Traders look to the NFP report to get some support for the weakened Dollar

Volatility in the global markets remains elevated as this is not the start that investors expected for 2016 and many of them have been caught off guard and are trying to readjust their portfolios while returning from their holidays. The situation in China highlighted the global slowdown issue once again and after the Fed minutes revealed that US policymakers have their concerns about their own domestic economy the sentiment in the markets is quite complicated.

Traders turned to Dollar’s safety initially but after the Fed minutes’ release the sentiment for the US currency took an important hit and now everything hinges on the release of the Non-Farm Payrolls figures to dictate the medium term outlook for the Dollar. Given the way the Dollar has been trading in recent sessions and investors’ reaction to the concerns voiced in the Fed minutes it would take an impressive NFP figure to reset markets’ expectations for a strong start for the Dollar.

Unfortunately for the buck analysts are predicting a good growth for the domestic labor market in the US but nothing that could convince investors that the Fed will go on with an aggressive schedule of further rate hikes in the first quarter of 2016. Apart from the number of people added in the workforce however we also need to pay attention to the rate of wage growth as it is an equally important metric and a possibly higher number could offset any concerns about the low inflation in the US and allow the Dollar to regain some of its strength.

During yesterday’s session the Euro was one of the most resilient currencies as it rose above the 1.0900 figure. The Single currency has been receiving inflows of capital as investors that have been getting out of their stock positions in the global stock markets have been using the cheap Euro as their main funding currency. Overnight however the Euro returned to the 1.0850 area and it now depends on the way the NFP report will print to dictate further price action with the 1.0770 and 1.0700 being the targets lower if the Dollar picks up more momentum.

The Cable on the other hand printed fresh lows at 1.4540 yesterday but the rest of the day was positive for the Pound that climbed back above the 1.4600 area. It seems natural for the UK currency to recover at some point after a number of days in the red and now its outlook is depending on the NFP release and Dollar’s performance. Further pressure would send the Cable to retest its 1.4530 lows while any rallies higher should be approached with skepticism after the recent PMI reports that showed slower growth in the UK domestic economy.