A week ago, after nine Fed officials had spoken, the market widely expected Yellen and Fischer to confirm that the table was set for a rate hike later this month. They did, and the dollar and US interest rates fell. Now, after a strong ADP jobs report (298k), everyone recognizes upside risk to today's national report, and the dollar has lost its upside momentum against most major currencies, but the Japanese yen.  

Many seem to recognize the risks of long dollar positions today. There are three sets of possibilities. First, the US jobs report is seen as strong, and the dollar sells off, as last week on buy the rumor sell the fact activity. Second, the jobs report could be strong, and the market sees the pace of Fed tightening accelerating, and the dollar rallies. Third, the jobs report could be disappointing, and the dollar sells off. In two of the three scenarios the dollar weakens.  

On the other hand, what is different now compared with last week is that the dollar is softer before the event. The US dollar's momentum stalled yesterday, helped by a bout of euro short covering that helped trigger a broader short-covering advance in many of the major currencies. The spark came from the ECB's Draghi, who made it clear that the central bank's risk assessment was shifting toward a more balanced view as the downside risks eased. Nevertheless, the fact that the staff's forecast that inflation next year will be lower than this year warns against over-emphasizing a subtle change in signaling.  

Most participants did not expect another rate cut from the ECB. Most did not expect a new long-term loan facility, especially given that the current ones are still open. Although Draghi said that asset purchases could be accelerated if needed, investors recognize that a gradual winding down is more likely than a fresh expansion. With the negative deposit rate of 40 bp, there is some thought that the ECB could reduce the negativity before completely ending is asset purchase program. But this does not appear particularly likely in the next several months, and, moreover, it may look a bit different if inflation peaks, as we expect, in Q2.