US Dollar Index (DXY) languishes below 97.00 with all eyes on US payrolls data

The Dollar remains depressed near long-term lows, unable to return above 97.00.
Weak ADP data released on Wednesday heightened hopes of Fed cuts and capped the US Dollar's recovery.
A moderate optimism after the US-Vietnam trade deal has added pressure on the safe-haven USD.

Guillermo Alcala FXStreet

The US Dollar Index (DXY), which measures the value of the Dollar against the world’s six most traded currencies, keeps wavering below the 97.00 area, unable to take off from multi-year lows, after having lost more than 2% during the last two weeks.

Wednesday’s recovery attempts were capped at the 97.10 area, a support level in late June, now turned resistance, as the Dollar retreated again following a downbeat US ADP employment report that boosted hopes of imminent Fed cuts.

ADP Employment data disappoints and boosts Fed easing hopes

ADP data revealed the first net loss of employment in more than two years, with a net loss of 33,000 private payrolls in June, against market expectations of a 95,000 increase and following a downwardly revised 29,000 increment in May.

A firm Powell and strong jobs data support the USD.

Beyond that, Trump’s announcement of a trade deal with Vietnam, whose details are scarce, boosted hopes of more such deals ahead of the July 9 deadline and increased pressure on the safe-haven US Dollar.

Investors, however, are wary of placing directional bets on the US Dollar ahead of the US Nonfarm Payrolls report, due later today. US payrolls are expected to have increased by 110,00 in June after a 139,000 rise in May. Another downbeat report today might confirm expectations of Fed cuts in July and September and send the US Dollar to new lows.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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