The dollar is seeing some demand growth today as investors anticipate the upcoming Non-Farm Employment data. The DXY and USD pairs are on track to end the day in the green for the first time in four trading sessions. Here are some things you can do to prepare for this along with trade setups to take now in the wake of NFP.
Based on the mixed forecasts between ADP and and Friday's release projections, employment is predicted to be somewhere between 295-325K new jobs added. Either way, analysts expect that jobs added will land somewhere less than last month's actual. This could push for a less aggressive stance by the Fed, although they were very clear about multiple 50 bp hikes in this year alone.
However, the Fed has been open to change their minds every now and then. Powell originally talked about raising rates by 25 basis points before inflation got worse than they expected. So, the Fed might just be taking extreme measures to cap inflation until circumstances call for another approach. In this case, less jobs added this month might prompt them to loosen up on policy.
Throughout the week, we might see a stronger dollar in anticipation of NFP and unemployment rate. This is because the Fed's stance is currently on track to hit over 4% interest by the end of this year. And if policy stays the course, we could see a much stronger USD going forward. Investors might be pricing that in right now, so long setups might be opportunistic up until NFP.
There is already some bullish momentum on the UJ pair after price broke out of a wedge/flag pattern on the 1D timeframe. If price holds above the falling trend line, a move higher to 131.200s would seem likely. Additional support lies below in the 123.8-125 zone.
USDCHF nears support at the 61% fib level and has support under that at 0.94619. The pair saw a huge sell off in the last couple weeks while risk-on pairs got to rebound. Price still has a little ways to go before it hits support, so it might continue to fall until that level is hit.
The downtrend on this pair has continued regardless of the tight monetary policy on the USD versus the shaky value of the Mexican peso. If NFP beats, investors might start clinging to the USD which would drive price up to resistance and the falling trend line around 20.1000s. However, if NFP misses, policy makers might be pressured to weaken their stance and cause risk on sentiment in the market. If that is the case, UM could sink lower and keep the downtrend going while paying high swaps.
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