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US Dollar Rebounds to Trend Resistance Ahead of NFPs

US Dollar Rebounds to Trend Resistance Ahead of NFPs

2016-05-05 11:37:00
Christopher Vecchio, CFA, Senior Strategist
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Talking Points:

- Risk sentiment hanging on by a thread - a lot hinges on NFPs.

- USD/JPY not a legitimate bullish look until ¥107.65 is cleared.

- Higher volatility in FX markets should have implications for your trading strategies.

The USDOLLAR Index has has a nice little rebound this week, but it's far too soon to say that this is "the low." There is some growing technical evidence to support this view - key reversals in AUD/USD, GBP/USD, NZD/USD, and USD/CAD, to wit - but there's a storm brewing on the horizon: the April US Nonfarm Payrolls report.

With no Fed meeting in May and anxiety starting to creep in about a rate hike in June, there doesn't seem to be much middle ground for another 'Goldilocks' print here. Given the disappointing performance of Q1'16 GDP data and in turn, the softness in early-Q2'16 projections (the Atlanta Fed's GDPNow forecast declined to +1.7% from +1.8% yesterday), market participants are desperately hoping that the US labor market is in strong enough shape to give hope for stronger growth in the second half of this year ('wait 'til the second half' - feels more déjà vu from 2013, 2014, and 2015).

So, while the technicals have been shaping up fairly nicely the past few days, you can't ignore the disruptive possibility that the April US labor market report brings - especially after the disappointing ADP private jobs figures yesterday. Curiously, banks' estimates have been skewed higher, ranging as high as +250K. This disparity between underlying expectations (which show a high degree of variance) and what data indicators are suggesting provides the fuel for a significant market reaction tomorrow.

See the above video for technical considerations in EUR/USD, USD/JPY, Gold, Silver, Crude Oil, the US S&P500, and the USDOLLAR Index.

Read more: May Seasonality Sees Best Month of Year for USD After April’s Showers

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.

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher's e-mail distribution list, please fill out this form

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