USD little changed versus core majors ahead of NFP - Scotiabank

Markets are not quite at a standstill but they are not far off. The US Dollar (USD) is mixed against its major currency peers but movement is minimal among the core majors, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

DXY price action has slipped into a short-term consolidation

"Pound Sterling (GBP) is a minor outperformer, gilts more so, as yesterday's local volatility is quelled. Stocks are narrowly mixed and Treasurys are very modestly firmer. There will be a burst of activity around this morning's US data reports (jobs, trade, weekly claims, ISM, Factory Orders etc.) before things settle, at least in the short run, ahead of the July 4th US holiday. The outcome of the payrolls report may help set the tone for the USD beyond the next day or so, however."

"Solid data will further temper still very limited risk (about 20%, according to swaps pricing) of a July Fed rate cut. Weak data, on the other hand, will likely turn White House criticism of Fed policymaking up to 11 and pressure the USD further. Note yesterday's call from the head of the FHFA for Congress to investigate Chair Powell for 'malfeasance'. ADP data has been a poor guide for month-to-month NFP but it's not irrelevant. Trends in private sector hiring are not particularly dynamic, even in NFP data terms, and there are concerns that smaller businesses that are unable to absorb tariffs have been cutting back on hiring."

"Scotia forecasts a 160k gain in jobs, however (the high of the forecast range) against the economists' consensus call for a 110k rise and a tenth gain in the unemployment rate to 4.3%, a marginal new cycle high after holding at of below 4.2% over the past year. The market feels that risks are geared towards a modest downside miss for the NFP print, if the Bloomberg, whisper number (96k) is any guide. The broader dollar mood appears to be shifting a little after the six successive months of decline seen through H1. Some consolidation is possible but we do not anticipate any major recovery at this point. DXY price action has slipped into a short-term consolidation pattern but it is one (a bear flag) that hints at weakness resuming shortly. DXY resistance remains 97.50 and key support 96.50."