Between hawkish FOMC minutes, a strong ADP report and a surge in Treasury yields, the U.S. dollar should be stronger. However, in the last 48 hours, the greenback pulled back against the Japanese Yen, saw modest gains versus commodity currencies and consolidated against the euro and sterling. This is partially due to the sell-off in stocks, but at the end of the day, the Federal Reserve clearly telegraphed its plans to raise interest rates at the end of the year. The minutes, ADP and Treasury yields simply reinforced the central bank’s guidance.    This raises the question of how much positive impact a strong non-farm payrolls report will have on the U.S. dollar. We worry that a good jobs report won’t be enough. There’s no doubt that we’ll see an initial U.S. dollar rally if NFPs exceed 400,000, but unless it’s a blow-out number, the rally may not last – especially since Omicron infections have put many people out of work from late December into January.   With a consensus forecast of 400,000, economists and investors expect stronger job growth. There’s currently a severe labor market shortage in the U.S., with job openings near record levels, ADP reporting its strongest one-month rise in private payrolls since May, jobless claims falling, confidence improving and the manufacturing sector adding new workers at a faster pace. However, this morning, we learned that job growth slowed in the service sector. And while the employment component of non-manufacturing ISM is the most reliable leading indicator for NFPs, this month’s decline may reflect catchup from last month’s rise.    In order for the U.S. dollar to sustain its gains, the jobs report will need to be so good that it fuels expectations for an accelerated Q1 rate hike and/or four rate hikes this year. That would require job growth to exceed 650,000, the unemployment rate to fall further and average hourly earnings growth to accelerate. But the data will need to beat in a very big way for USD/JPY to break 116.50 and EUR/USD to drop to 1.12. EUR/USD has been trading in a very tight range waiting for NFP breakout.   Here are the arguments for strong versus weak payrolls:   Arguments For Stronger Payrolls   1.    Employment component of ISM Manufacturing rises 2.    ADP reports strongest private payrolls since May 3.    4-Week Average Jobless Claims declines 4.    Drop in Continuing Claims 5.    Rise in University of Michigan Consumer Sentiment Index 6.    Rise in Conference Board Consumer Confidence   Arguments For Weaker Payrolls   1.    Employment component of ISM Services declines 2.    Rise in Challenger Job Cuts   The Canadian dollar will also be in focus, with CAD employment and IVEY PMI reports scheduled for release. More than 153,000 jobs were created in Canada in November – a number no one expects the country to match. Economists are looking for an increase of only 27,000 jobs in December. Even if the number is good, the return of coronavirus restrictions will hamper job growth in January. With the simultaneous release of U.S. and Canadian job reports, USD/CAD and CAD/JPY will be the currencies to watch. Beware of steep losses in CAD/JPY if both reports fail to impress.