal bias: April has produced the weakest performance in USD-pairs during the QE era (see link to report below).
See the above video for technical considerations in EURUSD, USDCAD, and USDJPY.
--- Written by Christopher Vecchio, Currency Strategist
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