The first batch of leading indicators for U.S. non-farm payrolls are in and it appears that there was no relief for the labor market in March. In fact, there is a decent chance that payrolls dropped by the largest amount in more than 60 years. The dollar is appreciating against all higher yielding currencies on the fear that non-farm payrolls will be shockingly weak.

The EUR/USD rose sharply in Asian and European trade today ahead of the critical US Non Farm Payroll report as currency markets feared that the number could approach 1 million unemployed in the worst reading since 1949. The pair rose to a high of 1.2727 in a bout of short covering ahead of the release before easing slightly below the 1.2700 figure.

There is no question that the US labor market is very weak with job losses expected to extend for the 14th consecutive month. If February non-farm payrolls exceed -450k, then more than 4 million Americans would have lost their jobs since January 2008. The current forecasts for non-farm payrolls are far more pessimistic with analysts predicting a decline of 650k jobs. The US dollar has rallied as risk aversion drags down the higher yielding currency pairs, but if non-farm payrolls surprise to the upside and we that think it will, the dollar may give back some its spectacular gains.

Job losses in the month of February are predicted to be very bad, but the latest service sector ISM data suggests otherwise. Activity in the service sector continued to contract with the non-manufacturing ISM report falling from 42.9 to 41.6.