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US ADP employment report in focus

 

US ADP Employment Change July Preview: Jobs gains in service sector to slowdown

The Automatic Data Processing (ADP) is expected to report on Wednesday that employment in the US private sector rose by 700,000 in July after increasing by 692,000 in June.

Assessing June's report, "service providers, the hardest hit sector, continue to do the heavy lifting, with leisure and hospitality posting the strongest gain as businesses begin to reopen to full capacity across the country," said Nela Richardson, chief economist, ADP. Underlying details of the press release revealed that employment in the service sector rose by 624,000.

 

·         Gold Up, Investors Await U.S Economic Data

Gold was up on Wednesday morning in Asia. While receiving a boost from a weakening dollar, the yellow metal was stuck in a narrow range as investors await the latest U.S. jobs data.

Gold futures inched up 0.09% to $1,815.80 by 12:49 AM ET (4:49 AM GMT). The dollar, which usually moves inversely to gold, inched down on Wednesday and was near recent lows.

“Gold, like the currency markets, appears to be in wait-and-see mode... gold’s price action remains consolidative but structurally positive and I believe that points to further gains ahead. The converging 100- and 200-day moving averages suggest a breakout is coming and I believe Friday’s U.S. data will be a catalyst,” OANDA senior market analyst for Asia Pacific Jeffrey Halley told Reuters.

 

·         US stocks up before ADP data

 

Major US indices closed Wednesday’s session in the green, but today’s employment figures could rapidly change the market mood. The latest US jobs data will give an indication of how fast the US labor market is progressing towards the Fed’s policy goal, and how close we are to the ‘substantial’ progress that the Fed pursues to trigger the most-apprehended tapering of its massive bond-buying program.  

The US economy is expected to have added close to 700’000 new private jobs during the month of July, near the amount added a month earlier. We know that the actual print could be significantly lower or higher than the estimated figure, but as long as we see a figure above 500-600’000, investors should walk confidently into Friday’s NFP data.

A read below 500’000 should throw the mood off the cliff, as there is not much to awaken the Fed doves with inflation hovering above the 5% mark. A strong read, on the other hand, should accelerate the thinking that the Fed will get to the tapering stage quicker than otherwise. That could apply a certain pressure on the US stocks, but it’s always better to walk towards an inevitable policy tightening with a set of strong economic data than the contrary.

 

Now, the fact that the delta variant of the coronavirus is spreading fast is increasingly worrying, as the latest news alters the prospects of economic recovery, especially if governments decide to move toward stricter lockdown measures to break the transmission chains. The problem is the central banks already deployed all measures to help economies go through the pandemic, and should now deal with overshooting inflation, and not another heatwave.

Therefore, the abnormally low US yields should rebound sooner rather than later. Would strong US jobs data help to mark a turning point is yet to be seen? Yet, gold’s inability to benefit from the low US yields hints that the next direction for the yellow metal is certainly the south.

 

·         US Dollar Index Price Analysis: DXY bulls firmly hold 92.00 mark

- DXY continues to consolidate near the 92.00 mark for the past four sessions.

- A sustained break of the ascending trendline confirms more downside.

- Momentum oscillator also favors the downside momentum.

 

·         EUR/USD levels to watch for

In case a disappointing reading weighs on the USD, the EUR/USD pair could target 1.1950 (50-day SMA, Fibonacci 38.2% retracement of the downtrend that started late May) ahead of 1.1980 (100-day SMA) and 1.2015 (200-day SMA, Fibonacci 50% retracement).

On the flip side, a strong ADP print could cause EUR/USD to turn south, at least with the initial reaction. On the downside, 1.1820 (20-day SMA) aligns as the first technical support ahead of 1.1800 (psychological level) and 1.1760 (static level, the ending point of the downtrend).

 

Reference: FXStreet, Investing