Dollar expects payroll report

Currency traders are bracing for the release of the US nonfarm payroll figures, due GMT 12.30 or Cyprus time 3.30pm for clues in the next direction of interest rates, and in turn currencies.

The dollar was well bid following upbeat data on Thursday. As BNP Paribas noted in a report to clients, following the ISM manufacturing survey and surge in factory orders, yesterday’s surprisingly strong ISM non-manufacturing survey (which posted a 56 reading vs. 52.4 in March) helped the USD further. In fact, the 10s2s curve saw further flattening, currently back in inverted territory.

The focus today will be on the US payrolls release as the market looks towards this for direction. However, BNP Paribas noted several positive EUR factors. “First, there has been yet no news from the IG Metall discussions and the failure to come to a decision yesterday signals that the unions are probably lobbying hard for an increase in wages. An announcement is likely sometime this morning and with the chances of a higher wage deal, ECB officials will remain hawkish.

Second, Le Figaro claims that Sarkozy faces 54% support, ahead of his rival Royal. A Sarkozy win will be add to EUR positive sentiment given his policies on labour market flexibility and more market oriented reforms,” said the BNP Paribas report.

Market analysts expect the non-farm payroll numbers at 100.000 from 180.000 a month earlier. If the numbers come in better than 100.000, then this is likely to lead to speculation that the Fed will delay a rate cut, which would be dollar positive.

The Financial Mirror charts indicate that in the event of a break below $1.3530, the dollar is likely to rally to 1.3435, then head to next support at 1.3335 with the eventual target being 1.3125. On the other hand, if the 40-45.000 NPL expectation of BNP Paribas is met, then the dollar is seen coming under renewed selling pressure, with the euro testing its recent all-time highs of 1.3680.