Immediate dollar direction will inevitably be determined by the payroll data. Forecasts are dangerous at best, but the net risk is for some disappointment on the headline figure, especially given market expectations of a firm figure. The dollar will continue to gain important support from a lack of confidence in the Euro-zone economy. Overall, there is therefore scope for dollar support on any dips to the 1.44 region following the payroll numbers with volatility inevitably a serious threat following the data. On a medium-term perspective, a EUR/USD move to the 1.39 region is realistic.
The US jobless claims data was slightly stronger than expected with a figure of 434,000 for the latest week from a revised 433,000 previously which will maintain optimism over a firmer labour market.
The latest non-farm payroll data will be watched closely on Friday and the dollar will tend to react positively to a stronger than expected figure as it would gain increased support on yield grounds and also increase pressure for the Federal Reserve to hike interest rates.
Expectations of a positive employment number have gradually increased during the week and this shift in expectations will increase the risk of a disappointing headline figure. Although a firm figure is certainly possible, the overall risk looks to be for a weaker than expected figure while unemployment is also liable to rise. Revisions to the data will need to be watched closely and data on workweek will also be important for underlying confidence in the economy.
Any Fed comments will also be watched closely after regional Fed President Hoenig called for an early increase in interest rates.