Traders continued to sell U.S. dollars over the past 12 hours as they begin to lay on positions ahead of Friday's non-farm payrolls report. Expectations for November's report are high with some people on the street even whispering about a positive number. We highly doubt that the U.S. managed to return to job growth last month but we do believe that job losses moderated significantly. This morning, Challenger Grey & Christmas reported a 72.3 percent drop in layoffs while ADP reported a 169k decline in private sector payrolls compared to the 195k in October. Along with the sharp improvement in jobless claims last month, there is a good chance that non-farm payrolls dropped by less than 125k and possibly even 100k. However to be more certain, we will have to wait for Thursday's service sector ISM report.
In the meantime, it is important to recognize that the sell-off in the U.S. dollar is beginning to find some near term support. For example, the Australian and New Zealand dollars have barely managed to extend their gains while the euro, Japanese Yen and Canadian dollars are weaker against the greenback. This suggests that in order for the EUR/USD and other currency pairs to make a fresh push higher, we will need a catalyst. This could come in the form of the Beige Book report which is due for release at 2pm ET. However if the Beige Book report fails to move markets, which is feasible since nothing new is expected from the Fed, the focus will turn to the non-manufacturing ISM report. Yesterday we learned that the manufacturing sector expanded at a slower pace and if the service sector does so as well, the U.S. dollar could suffer.
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