ADP
Getting ready for the NFP, OPEC & trading on the newsIt is worth noting statistics from the Eurozone that was published on Thursday. On the one hand, as we predicted, Eurozone GDP came out better than expected (+ 0.2% q / q with a forecast + 0.1% q / q). On the other hand, retail sales failed (-0.6% m / m with a forecast -0.5% m / m), and industrial orders in Germany unexpectedly declined (-0.4% m / m with a forecast + 0.4% m / m). However, this did not prevent the euro from strengthening yesterday.
Friday promises to be an exceptionally busy day for financial markets. First, official statistics on the US labour market will be published. Secondly, the results of an expanded OPEC meeting will be summarized. Also, we are waiting for data on the labour market of Canada.
Let's start with an indicator that could potentially trigger volatility in the financial markets. We are talking about NFP. The forecasts, in our opinion, are too optimistic. Although + 180K jobs - almost the average figure of the indicator for 2019, current trends in the US economy show that + 180K is a bit overstated. The fact is that the non-farm payrolls: 180K+ is obliged to the start of the year when in January and February the indicator exceeded + 300K. But such figures have not been shown for a long time so without these two periods, the average in 2019 is less than 150K. 150K seems to us much closer to current realities, and in light of the weak employment rate from ADP published on Wednesday (+67 thousand jobs with a forecast +135 thousand), a figure below + 100K will not surprise us.
So our recommendation for the dollar (in the light of our expectations from the NFP) is to sell the dollar.
Note that the indicator's output between + 120K - + 180K may be completely ignored by the markets.
Concerns about the demarche of Saudi Arabia at the OPEC meeting become irrelevant. On the contrary, there is increasing talk throughout the markets about a possible increase in the volume of reduction in oil production under OPEC + from the current 1.2 million bpd to 1.6 million bpd. However, even if such a decision is made in the oil market, nothing will change - OPEC countries are now extracting less than is stipulated by the agreements.
Our position on oil is unchanged so far - oil growth is a great opportunity for asset sales.
Today promises to be over-volatile for the USDCAD due to the simultaneous publication of labour market data from both the United States and Canada. Given the uncertainty related to the data, our recommendation for working with a pair today is to trade pending orders. Before the data is released, we place pending orders of the buy stop and sell stop type at 20-30 pips from the current price at that time. And then we just wait. That will almost certainly provoke the formation of a strong unidirectional movement, you can earn on.
Getting ready for the Bank of Canada decisionAs we announced, the demand for safe-haven assets increased significantly this week, which provoked both an increase in gold quotes and a strengthening of the Japanese yen. And if the reason for this was an increase in tariffs on imports to the United States of aluminium and steel from Argentina and Brazil on Monday, then on Tuesday Trump intimidated to introduce an additional 15% of tariffs on Chinese imports in the amount of $ 160 billion on December 15.
At the same time, he added that he was not in a hurry and the best time to conclude a trade deal was generally after the 2020 elections.
Of course, Trump should not be taken seriously, such his comments are a clear attempt to force China to be more accommodating in the negotiations. Nevertheless, the reaction of investors can be understood.
Given that gold may easily grow (50-70 dollars per ounce), it is likely that yesterday's growth is only the beginning. So we continue to recommend looking for points of purchase for safe-haven assets.
It is worth noting the decision of the Reserve Bank of Australia to leave the rate unchanged, which is generally a positive sign for the Australian dollar. Although its growth potential so far seems limited, it could still grow (50-70 pips), especially against the background of a weak dollar.
US employment data from ADP traditionally published on the eve of official statistics is what we are waiting for. Although the level of correlation between ADP and NFP data is insignificant, strong deviations of the data from forecasts may well be flustrating to the markets.
The Bank of Canada will announce its decision on monetary policy parameters. We expect the current status quo to be saved. But a change in the nature of the rhetoric of the Central Bank may well provoke a jump in volatility. Recall that our position on the Canadian dollar is to buy. That is, selling a USDCAD above 1.33 is, in our opinion, a great trading idea.
The oil market is getting ready for the OPEC meeting. Globally, we remain supporters of oil sales. But for now, until the end of the week we take a break - the meeting may well surprise, but betting on red or black is not our approach, we prefer to work with facts.
About the recession, markets immunity to good news & US GDPThe US and China have traditionally been optimistic about the progress in the negotiations, but apparently, the markets no longer respond to this. If you yell “wolf”, in the end, people will no longer come. Something similar we can see in the negotiation process between China and the United States. They have been optimistic for more than a month, but there is no breakthrough.
In this regard, we will continue to look for points for the purchase of safe-haven assets, which are providing excellent entry points.
We will bring up a topic of the upcoming recession. In yesterday’s review, we wrote about the forecasts of Societe Generale analysts who expect a recession in the spring of next year.
Recall, in March 2019 the so-called yield curve inversion took place (an anomalous situation when the yield on short-term US treasury bonds exceeds the yield on long-term bonds). As a rule, after this, a recession occurs within 12-18 months. Despite the fact that now the yield curve has returned to normal. In the spring comes the end of the countdown of 12 months. So analysts at Societe Generale are probably not mistaken.
Fed Chairman Jerome Powell, meanwhile, once again confirmed that the US Central Bank is likely to continue to hold a pause in interest rate policy actions.
Today, unlike Monday and Tuesday, will be quite busy in terms of macroeconomic statistics. First of all, we are talking about data on US GDP for the third quarter. Given that this is the second reading of the indicator, that is, the revised value, we do not expect any serious surprises. However, analysts do not expect as well, predicting the immutability of the preliminary assessment of 1.9%. In addition, you should pay attention to orders for durable goods in the United States, as well as the ADP report on the level of employment in the private sector. A busy day for the dollar will end with the publication of statistics on personal income and expenses, as well as incomplete transactions for the sale of housing.
Recall our position on the dollar - to look for points for sale for almost the entire spectrum of the foreign exchange market. But today we are acting with an eye on the output data. This is not about changing the direction of the trades, but about the possible emergence of more interesting points for its sales.
Data from ADP, unstable gold and weak oilThe publication of US employment data from ADP came out yesterday. However, the outcome did not form positions in the markets. The + 135K figure came out almost in line with forecasts (experts expected + 140K), so the markets did not get an answer to the question of what to expect from the NFP figures. Although in general, the vector is unpleasant for the US economy and the US dollar in particular ( a decrease in the number of new jobs and a gradual deterioration in the US labour market). So our position on the dollar today is unchanged - we will continue to look for points for its sales.
QAs for the dynamics of gold. Breakdown 1485-1490 gave the asset a sign to go down. The lows in the region of 1460 are in favour of that. But weak data on the US economy on Tuesday turned the situation upside down. Yesterday’s value of 1290 means the return to the bull market and the end of the correction. But since statistics on the US labour market will make the next batch of corrections already on Friday, we refrain from recommendations on gold this week: we will wait until the markets still decide whether to grow or fall.
As for the oil. The market-determined the basic drivers: a slowdown in the global economy as a negative factor in demand and production restoration by Saudi Arabia as a positive factor for supply. As a result, sellers continued to dominate, and in the evening also intensified amid information about US oil reserves. According to the Ministry of Energy, weekly stocks rose by 3 million barrels, which is a bearish signal. So today we do not see any special reasons for the growth. But on Friday may well be adjustments. So on Thursday, we will continue to look for points for oil sales, but exclusively on the intraday basis. Although we note that oil prices have almost reached the calculated points for the current decline, announced by us on Monday.
As for China and Germany, we do not expect anything special today. Tomorrow we are waiting for statistics on the US labour market, there is every reason to expect a relatively calm day, during which the markets will prepare for NFP data to realize. So today you can try to concentrate on active oscillatory intraday trading. For example, use clock oscillators and sell from the local overbought area and buy from the local oversold area. That is, to work without any obvious preferences.
Bank of Australia, euro immunity and dollar failureThe US dollar confidently dominated before the ISM index in the US industrial sector outcome, but after failure followed.
The Australian dollar responded to the actions of the Central Bank. We observed decreased after the rate was reduced (the Reserve Bank of Australia yesterday lowered the rate by 0.25% to 0.75%. This decision was expected by participants in financial markets). In general, we received one more confirmation in favour of the formation of a global vector for the widespread easing of monetary policies by leading central banks of the world.
The current value of the Australian dollar shows interesting for purchase. Given that the ratio of potential profit / expected loss in the AUDUSD is close to ideal, today we will try to buy a pair based on the fixation of profits or just working off the level of 0.67. Stops below 0.6660, but the profits can be set in the area of 0.6800.
The Australian dollar was not the only one the US dollar was strengthening. Another currency is the British pound. But again, it can be understood, the political sphere of Britain is getting closer to a complete dead end. The data on the PMI index of business activity in the manufacturing industry, although came out much better than forecasts (48.3 points with a forecast of 47.0), still turned out to be significantly lower than 50.
The euro received another painful hit. This time, the PMI in the manufacturing sector disappointed (with the forecast 45.7). However, there were no euro sales, which suggested the formation of a bottom from which it might be able to push off and develop a correction.
In the USA, meanwhile, political conflict continues. The "X" moment came after the publication of data on the ISM index in the US industrial sector. The index fell to the lowest level since June 2009 - 47.8 points. Recall that an index exit below 50 means decrease inactivity. The markets took this as a signal that the Fed would raise interest rates again in 2019 and rushed to sell the dollar.
We have been waiting for these sales for a couple of days (see our previous reviews). We consider yesterday's dollar decline only the beginning of its fall and today we will continue to look for points for its sales in the foreign exchange market. But at the same time, we note that yesterday's data was not something outstanding and sales were more related to expectations of possible weak data from the NFPs to come out than to the actual reaction to the ISM Index.
Pay attention to the statistics on US employment from ADP. Although traditionally these data do not lead to a sharp increase in volatility, in general, the correlation with the NFP is small (about 20-25%), nevertheless, the state of the US labour market is one of the key moments, so a surprise may well provoke, for example, the long-awaited dollar sales by us. But for this, the figure should be below 100K.
ADP Platform Sideways PatternADP has shifted to a Platform sideways candlestick pattern, and is experiencing some Dark Pool Quiet Rotation™. However, there is underlying buying activity of Smaller Funds, Professional Traders, and Investors. The candlestick pattern is compressing on the upside of the Trading Range at this time.
NFP, pound growth and goldEverything develops according to the scenario described earlier - Johnson’s defeat in Parliament is an occasion for the pound growth and its purchases. However, it’s too early to relax. Yes, the pound still has the opportunity to grow for not just a hundred points, but a thousand or even more. The key threat to the pound has not disappeared yet. So you should trade cautiously.
There is every chance that the ban on exiting without a deal will acquire the status of the law, which means Johnson will not be able to do anything. Even his brother Joe denied Johnson. So the streak of setbacks for the new prime minister is going on. But Johnson's failure is the success of the pound.
US employment data from ADP surprised us. + 195 000 with a forecast +148 000. And the data surprised us because recently the US economy has been showing more and more disturbing messages such as GDP data for the second quarter, and business activity indices, some even went below 50.
So, despite yesterday's figures from ADP, we are rather sceptical about official statistics on the US labor market. In general, today's data is more important than ever. On the one hand, weak figures will confirm investors' concerns that the US economy is losing its confidence more rapidly. And on the other hand, it will become a signal fo the Fed that it is necessary to do something. That is, the fate of the rate cut may not be decided on September 18 at the FOMC meeting, but today.
Therefore the dollar may receive a double hit, from which it will not be able to recover for a long time. That is why today we recommend selling the dollar across the entire spectrum of the foreign exchange market. But we need weak NFPs for that.
As for the trade war. The US and China negotiations were postponed. Now the date sounds like “early October.” That is, the confrontation will continue in September. So do not forget to buy gold.
Chart of the day: $ADP ABCD completionAnybody saw $ADP hitting its ABCD completion? Trump has overshadowed the fact that US Services PMI just came in 2pts below expectations and the major auto companies have been laying off workers as inventory piles up. ADP operating margins are at -1 standard deviation levels while its valuations metrics are at +1 standard deviation into a slowing economy. 1.6% forward real earning yield with a P/B of 13x (mean P/B @ 7x) when you can buy risk-free US 10-yr at 1.7% with capital appreciation potential? *cough* *cough*
No thank you very much.
P.S. Even Bill Ackman sold his oversized stake in $ADP.
ADP, ECB’s new head & July 4thThe publication of data on employment in the US private sector from ADP was the main even. Considering that official statistics from the US Department of Labor will be published tomorrow, traders and other financial market participants are expressing interest in. Analysts had expected growth in May (140K) however, the number is + 102K, only. On the one hand, the data is lower than forecast, on the other hand, it is significantly higher than the previous frankly disastrous numbers (recall that last month the increase was 27K, only). Well, this is a rather alarming signal. Also yesterday, data on the US trade balance was published (- $ 55.5 billion with a forecast $ 54.0).
Our recommendation is “sell the dollar”. Especially, if you remember Trump's attack on the dollar. Traditionally, in Twitter, the President of the United States called for the devaluation of the dollar.
And about the weak UK business activity data (Composite PMI index went below 50, that is 49.7), which increased the downward pressure on the pound. It’s too late to sell the pound and too early to buy. A similar index was published in Eurozone. The situation there is better (52.2 with the forecast 52.1). So, euro purchasing is not a bad idea ( on the intraday basis).
Ms Lagarde was honored to have been nominated for the ECB presidency. According to experts, Lagarde will adhere to a stimulating monetary policy aimed at ensuring economic growth in Europe. So, the euro might be under pressure.
We expect low liquidity in financial markets due to a holiday in the USA (Fourth of July – Independence Day). The “weak” market may well surprise in the form of volatility explosions, so today it is worth trading with caution.
Our trading recommendations for today: we will continue to look for points for dollar sales as well as the Russian ruble. Since AUDUSD has finished the day with a 0.7020 mark, we do not sell it, duo to further growth. Sell oil. As for gold, today we are working without obvious preferences on the oscillator signals.
Results of the week, 10 years of growth in US and plan for week
The publication of statistics on the US labor market was the top story. We warned that the data will come out much worse than forecasts and recommended selling the dollar before the data has been published. Those of our readers who followed the advice should have earned good money. But back to the data. With the forecast of + 175K, in fact, the number of NFP was only + 75K. In addition, wage growth was below the expectations of experts.
This is definitely bad news for the dollar, which is giving the Fed a reason to lower the rate at the meeting to be held next week. In this regard, our recommendations remain unchanged this week - we will look for points for its sales.
At the same time, we cannot but note an important for the US economy anniversary - 10 years in a row of economic growth. Also, this fact is remarkable by the fact that if growth continues for another month, it will be the longest period of economic growth in the United States since 1854 (!). But there was no particular joy among analysts and investors. The aggregate GDP growth for this period has not even grown by half from the growth that was recorded in the period 1991-2001. And investors' fears that growth will stop increasing with each passing day. China, Mexico, the EU and might be Japan. The economic data is a growing concern so far, recall the statistics from ADP or the data on the Manufacturing Purchasing Managers Index from Markit, that in ay dropped to the lowest values since September 2009. As a result, analysts JPMorgan Chase & Co. increased the likelihood of a recession in the United States from 25% to 40% in the second half of 2019.
There are no major events like NFP or announcements of the results of the leading Central Banks, but there will be plenty of statistics on China (trade balance, inflation, industrial production and retail sales), Great Britain (GDP, trade balance, labor market and industrial production) and the USA (inflation, industrial production and retail sales).
As for our trading preferences, they have not changed over the week. And what's the point of changing positions that make a profit? Almost all of our recommendations for last week turned out to be a good plus. So, we will continue to look for points for the sales of the US dollar primarily against the Japanese yen, as well as the euro and the British pound, sales of oil and the Russian ruble, as well as buying of gold.
Failure data from ADP, ECB decision & BoA warnings Primarily the data on the US labor market from ADP was remembered yesterday. The number of jobs in private companies in the US in May increased by 27K (the forecast was + 180K). The figures are frankly failing and extremely alarming, given that official statistics from the US Department of Labor will be published on Friday.
The dollar was one of the first victims of such data. Such a negative reaction is due to two main factors. Firstly, the US economy clearly signals problems, and secondly, such data is a reason for the Fed to establish itself in the expediency of reducing rates. Naturally, both of these factors are extremely negative for the dollar.
Well, at the end of the day, the dollar managed to recover. One of the reasons was the publication of pretty good data on business activity indices. Secondly, there is, of course, a chance that Friday's labor market data will not disappoint. Nevertheless, we continue to recommend looking for points for dollar sales.
The key event will be the announcement of the ECB meeting decision. Monetary policy parameters are likely to remain unchanged, but forecasts for economic growth will be revised downwards. In addition, weak Eurozone inflation data, published this week, led to the fact that the markets no longer expected to tighten monetary policy in the foreseeable future, and now they are waiting for its further softening. In particular, traders assume a 0.1% reduction in the rate by July of next year.
This is definitely a bearish signal for the euro, so today we will refrain from recommending to buy euros. Well, or at least make it from very attractive points.
Meanwhile, analysts are continuing to analyze the of a trade war possible consequence. The Bank of America experts named a number of possible scenarios for the situation development (between the USA and China). In particular, China’s exit from US public debt, delisting of Chinese ADRs, the exodus of American investors from the Chinese market, which is fraught with stock and bond sales on the markets, Chinese IPOs could lose access to the American financial market, and finally, countries could start a full-fledged currency war. So to the question “Could the situation become worse?” The answer is unequivocal “could.”
Our position for today: we will continue to look for points for selling of the US dollar, sales of oil and the Russian ruble, as well as buying of gold and the Japanese yen. In addition, we will sell the Australian dollar against the US dollar.
The Bank of England, the problems of the ruble & NFPThe Bank of England left the monetary policy parameters unchanged as we expected. Since this decision was included in the price, all the attention of traders was focused on the comments of the Central Bank and its head. The Bank of England raised its economic growth forecast (up to 1.5% of GDP growth) but warned that the situation with Brexit “darkens” the future for monetary policy. At the same time, the Members of the Monetary Policy Committee of the Bank of England support the view that the Central Bank will require a more stringent policy. However, the markets were not that impressed with such rhetoric of the Central Bank and the pound for the day suffered losses.
Today, all the attention of the markets will be focused on data on the US labor market. In view of the pause in the Fed's actions, it is the figures of the NFP that will shape the market expectations for the future actions of the Central Bank.
Recall, last month the data turned out to be quite good + 196K and the dollar buyers could breathe out with relief after the devastating February data (the NFP was only + 30K). Good numbers are also expected this time - + 180K. This figure fully coincides with the average value of the NFP over the past two years. This means that data will almost certainly differ from forecasts. The question is this number will be worse than predicted or better.
In our opinion, there are reasons to expect an excess with a “+” sign. These thoughts are pushed by numbers from ADP (on Wednesday, the data showed an increase of 275K with a forecast of 180K). The level of correlation between these indicators is low, but they still characterize, by and large, the same thing. In addition, the US GDP figures for the first quarter, albeit with some assumptions, “insist” in a positive way.
So today we will buy a dollar. Another motivation for this is the results of research by analysts JPMorgan Chase, who conducted a retrospective analysis of the dollar behavior over the past 10 years. So, in May, the dollar index grew 8 times. For the American currency, this is the strongest month of the year.
The Russian ruble showed the worst results in the foreign exchange market yesterday. So those of our readers who listen to our recommendations should have earned good money. The reasons for the current sales of the ruble on the surface - the decline in oil prices and fears of new sanctions from the US. As for the deeper, fundamental foundations, we wrote about them earlier in our previous reviews.
About the oil market. Here our readers could earn even more. Russia published data on oil production in April. The country has again failed to meet the conditions of OPEC +. And this is despite the fact that Alexander Novak. Minister of Energy of the Russian Federation, swore an oath that the country would fulfill the terms of the deal. The problem is not in additional volumes of oil that Russia releases to the market (they are insignificant, about 40-50K b / d). But that Russia is not fulfilling the agreement.
If other members of OPEC + start following a similar strategy, then in June the agreement may well not be extended. And this could potentially lead to the appearance on the market of 1.2 million b / d of additional oil supply. That, naturally, will be the strongest blow to the oil quotes. So the current decline is far from the limit. We continue to monitor the situation on the oil market. In the light of such events and market sentiments, today we will also look for points for asset sales.
FOMC results, what to expect from the Bank of England & ADPThe announcement of the Federal Open Market Committee (FOMC) Fed meeting results was the main event. As we expected parameters of monetary policy were left unchanged. As for the comments, the Fed has been extremely positive about what is happening in the US economy recently. At the same time, the Central Bank noted weak inflation indicators, which were perceived by the markets as a “pigeon” position. Recall that the Fed simply does not have any reason to raise the rate with weak inflation. And that means that the pause in the rate increase will be delayed or the rate might be lowered, to intensify the inflation processes in the country. Nevertheless, the lack of any mention of the fall on the part of the Fed possibility perceived the markets as a signal for buying the dollar, which, by the end of the day, somehow compensated previous losses. Our position is still unchanged - we continue to look for the dollar selling points today.
About the dollar news. Publication of statistics on US employment from ADP was another important news. The data came out surprisingly good: + 275K jobs (forecast was + 180K). Recall that this Friday we are waiting for official statistics on the US labor market. If the figures for the NFP are somewhere in this area, it can greatly help the dollar, which is experiencing serious problems this week. But in more details, we will talk about this tomorrow.
The meeting of the Bank of England is on focus today. To begin with, as in the case of the Fed, we do not expect any changes in the Great Britain monetary policy parameters. In addition to the factors that put pressure on both the Fed and the Bank of England (the threat of a slowdown in global economic growth and a possible transition to the recession stage), the Central Bank of England has one more even greater problem - Brexit. While there is no clarity on this issue, the risks of the chaotic exit of Britain from the EU are great, and this promises a very serious level of uncertainty and potential damage to the economy. To loosen the boat in such conditions, the Central Bank simply has no right. So today we do not expect surprises from the Bank of England. As for buying the pound, after the strong growth in the last couple of days, the results of the Bank of England meeting may well be perceived as a reason for the local correction. So today we are more likely to sell pounds than to buy it.
According to the Ministry of Energy report, oil production in the United States increased by 100 thousand to 12.3 million barrels per day, which is a new absolute record. At the same time, oil reserves in the US unexpectedly rose sharply (by +9.93 million, with a forecast +1.47 million). These are pretty strong bearish signals. So today we will look for points for oil sales.
Our positions for today are as follows: we will continue to look for points for selling the dollar against the euro, as well as the Australian and Canadian dollars. In addition, we will buy gold, as well as sell oil and the Russian ruble on the intraday basis.
ADP: CD leg commencing downside target $128, -12%Market is turning bearish again and ADP looks like it has completed a counter-trend rally to the 78.6% retracement level. ABCD downside projection of $128, -c.12% with stops placed within 3% of current price; 4:1 risk reward ratio.
How should we interpret yesterday's ADP data?We continue to prepare our followers to the most important event of the week or probably even of a month - labor market statistics of the USA.
Yesterday, traditionally, a couple of days before official statistics, data from the ADP Research Institute on the level of employment in the private sector were published. Recall, analysts had expected growth rate at 187K. We noted that considering the current form of the US economy, we should expect the fact to exceed the forecast. Actually, the way it turned out - the data came out much better than analysts' expectations and amounted to +227K. This is a great indicator that confirms the fact that the US labor market is in the best form over the last 10 years.
Is it worth it to extrapolate these figures on Friday data on NFP? In yesterday's review, we noted that the level of correlation between data on ADP and NFP is about 25%. So the chances that the coincidence will be intense are not so high (about ¼).
We provide some statistical data (see table below).
Date ADP NFP delta
7.2017 158 222 64
8.2017 178 209 31
9.2017 237 156 -81
10.202 135 -33 -168
11.202 235 261 26
12.202 190 228 38
1.2018 250 148 -102
2.2018 234 200 -34
3.2018 235 313 78
4.2018 241 103 -138
5.2018 204 164 -40
6.2018 178 223 45
7.2018 177 213 36
8.2018 219 157 -62
9.2018 163 201 38
10.202 230 134 -96
As we can see, data on ADP and NFP usually differ significantly. On average, ADP comes out 30K better than NFP data. Tellingly, periods of the excess of ADP over NFP are replaced by an excess of NFP over ADP. That is, it is a high probability that this time (this Friday), the ADP numbers will be worse than the NFP (last month they were much better).
This means that we may fully expect the NFP growth not at 190K, as analysts expect, but at 250-260K. And although the forecast seems quite optimistic, we consider it is realistic, especially given that after the end of the hurricane season, the demand for labor usually increases sharply.
Our recommendations on the dollar are unchanged in this light - looking the points for the dollar purchases.
ADP data and dollar responseThe dollar is exclusively strong in the foreign exchange market so far. Consistent with an old rule “trend is your friend”, core strategy in current conditions should be purchases of the dollar. But, as we know, fundamental factors may break trends. Therefore, it is necessary to monitor the fundamental background for threatening the dollar. The nearest on the horizon - statistics on the US labor market.
On Friday we will get the most important block of macroeconomic statistics from the USA. Referring to the data on the number of new jobs created outside of agricultural (so-called NFP - Non-farm Payrolls), unemployment rate, as well as the average hourly wage. We will discuss Friday’s data in more detail tomorrow and the day after tomorrow. Today let’s just leave on the ADP report on the level of employment in the private sector. If Friday's statistics are official data from the US Department of Labor, then unofficial data from the ADP Research Institute will be published today.
Let’s start with that even though ADP and NFP formally display similar statistics, their value rarely coincides even at the level of basic trends. Actually, the level of correlation between them in the last 3 years is about 25%. That is, only in 1 case out of four, the trends in these indicators coincide.
In this light, making any final conclusions based on data from the ADP would be clearly premature. Nevertheless, data may well influence the traders' sentiments.
Analysts' forecasts for data from ADP are very optimistic. About 190K. And although this is slightly lower than the value in the past period, the figure itself is excellent and is quite close to the average value of 204K over the last couple of years. Since the hurricane season is over, and the US economy, according to the latest figures for GDP, continues to be in excellent shape, we see no reason for failure. Rather, on the contrary, average analyst forecasts give space for a positive surprise.
Overall, our expectations from today's and Friday statistics are generally positive, so we recommend buying the dollar. The motivation for this recommendation: the total positive position of the dollar in the foreign exchange market, as well as the excellent shape of the US labor market (according to some indicators, this is a record value since the 60s of the XXth century).
[ADP] Starting to phase 3?If the price bounces to $ 141.44, it'll continue in phase 2, but I think it's starting phase 3 because the RSI is down and the force of sale takes more than 2 years.
ADP: Expanding triangle formation I don't have a price target for ADP but it is interesting to see the resistance at $140 and the lower lows with a negatively diverging MACD. This is ultimately a bearish pattern.
Statistic from ADP:reason to be worried for buyers of the dollarToday's statistics on the US labor market may well disappoint. At least, this is indicated by data on the level of employment in the private sector from ADP. With an average forecast of experts in +190K, in fact the figure was +177K. Overall, there is nothing terrible in this figure. By itself, it is very, very good. The problem is that the States have become a hostage of excellent data. Markets have become too accustomed to numbers of + 200K and above. Accordingly, any negative deviation from the forecasts may be interpreted by participants of financial markets as the beginning of problems in the US economy, with all the ensuing consequences: a decrease in GDP growth rates, an end to the Fed's rate increase phase, and so on.
Just in case, let's remind you that today is published a whole block of data that includes not only the number of new jobs created outside agriculture, but also the rate of unemployment, and, which is no less important, in the conditions of the active phase of the FED interest rate increase - the average hourly earnings:
Pre-Forecast
15:30 USA 3 NFP (June) 223K 190K
15:30 USA 3 Average hourly earnings (m / m) (June) 0.3% 0.3%
15:30 USA 3 Unemployment rate (June) 3.8% 3.8%
As can be seen, the forecasts are rather optimistic and, in some cases, even aggressive, and therefore the chances that they will not come true fully or partially are high.
Thus, we see on the horizon a potential fundamental threat to the dollar.
In addition, purely technically, if you look at the graph of the Dollar Index, you can see its inability to overcome the key resistance 95 and can see signs of a possible correction: consolidation at the top, the formation of reversal graphical patterns, candlestick signals, trend indicators enter into a neutral negative state (see KenJi and TDI indications), etc.
Total, dollar sales continue to look more promising than its purchases.
