The dollar remains a touch higher against most G10 and major EM currencies ahead of today’s US employment data. Economists at TD Securities think a much larger upside surprise is needed for the USD to sustain further gains and see a potential acceleration to the upside.
A round of USD selling pressure to emerge on NFP disappointment
“We think today's reading could be a very important one for FX market direction over the next several weeks – particularly on an outlier.”
“TD is above the consensus on headline NFP, but we think FX markets would take this in stride as small upside risks already look priced. After a solid run higher, we think the USD would need a particularly strong reading to see sustained upside from current levels.”
“A weaker report would naturally see some correction of recent gains, but we think investors may be more forgiving of a disappointment.”
“Our base case suggests the USD is likely to revert to consolidation mode against most G10 peers – at least once any knee-jerk reaction is out of the way. Monday’s US holiday only reinforces these expectations, as trading activity may dissipate quickly once the data is digested.”
“All else equal, we would expect the USD to remain confined to familiar ranges against its main G10 counterparts as the summer doldrums settle in ahead of the July FOMC meeting.”
