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TD Securities say a tick higher in the unemployment rate will weigh on the dollar.
The marquee event of the week for foreign exchange markets is less than 24 hours away: the release of the U.S. jobs report.
TD Bank is out with its call, saying the unemployment rate will surprise investors by rising to 4.4% in May, which will send the dollar lower.
The headline non-farm payrolls report is expected to ease to 60k, with the unemployment rate rising to 4.4% in May and AHE rising to 0.3% m/m.
"With focus shifted to inflation, the market reaction could be muted. We would expect the reaction to be asymmetric with a larger reaction to a dovish print, though we do not believe that our expectations are dovish enough to elicit a sharp reaction," says a note from TD's Securities division.
For the dollar, the rise in unemployment to 4.4% "would be a surprise for the market as investors have broadly raised expectations for May's payrolls. In the scenario of a rising UE rate, the USD would likely see knee-jerk weakness to buckle the spot uptrend for the week," says the note.
However, weakness should be limited by a market that is primarily focused on inflation, which puts the spotlight on the inflation release and the mid-month Federal Reserve decision.
