The Dollar soared yesterday against most of its currency pairs, as its global reserve currency status returned to the forefront. This was due to weak U.S. unemployment figures, as Unemployment in the U.S. rose far higher than analysts had forecast. This spurred demand for safe-haven currencies, such as the USD and JPY. As a result of the strong USD, Crude Oil prices also tumbled. Today, investors should continue trading the USD, EUR, JPY, and Gold, as large profits will be made on market volatility.

The U.S Dollar gained about 1% versus the EUR and Canadian and New Zealand currencies Thursday after the U.S. government reported more job losses than expected, renewing concerns about the economy and enhancing the greenback’s safe-haven appeal. U.S. employers cut 467,000 jobs in June, far more than expected, while the Unemployment Rate rose to 9.5%, the government said in the report. The Dollar also benefited from a Chinese Foreign Ministry official’s comments, which dampened speculation about diversification of currency reserves.

It is important to take into account that yesterday’s data raised the risk aversion of investors, which also helped push the Yen higher vs. the USD. The Dollar finished trading at 95.95 Yen, from 96.60 Yen on Thursday. However, this week, the Dollar has advanced over 0.5% against the Yen.

The greenback faces some risks though. Analysts said that the weak U.S jobs report reinforced a trend already in place in the forex market prior to the release that the Dollar was oversold. Traders are still favoring foreign currencies over the U.S Dollar, and the sentiment remains to sell the USD in the short-medium term. With a light U.S. economic calendar today, currency investors may focus instead on the USD’s detriment, such as U.S. fiscal deficit and inflation.

The forex market is expected to be extremely volatile today, as the U.S. releases the results of the Non-Farm Employment Change at 12:30 GMT. The EUR Minimum Bid Rate at 11:45 GMT and U.S. Unemployment Claims at 12:30 GMT are also expected to dominate trading for the USD, EUR, and GBP crosses. Traders are advised to enter the main currency pairs now in order to profit from risk appetite.

The Dollar index continued its decline yesterday, trading at 79.619, down from 80.179 late Wednesday. The drop followed the release of the ADP Non-Farm Employment Change which showed worse than expected results. The drop was exacerbated by China’s request to discuss the issue of a new global currency at next week’s G8 Summit in Italy.

Increased risk appetite has been dominating trading lately, despite much pessimistic
economic data. Recent bullishness in the stock markets helped fuel risk appetite among investors, putting further downward pressure on the Dollar. Worse than expected results no longer automatically push investors back to the safety of the Dollar, as risk tolerance remains high on positive equity prices. Furthermore, negative data from the U.S., along with an over-expanding budget deficit and inflation fears have caused concern over the greenback’s long term prospects. As a result, this has
further dampened Dollar sentiment.

With several major news releases ahead of the July 4th weekend, including the U.S Non Farm Employment Change and Unemployment Rate due at 12:30 GMT, and the ECB Press Conference at the same time, Thursday is expected to be a volatile trading day which may intensify the current trends.