US Dollar retreats after strong ADP, missing GDP

The US Dollar Index (DXY) has moved back and forth during Wednesday’s European session. A better-than-expected US ADP Employment Report has eased labor market concerns triggered by weak job openings and improved investors' expectations for Friday's Nonfarm Payrolls numbers.

Apart from that, the Gross Domestic Product (GDP) confirmed that the US economy advances at a faster pace than the rest of the major economies, with Personal Consumption Expenditures growing at strong levels. These data are consistent with steady inflation pressures, that force the Federal Reserve (Fed) to remain cautious with rate cuts. The US Dollar initially appreciated with the news, but gave up after a better-than-anticipated Wall Street's performance in the first hour or trading. 

Daily digest market movers: The US Dollar shows signs of weakness ahead of key US releases

• US ADP Employment has shown a 233K increase on private-sector payrolls in October beating expectations of a 115K increase. In the same report, September's reading has been revised up to a 159K increase, from the 143K reported last month.
   
• The Q3 US Gross Domestic Product revealed that the economy grew at a 2.8% pace. These figures fall short of the 3% growth foreseen by the markets but it is comparatively strong in a global context of economic slowdown.
   
• On Tuesday, the JOLTS report showed a decline to 7.44 million Job Openings in  September, its weakest reading in more than three years. These figures raised concerns about a significant deterioration of the labour market and increased pressure on the US Dollar.
   
• Futures markets are now nearly fully pricing in a quarter-point interest-rate cut by the Fed at its meeting next week, according to data from the CME Group’s FedWatch tool. The chances of another 25 bps cut in December have eased to 70% from 76.6% before the data release.
   
• On Thursday, the Personal Consumption Expenditures (PCE) Prices Index, The Fed’s inflation data of choice, is expected to show that price pressures continue to ease, with the core reading down to 2.6% yearly from 2.7% in September.
   
• The highlight of the week will be Friday’s NFP report, which is expected to show a significant decline in new payrolls. Such an outcome might hurt speculative demand on the US Dollar.

• DXY technical outlook: Approaching the 104.00 mark

The DXY index gave back intraday gains an approaches its intraday low at 103.98. It is still holding within familiar levels and confined to tight intraday ranges, somehow highlithing the cautious stance that rules financial boards. 

The 4-hour Relative Strength Index (RSI) indicator signals a potential bearish continuation, given that it accelerated its slide below its 50 level, currently at around 43. At the same time, sellers continue to reject advances around a flat 20 Simple Moving Average (SMA). The Dollar Index needs to break below Friday's low at 103.95 to confirm a deeper correction and shift its focus towards 103.40. Resistances are at the 104.55 - 104.75 area and 105.20.