TD Securities projects only modest US dollar downside if July nonfarm payrolls or the unemployment rate disappoint, and expects the US Dollar Index (DXY) to hold above its 200-day simple moving average near 99. The outlook assumes US-based accounts remain reluctant to add short USD exposure until inflation data cool more convincingly, while an upside payrolls surprise would leave room for further dollar gains.
For July, the bank looks for NFP to rise to 70k from 57k in June, with private payrolls seen at 55k and government hiring at 15k, led by local jobs. The unemployment rate is forecast to stay at 4.2%, although the risk skew is described as slightly hawkish, with a higher chance of a dip to 4.1% than a rise to 4.3%; the participation rate is expected to keep edging lower, while the household survey measure of employment could rebound. In an upside scenario, TD Securities sees the dollar consolidating higher, particularly versus GBP and AUD, whereas a miss or a higher jobless rate is expected to produce limited downside with DXY still above the 99 area.
Labor Market Expectations and Dollar Support
We are closely watching the upcoming July nonfarm payrolls, where we expect a modest rise to 70,000 jobs following June’s weak print of 57,000. With the unemployment rate likely staying flat at 4.2% or dropping to 4.1%, the labor market remains relatively stable. Derivative traders should prepare for limited US Dollar downside, even if the jobs data slightly misses expectations.
Historically, when the US Dollar Index (DXY) trades near its 200-day moving average—currently sitting around the 99 level—it acts as a reliable support floor. We believe buying DXY put options is risky right now because US investors are hesitant to short the greenback until inflation cools further. Instead, keeping a neutral-to-bullish bias on the dollar index near this 99 support is a safer play in the options market.
Trading Strategies on Upside and Downside Scenarios
If we see an upside payroll surprise, traders should buy dollar call options, especially against the British Pound and the Australian Dollar. Current market positioning shows that long dollar trades against GBP and AUD are not yet crowded, leaving plenty of room for a rally. An upbeat jobs report would signal that the US economy is entering a new growth cycle, driving these specific currency pairs lower.
For those trading FX options, we recommend utilizing bull call spreads on the USD to leverage this potential upside while limiting premium costs. If payrolls disappoint, the dollar is still highly likely to hold its ground above the key 99 threshold. Position sizing should favor buying the dips in the dollar over the coming weeks as we await clearer inflation trends.
