Talking Points:

- Rising US Treasury yields have been the key source of support for the US Dollar in recent weeks, and their recent pullback threatens to undermine the buck.

- The incoming September US ADP Employment Change and ISM Services reports will directly shape traders' expectations for Friday's US NFP report.

- Retail trader sentiment continues to shift in a way that suggest USD-pairs may still turn higher.

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The first few days of the week have been rather quiet, thanks to holidays in Asia and an otherwise quiet economic docket out of Europe and North America. Even the Reserve Bank of Australia rate decision on Tuesday went off without much fanfare.

Yet as we hit the halfway point of the week, volatility is poised to pick back up with a slew of key data releases ahead of Friday's US Nonfarm Payrolls report for September. Given the scope of the ISM Non-Manufacturing/Services and ADP Employment Change reports, we'll have a fairly good idea which way Friday's US jobs data is leaning towards.

While rate hike expectations have remained elevated in the wake of the Federal Reserve's September 20 policy meeting, it's worth noting that the US Dollar is in a vulnerable position ahead of Friday's jobs data: the figures are expected to be worse than recent trends would suggest.

With US Treasury yields pulling back, a round of soft data between the September US ADP Employment Change report and the September US ISM Non-Manufacturing/Services composite will lead traders to believe that the headline NFP figure is going to be worse than anticipated. In turn, US yields could pullback further, undermining what has been the key source of support for the US Dollar over the past five weeks.

See the above video for a webinar archive of today's Mid-Week Trading Q&A, in which we reviewed technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, GBP/JPY, GBP/CHF, Gold, and US yields.

Read more: US Dollar Breakout Potential Persists Before Calendar Heats Up

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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