Dollar Shifts To Neutral Until NFP

• Street looks to NFP for support

• Weak EUR positions beginning to panic

• Private Payrolls not necessarily a good measure for NFP

• Holidays has liquidity trading at a premium

The pace of the greenback’s rally has been the fastest in over 40-years. For some investors the danger is that the dollar’s move has been too rapid and could be overdone in the short-term. In 11-months, the USD has appreciated +28% versus the EUR. The one directional trade – short EUR positions, has certainly dominated.

For the first time in awhile dollar trading has been contained to relatively tight ranges across G10 currency pairs. The world’s reserve currency of choice is looking to tomorrows Non-Farm Payroll report to provide the spark to allow the ‘buck’ to kick on and test new boundaries from here.

Weak EUR shorts panic

The USD is trading softer (€1.0833) as we head to the U.S open, with a few nervous investors preferring to wade to the sidelines ahead of tomorrow’s U.S jobs report. Trading seems to be dominated by pre-holiday book squaring and not necessarily fresh positioning.

Yesterday’s sub-200k reading of the ADP report, coupled with the depressed ISM employment component, has prompted some concerns that a disappointing payroll report could be a negative surprise to investors and lead to a much deeper USD sell-off. Softer U.S data of late, due to colder weather, could possibly have taken a modest bite out of NFP. The recent signs of weakness in the U.S economy have prompted some investors to push back their bets for the first interest rate hike in the U.S.

The Street consensus is looking at a headline gain of +242k vs. +294k with the unemployment rate to remain stable at +5.5%. The six-month average job increase has lingered just shy of +300k each month, certainly a headline gain that’s not sustainable. A modest surprise should always be expected, but a disappointing report (close to +200k), especially around a holiday weekend, could make things rather messy for both dealers and investors. Good Friday market liquidity will be an issue, especially with a soft report.

Expect liquidity to be an issue

The European session opened with a swift EUR/USD rally triggering stops losses above the psychological €1.0800. Excluding yesterday’s softer U.S data, some of the EUR’s rise has to be put down to the negative comments from one ECB member (Lautenschlaeger) who has been questioning and casting doubts on the effectiveness of the ECB’s own QE program.

Never helping the dollar is the further tightening of US/Bund yield spreads, especially 2-years dipping to their lowest point since the March FOMC meet. Falling U.S yields will always be putting the dollar under pressure. Currently, 10’s are trading near their 2-month low (+1.90%), and U.S 5’s have broken below their recent range lows.

With liquidity trading at a premium expect most investors to try to stay out of trouble, especially as Europe shuts up shop ahead of the Easter holidays. Some EUR price moves will be inexplicable, but until the single unit breaks through the €1.0730-€1.0930 range the market trend remains your friend.