Major pairs in FX space traded in a narrow range on Thursday, awaiting release of the Non-Farm Payrolls report on Friday. The downside risks for USD remain as preliminary labor market data for May indicate that job growth could be disappointing again.

The dollar index swayed near the 90-point round support, with strong moves unlikely ahead of the major economic release.

Unless tomorrow's labor market data surprises with strong job growth or significant wage inflation, expectations for tighter Fed policy will not change much, allowing USD to decline due to the major fundamental force (mix of strong inflation and low nominal short-term rates = low negative real yield). The ADP report is also due today, a negative surprise could shift expectations regarding NFP to a more downbeat outcome. The risk of a further decline in the DXY in June to the January low will likely increase then, since, apart from the NFP, the economic calendar for the US economy is not particularly interesting in June.

Yesterday's Fed Beige book report showed that firms were most worried about rising costs, including wages. The word “shortage” was mentioned 42 times in the report, and since the end of last year the number of mentions has grown steadily. The report indirectly showed that job creation in May could be weak again as labor demand growth was higher than the supply.

On the technical front for USD, some controversy has emerged. The upward bounces of the dollar turned out to be surprisingly short-lived, which indicates that selling pressure remains high:

To continue the downtrend, it is necessary for sellers to gain a foothold below the level of 89.65, which they failed to do numerous times. It is expected that the labor market report tomorrow will significantly clarify the situation with USD.

As for the EURUSD, a movement above 1.22 is unlikely today, as there are practically no catalysts. A movement towards 1.2160 and consolidation below may transfer the initiative to sellers for a while, and vice versa, a breakdown of 1.2230 may mean that EURUSD has returned to the uptrend:

Among other European currencies, things are also calm for now, but it is worth looking at NOK, as the chances of several rate hikes from the Norwegian Bank in response to inflation emanating from higher oil prices and economic recovery are growing. For these reasons, the downward pressure in USDNOK is expected to rise faster than in other European currencies.

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