Forex Today: Dollar trimmed some gains amidst pre-NFP prudence

The greenback appears to have taken a break following the strong start of the new trading year on Thursday. In the upcoming Asian trading hours, investors are expected to remain vigilant on the final Services PMI in Japan as well as the Consumer Confidence gauge. There are no scheduled data releases Down Under at the end of the week, while cautiousness is predicted to dominate the early session ahead of the publication of US Nonfarm Payrolls for the month of December.

Here is what you need to know on Friday, January 5:

The US Dollar Index (DXY) traded in an inconclusive fashion, ending the session around 102.40 after an earlier pullback to the vicinity of the 102.00 zone. Investors’ cautiousness ahead of the critical NFP figures seems to have bolstered the dollar’s price action against the backdrop of mixed risk appetite trends.

US stocks regained composure and set aside Wednesday’s pullback, revisiting the 37700 zone when tracked by the Dow Jones on Thursday. Positive ADP readings bolstered the optimism ahead of December Payrolls due on Friday.

Some support for the greenback also came after market participants continued to digest the somewhat hawkish tilt of the FOMC Minutes releases late on Wednesday, while a firmer-than-expected ADP report (+164K) also added to the buoyant tone in the currency. Further data releases saw weekly Initial Claims rise by 202K in the week to December 30.

EUR/USD regained the smile and partially reversed the recent pronounced decline, advancing to the 1.0970 zone, where some initial resistance appears to have emerged. There was no reaction in the European currency after German flash inflation figures saw the CPI rise 3.7% in the year to December.

GBP/USD initially climbed to two-day highs past 1.2700 the figure on the back of a positive final Services PMI in the last month of 2023, although the move lacked follow-through, and spot eventually receded to the 1.2660 zone.

The selling pressure in the Japanese yen remained unabated for the third consecutive session, this time lifting USD/JPY to the proximity of the 145.00 hurdle on the back of the improvement in risk-linked assets and further gains in US yields across the curve.

AUD/USD dropped for the fifth straight session despite the absence of direction in the greenback and positive readings from the Caixin Services PMI in China in December. The broad-based weakness in the commodity space also weighed on the Aussie dollar, despite an improvement in iron ore to levels last seen in May 2022 near $145 per tonne.

Still around commodity currencies, the Canadian dollar intensified its decline and favoured another test of the area of two-week highs in USD/CAD ahead of the publication of Canadian labour market report on Friday.

The continuation of the recovery in US yields and the directionless theme in the greenback did not prevent Gold from gathering some fresh steam and retest the $2040 region per troy ounce. Its cousin Silver also left behind part of its recent steep downward trend and reclaimed the $23.00 region per ounce after dropping to three-week lows.