FX Trading - The surprise is on the downside ... this time.

- Moment of Truth for Productivity Boom (Wall Street Journal)

- The European Central Bank will be under pressure on Thursday to show it can stop the Greek debt crisis from engulfing other euro zone member states, with investors keen for signs it has further ammunition up its sleeve. (Reuters)

- China will be doing well if it can keep inflation below 5 percent this year, influential former lawmaker Cheng Siwei said, one of the starkest warnings yet about price pressures facing the economy. (Reuters)

Quotable

Man's life is a continuous whole: for good or evil, every day, year and decade of his life holds the sum of all the days behind him. He can alter his choices, he is free to change the direction of his course, he is even free, in many cases, to atone for the consequences of his past - but he is not free to escape them, nor to live his life with impunity on the range of the moment, like an animal, a playboy or a thug. If he is to succeed at the task of survival, if his actions are not to be aimed at his own destruction, man has to choose his course, his goals, his values in the context and terms of his lifetime. No sensations, percepts, urges or 'instincts' can do it; only a mind can.

Ayn Rand

FX Trading - The surprise is on the downside ... this time.

A heck of a week for the buck so far, right?

Granted we still got a lot of time left before it sticks, but the weekly bar on a chart of the US Dollar Index looks rather impressive:

An obvious reason is going to be Greece and Eurozone difficulties driving the euro lower and both directly and indirectly helping to drive the dollar higher. You can flick on any TV or radio show and find out the Eurozone is the reason for pretty much anything the markets do these days.

One guy I heard on the radio, to talk more about stock markets primarily, decided to touch on the euro in his commentary. As expected, his comments were very general and fit right in with what the whole world is saying; but he threw in one thing at the end that he feels puts him in elite company ... D ... when it comes down to it every currency is just as fake as the euro.

I took it to mean a couple things.

1) He wants to join the crowd that trashes fiat currency, take on the role of moral-financial beacon and plug gold and silver as the only real currencies, which he did squeeze in.

2) He's putting a disclaimer on his call that the euro is in trouble, so he can backtrack if he turns out to have timed his currency call totally wrong.

3) He has no clue what he's talking about.

Basically, I wouldn't be surprised if all my observations are true. Assuming they are, does this guy's analysis have any merit?

Fiat currency is not going away anytime soon. Regardless of the minority or majority view here, this is pretty much a non-story right now and not a reason to buy gold or silver. Is it a reason to sell gold and silver? If it is you're only reason to buy gold and silver, then yes. Currencies remain a relative game, and there will be money to be made when the euro crashes ... or rises from the ashes.

If the radio analyst followed his own advice and got short the euro when I heard his comments, then he nailed it - the euro has gotten smoked this week. But hopefully his belief that 'fiat is crap' isn't keeping him from diving in to this currency move.

What I'm getting at is that it's not 100% Greece that's driving certain currencies and holding back others. The fundamental backdrop for currencies like the Australian dollar, for example, has been a good basis for taking a position there.

And there may be fundamental reasoning behind the US dollar's strength as well.

People argue, some with very logical reasoning, others not so much, that the US dollar will ultimately be sucked down by large US deficits and debt. That's a story that certainly hasn't disappeared, even though it has very much been put on the backburner with the circus that's going on in Europe stealing everyone's attention.

But there are some things that are moving favorably in the buck's direction ... which could go a long way in helping ease the pressure, or at least ease the need, for the US government to spend into prosperity.

JOBS

Nonfarm Payrolls Bottoming Out?

Nonfarm Payrolls Month-Over-Month Moving into Growth Territory

Unemployment Rate Topping Out?

The trio of charts above hopefully indicates the worst of the US employment situation is behind us. If we get consistent improvement from this point, it will likely be taken as a sign that the economy is functioning again, that money is getting to business that need to hire, that the worker is back in a place where he can participate in the economy.

The April ADP employment report released yesterday indicates the private sector added jobs for the third month in a row. That, plus the March revision from positive to negative, beat forecasts.

Two other job trackers released figures that also appear optimistic for US jobs.

The Nonfarm Payrolls report to be released tomorrow is expected to beat last months gain, notching nearly 190,000 new jobs; the unemployment rate is expected to stay at 9.7%.

HOW TO PLAY IT

Optimism in jobs and other aspects of the US recovery have added to the FX market-driven gains the dollar has realized over the past couple months. And we suspect the trend will remain intact.

But, in a sort of all-currencies-are-fake, cover-my-butt sort of move, I'm going to tell you that there's potential for a surprise move to the downside on Friday even if the Nonfarm Payrolls report is decent. The dollar's made quite a move already this week - it may be getting tired (or at least due for a rest):

A number that falls drastically short of the 187,000 expected payrolls increase would almost certainly hit the buck at these levels. This type of surprise takes the dollar lower tomorrow. Though a much, much better than expected number might be the only thing to drive it still higher on Friday.

As is typically the case, if you're looking for some short-term gains you've got a couple ways to tackle tomorrow's report. If you're looking to capture the longer-term move, just figure tomorrow probably won't do any lasting damage to the dollar's current uptrend.

John Ross Crooks III www.blackswantrading.com