EUR/USD: NFP to Decide on the Reversal - MUFG
According to analysts from The Bank of Tokyo-Mitsubishi UFJ, the
Non-Farm Payroll report on Friday will dictate whether recent US dollar
weakness continues to reverse.
Key Quotes:
“The
euro has attempted to break higher against the US dollar but has again
run into more resistance above the 1.1500-level. The weak US GDP report
for Q1 and the lack of a strong signal from the Fed that it plans to
resume rate hikes at their next meeting in June proved sufficient to
encourage the market to attempt to push the US dollar down again.”
“The
breaking of key technical support levels further encouraged US dollar
weakness. However, the US dollar has since rebounded supporting our view
that weakness was becoming excessive in the near-term and not fully
justified by fundamentals.”
“For the US dollar rebound to be
sustained it will require building evidence that the US economy is
rebounding as well in Q2 which would encourage Fed rate hike
expectations. The main downside risk is the NFP report which if it
reveals a material softening in labour market conditions could pull the
rug from under the US dollar’s rebound.”
“The best scenario for
the US dollar would be still solid employment growth and an upside
surprise in earnings growth to more than compensate for softer growth in
recent months. The balance of risks appears to be skewed towards some
softening of employment growth and higher earnings growth.”
