US Dollar Looks to Jobs Report to Set Near-Term Trading Patterns

Talking Points

• US Dollar Eyeing Jobs Report to Establish Near-Term Trading Patterns
• Euro May Look Past Possible Downward Revision on Composite PMI Print
• NZ Dollar Outperformed in Asia on Correction After Yesterday’s Selloff
• Aussie Dollar Yields Muted Reaction to RBA Monthly Policy Statement

Major currencies consolidated overnight as traders braced for the release of closely-watched US Employment figures. Expectations call for the nonfarm payrolls to rise 160,000 in April after rising 120,000 in the previous month. In establishing the outcome’s implications for the US Dollar (ticker: USDollar) and its top counterparts, a variety of scenarios presents itself.

A stronger-than-expected US jobs result can be interpreted as broadly supportive for risk appetite and drive the greenback lower on waning safe haven demand. Alternatively, such an outcome can be viewed as supportive for the benchmark currency in that it would reduce the probability of a Federal Reserve QE3 program and ease dilution fears. Similarly, a disappointing print can be rationalized from both perspectives as well, driving USD higher amid risk aversion or sinking it as stimulus hopes are reinforced. With this in mind, the release presents an opportunity to gauge the context within which to interpret US data going forward rather than a discrete trading opportunity in its own right.

On the European data front, the final round of April’s revised Eurozone PMIfiguresheadlines the calendar. A downward revision on the composite reading seems likely after the manufacturing component fell short of expectations earlier in the week, but the outcome’s ability to drive Euro weakness appears limited in that the markets have been amply primed for such an outcome and may not see scope for further selling head of major US event risk, particularly after the ECB opted for a neutral posture at yesterday’s policy meeting.

The New Zealand Dollar narrowly outperformed as prices corrected after the largest daily drop in over six months recorded yesterday in the wake of a jump in the first-quarter unemployment rate. We noted yesterday the move was unlikely to prove lasting considering the increase was matched with a rise in the participation rate rather than a clear deterioration in the labor market. The Australian Dollar found a bit of support in the RBA Monthly Policy Statement but the outcome was not enough to push prices outside of the session range. The central bank lowered its outlook for growth and inflation in 2012 and 2013 but offered to clear guidance on further rate cuts after the unexpected 50bps reduction earlier this week.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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