U.S. Dollar Recovers Ahead of Tuesday’s Jobs Report

A slight recovery in the U.S. Dollar helped put pressure on foreign currency and commodity markets on Monday. The rebound in the dollar is not indicative of an impending change in trend, but rather the start of a relief rally, following several days of fresh selling pressure. Longer-term traders are looking for the upside movement to continue for the EUR/USD and GBP/USD, but investors still have mixed feelings about gold and crude oil.

Although the markets are pricing in the strong possibility the Fed will refrain from tapering its aggressive $85 billion in monthly monetary stimulus until March 2014, investors may use tomorrow’s release of the September Non-Farm Payrolls report as an excuse to book profits ahead of the report. This report is expected to show the U.S. economy added 180,000 new jobs while the unemployment rate is expected to remain unchanged at 7.3%.

With investors shedding risky assets overnight, the EUR/USD struggled as it approached Friday’s high at 1.3707. This price is slightly below the high of the year at 1.3711. If a short-term top forms then look for a near-term break to 1.3600.

After a strong surge last week, the GBP/USD is also set up for a near-term correction. Friday’s rally to 1.6224 and subsequent sell-off creates the appearance of a double-top, but given the likelihood the Fed won’t begin tapering until March 2014 and the rapidly improving U.K. economy, buyers are likely to step in to support the British Pound against the dollar before the trend changes to down.

December gold also failed to follow-through to the upside after last week’s strong surge. Investors face an important decision over the near-term. If the dollar continues to weaken then gold traders may be encouraged to chase the market higher. A top in the stock market and subsequent sell-off could also drive investors into gold. Technically, a breakout above $1330.80 will be a strong sign that buyers have returned.

December crude oil traded weaker on Monday. Concerns about the strength of the economy and its effect on demand is the catalyst behind the move. Investors are paring positions ahead of tomorrow’s jobs data report. A bearish report could send prices lower with $98.17 the next possibility. While a bullish report may not necessarily trigger a rally, it should stop the slide especially if investors feel the economy is still positioned for a recovery.