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Talking Points:

- Euro and Yen likely to move in same direction around NFPs.

- Retail crowd continues to fade recent US Dollar selloff.

- As market volatility rises, it's a good time to review risk management principles.

The key question today surrounding the March US Nonfarm Payrolls report: is US labor market strength strong enough to boost Fed rate hike optimism? Current expectations for today's data are modest, with the Unemployment Rate expected to hold at 4.9%, and the headline jobs figure to come in at +205K.

Another modest print may prove to be better for risk assets (higher yielding currencies, equities, and corporate debt) than the US Dollar: signs that the US economy is still chugging along (albeit at a slower pace than desired - at least its not tilting into a recession quicker) means the Fed will be more patient, keeping the low rate happy hour going for just a bit longer.

After Fed Chair Janet Yellen's speech on Wednesday, it seems that markets are intoxicated with the notion that the Fed will keep rates on hold for much of 2016: there is only one rate hike being priced in, due in December (table 1 below).

Table 1: Fed Funds Futures Contract Implied Probabilities: April 1, 2016

Fed funds futures contract implied rate hike probabilities

A strong NFP print can help bring forward rate expectations, which should help the USDOLLAR Index establish more concrete support above the September 2015, October 2015, and March 2016 swing lows. A weaker or middling report will do little to convince markets that a hike is coming this month (or even in June). The US Dollar needs more than another 'goldilocks' report.

See the above video for a technical review of the USDOLLAR Index, EUR/USD, GBP/USD, AUD/USD, USD/JPY, USD/CAD, and NZD/USD. If you haven't yet, read the Q2'16 Euro Forecast, "EUR/USD Stuck in No-Man’s Land Headed into Q2’16; Don’t Discount ’Brexit’," as well as the rest of all of DailyFX's Q2'16 quarterly forecasts.

Read more: As Q1’16 Draws to a Close, Risks Remain Ahead for EUR, USD

--- Written by Christopher Vecchio, Currency Strategist

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