MUFG’s Lloyd Chan expects the upcoming US nonfarm payrolls release to show a moderate slowdown after April’s 115k gain, with consensus at 88k already reflecting soft expectations. He notes the Dollar Index remains firm above 99.00 as net long Dollar positioning has rebuilt since mid-May, but argues downside NFP risks are largely priced, keeping the overall risk profile balanced.

Balanced NFP risks cap Dollar upside

"US nonfarm payrolls (NFP) is due later today alongside the unemployment rate and wage growth. DXY remains firm above the 99.00 level, with markets rebuilding net long USD positioning since mid-May after a short period of modest unwinding. Positioning is not particularly stretched, while the dollar itself remains softer than what positioning would suggest."

"Following April’s 115k print, the upcoming NFP release could show a moderate slowdown rather than a sharp deterioration. With consensus already soft at 88k, downside risks are broadly priced, leaving the overall risk profile balanced in our view. Initial jobless claims rose to around 215k in on average in May from 208k in April."

"The ADP employment only improved modestly to +122k in May from +105k in April. Meanwhile, the ISM services employment index was broadly unchanged at 47.9 in May from 48.0 in April."

"Given the balanced risk backdrop, a modest in-line or slightly soft print is unlikely to trigger a meaningful hawkish repricing of Fed expectations. The bar for a sustained USD rally on the back of NFP remains high."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)