Dollar Bulls Capitulate Ahead of NFP

The US dollar crumbled as traders raced to exit a crowded long trade. At one point, USD/JPY fell as much as 360 pips, touching 95.91 before rebounding more than a cent. Newsflow is quiet in Asia which will give markets a moment to digest the moves ahead of non-farm payrolls.

Coming into Thursday's session all the focus was on the ECB decision. Draghi backed away from talk about cutting rates and that helped the euro to the highest in a month. The ECB also left 2014 growth and inflation forecasts unchanged, suggesting ideas about further stimulus are on the shelf.

The euro strengthened during Draghi's press conference, hitting a one month high at 1.3160. The big moves came after Draghi exited the stage. The EUR/USD gains left dollar longs vulnerable and they began to race to the exits.

The dollar selling spread to USD/JPY and then turned into a rout. EUR/USD climbed above 1.33, breaking out to the highest since late February. USD/JPY  crumbled from 99.00 to as low as 95.91.

Traders were searching for headlines to explain the fall but the news was benign. Initial jobless claims were at 346K compared to 345K expected.

Instead, a buildup in US dollar longs over the past month was quickly unwound. Disappointing US economic data has slowly been chipping away at the trade and the market suddenly got cold feet ahead of non-farm payrolls.

The consensus for NFP is 165K but the market is positioned for something less. The latest estimates are around 150K and the market might be braced for 130K or lower. At this point, the risk of bounce is much higher than a further USD slump on a soft number.