Latest data may set the tone for a firmer dollar

"We have been on a knife edge," Lutfey Siddiqi, global head of foreign exchange structuring at Barclays Capital in London, told RiskNews’ sister publication FX Week. "By and large, people have been staying away, waiting for [Friday’s payroll] numbers. Now the dollar bulls have a bit more ammunition."

In six minutes following the announcement of the payrolls data – which, with an increase of 288,000 for April, was way ahead of market expectations of around 170,000 – euro/dollar sank from 1.2140 to 1.1952.

On a two-week horizon, "this settles the argument over the dollar", said Mitul Kotecha, global head of foreign exchange research at Calyon – Credit Agricole’s investment banking unit – in London. "Data such as this is a key turning point in expectations for the dollar."

"Clients have been waiting it out,” said Siddiqi. “Some have been buying options, but very few have sold volatility outright over this period." This may be set to change.

Siddiqi added that a number of corporates are now seeking to restructure their existing positions. "If they were long euro at, say, 1.26 or 1.27, many are now unwinding those positions and restructuring,” he says. “No-one wants to be seen locked into buying euros at what might turn out to be all-time highs."

But Kotecha still sees the market as very mixed. "This level – around 1.19 – is critical in many people’s minds,” he says. “There are very split views," he said. He pointed out that speculative positions remain fairly neutral – a change from the very short dollar positions seen earlier in the year.

The payrolls data overshadowed discussion about the impact on the currency markets of the highest oil price in 13 years.