Investing.com – All eyes in the currency markets are firmly on Friday’s US jobs report, with Citi saying the release is likely to cause market movement for the G10 FX, and the US dollar in particular.
From last month’s labor market report in early August until now, the market’s reaction to the USD data has been asymmetrical: the data has been relatively neutral for the USD, while the missed data has seen sharper and broader-based weakness in the USD known, says analyst at Citi. a note dated September 3.
However, according to the bank, August was strongly determined by positioning, which has now switched from long USD to short USD, and a focus solely on the US side of the growth story.
“We continue to emphasize that the growth environment in the rest of the world remains worrying, especially for manufacturing countries (e.g. Germany, China). We also have a significantly more dovish Fed at market price compared to one and two months ago,” Citi added. “So we expect the USD reaction function going forward to be somewhat different than it has been in recent months.”
The market could enter a period of greater currency diversification, Citi said, with the risk of growth concerns leading to USD underperformance against lower beta FX, but outperformance against higher beta FX .
So a print in line with Citi’s expectations (of 4.3% and 125,000%) should see downward, but not necessarily broader, USD weakness.
“A more ambiguous print then shifts the focus to Fedspeak; here the market could see sudden USD selling due to a downside miss in Fed Governor Waller. A strong print could accelerate any short-covering of the USD from the leveraged segment, causing the JPY and CHF to underperform,” Citi said.
