2013-07-03 03:10 GMT

U.S. Dollar Faces its First Test

With 2 more days to go before the pivotal U.S. non-farm payrolls report, the dollar extended its gains against all of the major currencies. Milestones were reached in some pairs while others broke key levels. The sustainability of the dollar's rally has been nothing short of impressive but it should not surprise investors since the strongest moves in the FX market are the ones supported by fundamental drivers. In this case the Federal Reserve is getting ready to reduce the amount of stimulus that it provides to the economy and investors are just looking for economic data to confirm that the economy is ready for tapering. The dollar faces its first test today with a number of U.S. economic reports on the calendar that will help shape expectations for Friday's release. The day starts off with a layoff report from Challenger Grey & Christmas that will be followed by the ADP Employment Change, jobless claims and most importantly, the ISM non-manufacturing index. Earlier this week we learned that the manufacturing sector lost jobs for the first time since 2009 and now the question is whether the service sector suffered the same fate. We don't think that it did because otherwise the Fed would not have lowered its unemployment rate forecasts but there's always the risk the data could surprise to the downside. Layoffs are expected to decline and most likely ADP will report an increase in U.S. payrolls.

For the U.S. dollar to hold onto its gains, all that is needed is for these releases to meet expectations but in order for USD/JPY to break 101 and the EUR/USD to drop through 1.2950, an improvement needs to be seen in both the headline ISM non-manufacturing index and the employment component of that report. If service sector activity slows or worse, employment conditions contract, the dollar could give up its gains quickly as investors reset their expectations and reduce long dollar positions ahead of the non-farm payrolls report. Last month, the employment component of this report dropped from 52 to 50.1, a hair above the 50 line dividing expansion from contraction. Therefore a decline in this index would most likely mean job losses in the month of June, which would not be good for the dollar. Considering that many U.S. investors and traders will be taking a long weekend beginning noon time tomorrow, if the data misses expectations, we could see a heavy reversal of dollar long positions as investors square up for the July 4th holiday. -FXstreet.com

2013-07-03 08:28 GMT

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2013-07-03 12:15 GMT

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2013-07-03 12:30 GMT

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2013-07-03 14:00 GMT

USA. ISM Non-Manufacturing PMI (Jun)

2013-07-03 04:42 GMT

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2013-07-03 03:20 GMT

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