Today’s US non-farm payrolls release is normally the seminal moment of the month for many traders. But 2020 has been like no other and the final report of the year may pass markets by as traders look to the FOMC meeting in a few weeks’ time. Positive news has hit the market from every angle recently with the likes of the vaccine rollout, a decent-sized US stimulus package and even the weekly US jobs numbers beating expectations.

So in some ways, the market may see today’s NFP number as good, whatever it is – a decent headline firms up recovery hopes while a disappointing figure may simply prompt the Fed into more easing. In both scenarios, equity markets look poised for more gains with momentum indicators not in overbought territory just yet. The potential caveat to this would be a blockbuster report which may see a spike in US 10-year bond yields towards and beyond the one percent mark.

What can support the Dollar in the near-term?

Of course, when the global economy does well, then the major casualty is the Dollar and the bear trend has really taken off over the last few sessions. The benign greenback decline is good for world growth as it exports low US rates round the globe enabling other countries to run looser monetary policy.

There is always the risk of a year-end squeeze in those holding short positions but there are few signs of any major tensions in USD funding markets that have often been the basis for a push higher in the buck into the turn of the year. Perhaps the assumption that President-elect Biden will be more friendly to China and other American adversaries will prove wrong. But as the world gets itself back on an even keel, the potential for stronger growth in the global economy is hitting Dollar bulls hard.

Brexit tunnel signs

The back and forth in Brexit headlines is tough to take in and even tougher to trade. Reports suggest a deal hangs in the balance and it is perhaps noticeable that more watchers are getting increasingly nervous. Does that mean we are at the worst point in negotiations and in fact a deal will be struck? There is the potential for gap risk over the weekend and into the Asian session on Monday morning with PM Johnson and President Macron meeting over the weekend. The EU Summit next Thursday has been seen as the critical date for any deal to be given the green light by EU leaders, so watch the headlines intently!

 

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