Calls to buy USD all over; time to be sellers? (Barcelona) - The US Dollar continues to perform on a far superior fashion compared to the rest of its main competitors, as the market gets reassured about a possible QE tapering start September.

Strong NFP strengthens tapering case

As Kathy Lien, Co-Founder at BK Asset Management, explains, "while the unemployment rate held steady at 7.6%, stronger than expected job growth and upward revision to the May report gave everyone the confidence that the jobless rate will slowly decline and meet the central bank's lowered expectations."

Marc Chandler, Global Head of Currency Strategy at BBH, argues: "The latest economic data, including Friday's +195k jobs report, is strengthening the market's conviction that the Fed will begin tapering its long-term asset purchases later this year and raise the Fed funds target by the end of next year."

Big divergences in EU vs US rates

Another parallel development post Friday's NFP was the pronounced divergence in interest rates in the US versus the Eurozone, as Jens Nordvig, FX Strategist at Nomura, notes: "US rates were pushed higher, driven mainly by Friday's stronger than
expected NFP print and a general bearish bias in US fixed income. Meanwhile, European rates were pushed lower on the back of forward guidance by Mr. Draghi."

Time to be a contrarian player?

The market, amid these big divergences in policies between the ECB and the Fed, is now reaching a level of stasis such that is forcing some experienced market traders to turn slightly pessimistic on the Greenbacks for the next day or two, giving them amplified room it now has to catch overly long USD holder on the wrong foot. On Wednesday, when further hints from the FOMC minutes are obtained, might be a different story depending on the outcome.

On one hand, major banks continue to send USD buying recommendations on its research notes, as FXWW Founder Sean Lee notes: "I’ve just read weekend reports from a few of the major banks and they are all still solidly bullish on the USD. They report solid USD demand across all majors and emerging markets and they see no reason for this to change anytime soon."

On the other hand, when everyone turns so bullish in a currency, that is usually the time in which the most precaution should be exercised. One hedge fund insider working hand by hand with Sean Lee at FXWW, earlier reported that "most traders he’s spoken with this morning are positioned short USD as they believe that all other traders are overly long USD..."

EUR/USD technical levels

Strategist such as Chandler from BBH suggest that even if that correction lower in the USD occurs, which from a risk reward perspective would make sense, "the run towards $1.2850 and perhaps $1.2900 in EUR/USD may offer fresh selling opportunities." Chandler sees next target at $1.2680-$1.2750 area

Meanwhile, Chris Capre, Founder at 2ndSkies, notes that "buyers will have to watch 1.2750 for price action signals, while bears will need to wait for a pullback to avoid selling into 1.2790/50 support levels."