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The resilience of the US economy in the face of tariff threats is also impacting the FX market. Since the previous NFP report the dollar has surged. The dollar index looks like it has put in a low above 96.50, and at the time of writing DXY was testing its 50-day sma at 98.30, after a broad weakening in the euro at the start of this week. Once the dollar clears this hurdle, it suggests that short term upside momentum is building, which could lead to further gains.
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Create account Try a demo Download mobile app Download mobile appWe think that another positive reading for payrolls, around the 150K level, could trigger more dollar strength. The weakness in the euro this week means that the focus will be on EUR/USD during this payrolls report. In the one hour after the May and June payrolls readings, the euro weakened by 0.3% and 0.2% respectively, thus, another upside payrolls surprise could weigh further on the euro. Likewise, USD/JPY has a historically close relationship with the payrolls report. Similar to EUR/USD, the JPY has weakened after the last two payrolls readings were released. USD/JPY strengthened by 0.4% and 0.66% in May and June, respectively.
Since the yen and the euro are key FX trading pairs for the USD, if these two currencies weaken vs. the USD on the back of this Friday’s payrolls report, then we could see broad based dollar strength as we move into August.
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