Forex Trading Forecast: U.S. Dollar

The forex trading forecast for the U.S. dollar, in both the short term and the long term, is likely to be influenced by payroll data. The payroll data expected today (after yesterday's payroll data preview pointing to an improvement) represents one of the most important economic factors available. And this is likely to influence the greenback in currency trading.

Indeed, non-farm payroll data will probably affect the U.S. dollar in the short term and in the long term. GFT's Kathy Lien describes in FX360 some of the likely effects of the payroll data could have on the greenback in currency trading:

The tone of the markets is changing as investors are bracing for a recovery. Central banks from around world now expect positive growth in 2010 and despite the concern about the safety of the U.S. dollar equities are trading at 4.5 month highs. The EUR/USD&   chance of extending its gains and the USD/JPY&   chance of breaking out of its current range could be largely contingent upon the surprise in non-farm payrolls. We believe that a strong number will initially be dollar positive but eventually be risk positive while a weaker than expected number could actually drive the dollar higher.

In the end, it's all about the prospect of economic recovery. Initially, strong numbers could help the greenback in currency trading, as it is an economic fundamental that provides support. But, long term, economic recovery is better for other currencies. Right now the dollar is more of a safe haven. When that desire for a safe investment disappears as risk aversion, fueled by economic recovery, picks up, the forex trading forecast for the U.S. dollar will reflect that.