Dollar Takes A Breath As Markets Await NFP

The dollar index extended recent rebound to as high as 81.17 over night but lost momentum as traders are preparing for today's employment data from US. The non-farm payroll report is expected to show 193k job growth in December while unemployment rate is expected to be unchanged at 7.0%. Taking a look at the leading indicators for NFP, the ADP employment reported showed 238k growth in private sector jobs, beating expect ions and was an improvement over November's figure. The employment component of ISM manufacturing rose for the second month to 56.9, hitting the highest level since June 2011. Employment component of ISM services had been quite volatile in recent months but did improved back to 55.8 from 52.5. Conference board consumer confidence also staged a strong rebound to 78.1 from 72.0. So, overall, the leading indicates argued that December's NFP would likely come with an upside surprise and be better than November's 203k.

And, a solid NFP report should affirm the expectation that Fed will taper the asset purchase by USD 10b at every FOMC meeting and would probably end it by year end. Such expectation should give the greenback the momentum to extend recent rebound in January. The dollar index's pull back from 81.48 should have completed at 79.68. The development also affirmed the case that fall from 84.75 has completed just ahead of key 78/79 long term cluster support zone. Near term outlook is mildly bullish for at least a test on 81.48 resistance. And, break will extend the rebound from 79.00 to 83 handle and above.

Another major piece of economic data to watch is Canadian employment. Canadian job market is expected to show 13.1k growth in December while unemployment rate is expected to be unchanged at 6.9%. The loonie is so far the weakest currency this week as pressured by weak economic data and dovish comments from BoC. Strength in USD/CAD is defying expectations and the pair is building upside momentum after taking out a long term fibonacci resistance level. Any downside surprise in the job market data today will reinforce BoC's neutral to dovish stance and would send the USD/CAD further higher. Other data to be watched today include Japan leading indicator, Swiss unemployment and CPI, as well as UK productions.

Elsewhere, Euro dipped after comments from ECB president Draghi during the post meeting press conference. But the loss is so far limited. The central bank held policies unchanged as widely expected. Draghi reiterated the forward guidance and expected "key ECB interest rates will remain at present or lower levels for an extended period of time". And, he noted "two contingencies" that could lead ECB to act on interest rates. One being the "unwarranted tightening of the short term money markets". Another being "worsening our medium term outlook for inflation". Meanwhile, he warned that the Eurozone "may experience a prolonged period of low inflation". And, risks on economic outlook are "on the downside" with developments in global money and financial markets having potential negative effects. He also noted that "with regard to money market conditions and their potential impact on our monetary policy stance, we are monitoring developments closely and are ready to consider all available instruments."