Dollar dips ahead of NFP report

GBP/USD and EUR/USD have moved higher in the run up to the non-farm payrolls report at 1.30pm (London time).

Euro and US dollar notes
Source: Bloomberg

Sterling targets 50-DMA

GBP/USD has been trading sideways overnight as the surge in sterling has been stopped in it tracks by the 50-day moving average. The pound is at a crossroads with the dollar as the downward trend is still in pace, but a confident move through the 50-DMA will give the pound some much needed confidence.

The market will be subdued in the run up to the US jobs report, and the market consensus is for 230,000 jobs and unemployment to remain at 5.6%. Market volatility will be high immediately after the announcement, but when the dust settles the participation rate and revision to previous months will provide a clearer picture of the US jobs market.

The pound has made a good recovery against the dollar, but the jobs report will be the acid test. The 50-DMA at $1.5323 is acting as an anchor, and if the metric is cleared it will become a crucial support level for the new target of $1.54. A move back below the 50-DMA will reinstate its position as resistance, and the downside support at $1.52 will be brought into play.

Euro jumps as ECB back Greece

The euro recovery has been driven by the lifeline the European Central Bank has given to Greece. As much as €60 billion could be made available to Athens to tide the country over. Despite the emergency funding being approved, the relationship between Greece and the ECB is still far from friendly. As I stated yesterday, the ECB is playing hardball with the indebted nation, and Greece must abide by its rules. The strength of EUR/USD is based on the decreasing likelihood that Greece will default on its debts, but the downside risk still remains.

The jobs report will draw attention away from the political uncertainty of Greece, and give traders an indication of how strong the US job market is. The greenback has been in retreat recently as softer-than-expected economic indicators from the US have prompted traders to close positions on the dollar.

The $1.15 level has acted as a barrier twice in as many days, and if this level is held it will bring the 200-hour moving average of $1.1360 into play. If the $1.15 level is cleared it will become support and $1.16 will be the next target.

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