Dollar holds steadier but all eyes will be on the US jobs report tomorrow

The dollar is keeping steadier so far today but it feels mostly like a bit of a breather after having been beaten down again since last week. EUR/USD is down 0.2% to around 1.1777 but the drop today is the first after nine straight days of gains. In any case, large option expiries at 1.1775 and 1.1800 are also still in play for the day ahead.

Adding to that is near-term support from the 100-hour moving average (red line), seen at 1.1745 currently.

Elsewhere, USD/JPY is up 0.3% to 143.80 and GBP/USD down 0.3% to 1.3700 on the day. Meanwhile, we also have USD/CHF up 0.1% to 0.7920 and AUD/USD down 0.3% to 0.6563 currently. The moves are minor at best when you consider what the dollar has been through over the past week.

As a whole, the dollar is pretty much wallowing at the lows as the dollar index itself is hovering at its lowest levels since March 2022 currently. Pain.

All eyes are now on US labour market data in the coming two days. We’ll get a first taste of things from the ADP employment report later but that’s more of a roulette these days than an accurate indicator of what we typically see from the non-farm payrolls.

As such, the jobs report tomorrow will be the make or break for the dollar as we look towards the latter stages this week. With Trump already pressuring the Fed and some policymakers indicating a potential vote for change, a poor report tomorrow could spark a more heated discussion on rate cuts sooner rather than later.

And if so, the dollar might find itself continued to be stuck in the mud.

As much as I would like to think that the risks going into the data tomorrow would be more balanced, I’d argue that it is more asymmetric at this stage.

Even on a strong report, it might not really change the Fed outlook all too much in the bigger picture. The emphasis here being on the timing focus i.e. the bigger picture. The market is pricing in the next rate cut for September and there’s ~63 bps of rate cuts priced in by year-end.

I think another modest report here might help the dollar find some relief via a short squeeze but that’s about it. Once that positioning play runs its course, and it might just be a quick one, we’ll likely be back to resigning to the fact that the Fed might still be able to cut twice this year as long as inflation data plays ball.

That will make the next US CPI report on 15 July a very, very big one to watch out for – more so than the jobs data tomorrow if we avoid a bad data slip up that is.