ADP Up Next

Today’s US ADP employment number will be the main data focus for traders. Coming ahead of the headline NFP event on Friday, the ADP data is typically taken as an indicator of whether the NFP is likely to undershoot or surpass expectations.

ADP & NFP Correlation

While data on the correlation between the two is less than conclusive, the market dynamic has persisted nonetheless. One school of thought is that typically, the ADP number is seen as more useful if we see a large departure from consensus forecasts as we did last time around. However, even this notion can be seen to be lacking. Last month the ADP figure printed 127k vs 196k expected, suggesting a big miss was coming on the NFP reading. However, following this, the NFP result came in at 263k vs 200k expected.

ADP Usefulness

So, does this mean the ADP reading is useless? Absolutely not. The ADP report forms part of the broader insight into the US labour market and should be received as such. Furthermore, given that many traders still use the ADP release as a gauge ahead of the NFP, the dynamic is reinforced with traders typically selling USD on a weak ADP number into the NFP and buying USD for a strong number.

Current Forecasts

This month, the market is looking for ADP at 152k up from 127k prior which should keep USD supported if seen. However, the big test for USD will be Friday’s NFP reading forecast at 200k from 263k prior. Any undershooting in either data set will no doubt reinforce US recession fears, driving USD lower.

Technical Views

DXY ( Dollar Index)

For now, the index is in a holding pattern caught between support at the 103.48 level and resistance at 104.95, with the broken bear channel lows also offering resistance for now. While momentum studies have turned bullish, price action remains lack lustre for now suggesting plenty of two way risk. On a break of current lows, bears can look for 101.22 next. Back above 104.95, 109.18 is the next resistance to note.