US Dollar retreats after strong ADP, missing GDP

The US Dollar turned lower after Wall Street's opening, DXY holds above 104.00.
US GDP grew below expectations in the third quarter but still at a pace consistent with a strong economy.
The pair remains moving sideways with 104.55 resistance limiting rallies

Guillermo Alcala FXStreet

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.

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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