Friday's sees the release of the Jun employment report in the US, and there have been few signs that one or other of strong headline jobs growth and/or a further rise in earnings will not materialise from this. Running close to full employment, the Fed (and others) have been anticipating a feed through into wage growth and along with the tax cuts from the start of the year, consumption and spending have and will be expected to rise.
Should we get a miss on the headline, USD sentiment may not be as bearish once the dust has settled, as there is a likelihood the market could assume hiring is being hampered by a shortage of skilled workers. This would further strengthen the argument that higher wage growth is on the horizon, so the focus is pretty clear as the unemployment now sits below the 4.0% mark.
Against this view, as much as trade tensions may hit US counterparts hard, business investment in the US may take a hit (to some degree at least), with the introduction of tariffs threatening the viability of US based manufacturers - be they domestic (Harley Davidson) or foreign (BMW, Daimler). Job losses could naturally follow, so for all the positive outlook on the US as it stands, trade policy is not without its risks on the economy going forward.
As with all data, the follow through on the shorter term rate profile is what will drive the USD, and with a dot plot at 4 hikes this year, some will argue that much of this is already priced in. Fair value currency levels are a little harder to discern, and on this we need only hark back to the start of the year when the US budget deficit was at the core of (USD) weakness.
In the major pairings, we have seen EUR/USD reach strong limits in the 1.1500 area, reflected in the Dollar Index which has twice hit the 95.50 level and backed off. Similarly strong reversals have been seen against the SEK - with a large helping hand from a less dovish Riksbank this week - while the CAD has also been well contained close to the 1.3400 mark. The combination of the above are all signs that the USD bull run is ripe for some consolidation, if not a deeper retracement, and Friday's response to the US jobs numbers will be all telling.