Dollar May Fall if Soft US Jobs Data Bolsters Fed QE Outlook

The US Dollar is likely to fall if disappointing US employment data implies continuity of aggressive Federal Reserve stimulus efforts.

Talking Points

US Dollar to Fall on Fed QE Bets on Disappointing Jobs Report
Japanese Yen Rebounds, Euro Corrects Lower in Overnight Trade

The economic calendar in relatively quiet in European trading hours and currency markets are likely to remain quiet as traders wait for US Employment data to cross the wires. Expectations call for the Nonfarm Payrolls gauge to show the economy added 190,000 jobs in March, marking a slight slowdown from the 236,000 increase recorded in February but still returning an outcome above the 12-month trend average (164K). The Unemployment Rate is expected to remain unchanged at 7.7 percent.

Worryingly, the possibility of a downside surprise seems significant. A Citigroup index tracking the performance of US economic data relative to expectations has snapped an uptrend in place since early February, suggesting news-flow may be taking on a dour tone once again. Disappointing results from key March US economic data earlier in the week reinforce the case for a soft outcome. Such a scenario is likely to weigh on the US Dollar as traders interpret weakness to imply continuity of aggressive Federal Reserve stimulus efforts, with currencies attached to central banks withholding accommodation positioned to outperform. With that in mind, we remain long AUDUSD and have also entered long EURUSD.

Most major currencies were little-changed against the greenbackin overnight trade. The Japanese Yen corrected higher, adding as much as 0.5 percent against its top counterparts, as markets corrected after yesterday’s aggressive selloff in the wake of the Bank of Japan monetary policy announcement. The Euro was likewise in digestion mode, edging lower after posting the largest daily advance in nine weeks yesterday.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

5:00

JPY

Coincident Index (FEB P)

92.1

91.9

91.6

5:00

JPY

Leading Index (FEB P)

97.5

97.3

95.0

5:00

JPY

Bank of Japan Monthly Economic Report (APR)

–

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT