Nonfarm Preview - Can the Greenback keep up the pace?

This week has all been about the US - and there is no finer way to end the week with Nonfarm payroll data.

The Greenback currently sits at 6-month highs following 3 solid weeks of gains. Despite several key releases and geo-political risks making themselves present the FX markets remained relatively subdued as they await today's employment figures from the US. When you consider that Chicago PMI came in at a 12-month low and completely missed expectations, the USD did well to remain on to its current highs. But then we have seen good figures this week with GDP at 4% and Core PCE (personal consumption expenditure) at 2%, its highest since June 2012.

We have seen some slightly soft employment data but the GDP and PCE carries much more weight for the US in regards to potential inflationary pressures.

Technically the USD does appear ready for a pullback, however it would take a particuarly bad set of data tonight form the US to knock it from its perch following the positive GDP data.

With the majority of data continuing to support USD, I suspect if we do see poor employment data tonight then there could be more pips on the table to trade, as traders offload their long positions. However I do not see this being a lasting event as NFP tonight is not likely to be a game changer.

Technically it is not impossible to imagine the USD being due a pullback. Looking to close for the 3rd consecutive week higher but hesitating around key resistance (81.50 on USD Index), a retracement would be welcomed by USD bulls as this could provide better prices to enter long again over the coming weeks.

For a more directional USD bearish move:

- Nonfarm payroll <170k

- Unemployment >6.2%

- Participation rate <63

For a more directional USD bullish move

- Nonfarm payroll >290k

- Unemployment <6.1

- Participation rate >63.5

CURRENCIES TO CONSIDER:

USDJPY: A 'go to' currency pair for NFP due to the trading relationships between the 2 countries and employment. If we do see data which provides a clear bullish/bearish bias for USD then we tend to see more 'cleaner' directional moves on USDJPY over other FX pairs.

USDCAD: The reason I am considering longs here is how price reacted last night in the face of soft US data and strong GDP (it hardly moved from its highs). Therefore I suspect there is more room for the upside if we see good data tonight for the USD. In saying that any of the USD pairs would make suitable shorts if we see particularly poor data as they all exhibit clues to being over-extended.

AUDUSD: Not usually a 'go to' pair but we do sit on imprtant levels here which may provide tradable oportunities. Today's high has already been capped by 0.932 resistance and currently back below the crucial 0.93 support. Strong US employment figures could put an extra nail in the A$ coffin, where a close below 93c this week could provide further sell signals next week to help it towards 92c. However if we see particuarly poor employment data (less likely) then this should help support A$ above 93c. At this stage I do not see A$ breaking 0.93685 resistance, and we would be luck to close above 94c this week.