Tomorrow’s NFP Could Be The Catalyst For A US Dollar Rebound.

US Non-Farm Payrolls.
US Non-Farm Payrolls.

The US Dollar as seen nothing but red so far in 2017, but tomorrow’s NFP numbers could provide some support to the struggling greenback.

Non-Farm Payrolls is arguably the most important of all the US economic indicators. While you may debate the relevance of certain figures, there’s no doubt that both traders and the Fed pay close attention to both the headline number and the wage growth. The Fed is desperately looking for data to support more rate rises, they want inflation and wage growth, which is why they watch the NFP so closely.

NFP and the US Dollar.

As predicted back on June 28 the Euro rallied, and has hit lofty levels beyond what I thought was possible in such a short timeframe. Recent price action, including the push to 1.19, has been on strong sentiment rather than purely data driven.

Friday’s NFP holds the key for the dollar in the short term, and has the power to shape interest rate expectations for the rest of the year. The doves view another rate hike as unlikely, but a strong wage number could change that.

There’s two scenario’s that I’ll be keep my eye on:

Scenario 1: A strong NFP headline and/or wage growth.

Considering the positioning in the USD at the moment, a strong NFP and/or wage number gives a nice asymmetry to a long USD position. With so many people short, an unwind or profit taking could take place, which could see the EUR/USD back down to significant support. It wasn’t that long ago that NFP would move the market 100-200 pips, this scenario could see that happening again.

Scenario 2: Average to soft NFP headline/wages.

I’d suspect that this would give the Euro bulls even more of a reason to stay long or add to their position, and we could see a test of 1.20. The more interesting scenario, however, would be for a weak number to be followed by a selloff in EUR/USD…this is unlikely but would show that the current rally is ready for a break.

I guess we will find out at 8.30am EST tomorrow! Happy trading.