As early Friday European trade progresses, the Dollar is edging higher as investors load up on buying positions before the latest U.S. Non-Farm Payroll report this afternoon.
Optimism that the headline reading of the employment report will surpass expectations is likely helping to strengthen the Dollar, but we need to see indications that price pressures (inflation) are improving before the market will start to price in a faster U.S. interest rate cycle than currently expected. With the FOMC Minutes release scheduled for next week, and the latest Federal Reserve meeting concluding that there will be three interest rate rises in 2018, there is a risk of investors taking profit on the Dollar after the employment report is announced.
The EURUSD has declined from 1.23 and has threatened to drop below 1.22 over the past two trading days. We have seen a trend over recent weeks of traders buying the EURUSD as the pair looks at risk to falling to the lower 1.20’s, meaning that it is possible investors are preparing to “buy the dips” in the Euro. At time of writing, the net change in the USDJPY and GBPUSD on Friday is 0.01% and 0.02%, respectively.
The GBPUSD remains marginally above the 1.40 pivot level, which traders are still likely using before deciding which direction to take the Pound. The major downside risk for the Pound would be if it managed to conclude trading today below the 1.40 level, which would put the GBPUSD at risk of selling pressure.
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