Despite a gloomy session for Wall Street equities, the US dollar still fell overnight, weighed down by the end-of-month and end-of-quarter flows by institutional investors. The dollar index fell through support at 94.00 to 93.87, finishing the day 0.40% lower. The dollar index has now lost nearly 100 points from its 94.75 highs last week, with a failure of 94.60 hinting that the US dollar short squeeze may have run its course for now.

That allowed the EUR, GBP, AUD and NZD to all rise by around 0.75% overnight. Despite this though, the majors are, for the most part, now trading mid-range on a weekly basis. With the US presidential debate behind us, and significant holidays in Asia for the rest of the week, currency markets are likely to stay in a holding pattern until the release of US Nonfarm Payroll data on Friday. That data will set the tone for the direction of the US dollar into next week. For now, it is a waiting game.

Asian currencies have weakened slightly today, as profit-taking lifts the US dollar slightly this morning. Like the majors though, and ahead of regional holidays, local currencies lack a strong momentum one way or the other. Expect continued range-trading into the US data on Friday.

Looking ahead, the next key data point will be Friday’s Nonfarm Payrolls data. With no sign of any follow-up fiscal stimulus package from Washington DC, despite multiple calls from the Federal Reserve, markets will be concerned that the US recovery may stall. Nonfarm Payrolls releases have been above the symbolic 1-million number for four successive months, but the forecast for the upcoming release stands at 900 thousand. A poor number on Friday will amplify those fears and could set markets up for a weak finish to the week.

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