Short-term dollar direction will inevitably be determined by the US payroll report. A better than expected report would tend to support risk appetite and also maintain the risk of dollar selling while a weak report would tend to increase risk aversion. There will still be important risks surrounding the Euro-zone economy with structural fears liable to increase. Overall confidence in 2010 global prospects are also liable to fade which should stem dollar selling. Overall, there is likely to be substantial Euro selling pressure on any initial gains to above 1.4910.
The US economic data was slightly stronger than expected with jobless claims falling to 512,000 in the latest week from a revised 532,000 previously. There was a further strong gain in productivity for the third quarter and a sharp drop in unit labour costs as companies cut employment aggressively.
The Friday payroll data will inevitably have an important short-term currency impact and a better than expected figure would initially underpin risk appetite which would also tend to curb defensive dollar demand. There is at least a 50% chance that the unemployment rate will reach 10% and data on the average workweek will be very important to assess the underlying economic health. A further decline would increase fears over the 2010 outlook.
The longer-term impact may be measured with the data not having a major impact on interest rate expectations. The Euro again pushed towards 1.49 on Friday ahead of the US data.