A strong sense of anticipation has gripped financial markets this week.

European stocks have traded within a tight range while US futures are ticking down this afternoon as investors turn cautious ahead of Friday’s key jobs report. Given how markets remain heavily influenced by inflation expectations, the pending monthly payrolls data is certainly a high-risk event that could trigger explosive levels of volatility.

Midweek, Philadelphia Fed President Patrick Harker said it may be time to at least think about tapering in the face of faster inflation. He has joined a growing chorus of Fed officials signaling that they are open to starting the taper debate. If more officials start whistling a similar tune, this may fuel speculation over taper talks gathering momentum more broadly across the FOMC.

Just like equity markets, there has been little action in the FX space with major pairs caged within ranges. The dollar has slightly appreciated against most of its G10 counterparts today with the Dollar Index pushing back above 90.00. In the bond market, ten-year US Treasury yields lingered around 1.60% while Gold is trading below the psychological $1900 level.

Strong US ADP offers dollar some support

The dollar ticked higher on Thursday afternoon after private sector employment surged by 978,000 in May, according to the ADP Employment Report. US private employers have certainly stepped into higher gear when hiring as this was the biggest increase since June last year. It will be interesting to see if the headline figure tomorrow dishes out a similar upside surprise.

It’s all about the US non-farm payrolls

All eyes are now firmly focused on May’s US jobs report which will be released at 1:30 pm BST on Friday 4 June. The pending report will be heavily scrutinised by investors for key insight into the health of the US economy.

Given how the report is being released at a time where the US economic recovery is gathering momentum, there is some optimism over the data painting an encouraging picture. A total of 655k jobs are expected to have been created by the US economy in May with the unemployment rate falling to 5.9% from 6.1%.

Should the jobs report exceed market expectations, this is likely to boost confidence in the US economy and bring more Fed hawks into the picture. Such a development may result in a stronger dollar while pressuring equity markets as speculation mounts over the Federal Reserve acting sooner than later.

Alternatively, another massive payroll miss similar to April may raise questions over the health of the US economy and renew expectations over the Federal Reserve maintaining a dovish stance for longer. Such a figure could leave the dollar vulnerable to further losses while supporting equity markets and gold.

Speaking of the dollar, it is trading above 90.00 as of writing. Although the trend remains bearish on the daily timeframe, a technical bounce could be in the works with a solid daily close above this level potentially opening the doors towards 90.45 in the near term.

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