The dollar remains stable after Thursday’s rebound resulting from a stronger than expected ADP survey on private sector jobs and a firmer than expected services ISM, which included a rise in its employment index. The 150,000 rise in the June ADP payrolls from May’s 97,000 could suggest that today’s release of June non-farm payrolls (8.30 am) may come in at around 150,000 instead of the 125,000 consensus forecasts. Such a figure would be the second monthly upside surprise in NFP, thus potentially broadening the dollar’s rebound of the past 24 hours.
We stick with our NFP forecast of 115,000, while expecting the unemployment unchanged at 4.5% and average hourly earnings to slow to 0.2% from 0.3%, against consensus forecasts of a 0.3% rise.
In the event that the ADP report comes in less than 90,000 to 85,000 and the employment component of the services ISM slips back under 52, then the market may lower its consensus forecast of non-farm payrolls from the current 125,000.
In the event of a June payrolls figure under 110,000 and (or) a downward revision in the May payrolls from 157,000 to below 120,000, the U.S. dollar would come under sharp selling considering that yesterday’s ADP report may have lifted expectations. But traders must also watch the average hourly earnings figure, which has come in at 0.3%, 0.2% and 0.3% in March, April and May respectively. In the event that average hourly earnings come in at no more than 0.3% and the unemployment rate rises to 4.6%, than that too would cap the greenback.
Euro risks extending losses towards 1.3540
The euro pullback from 1.3660 to 1.3595 came in on the heels of stronger than expected U.S. services ISM and ADP survey that may translate into further U.S. labor market strength, causing traders to revise down their euro longs positioning ahead of today’s NFP. Although ECB president Trichet signaled that a September rate hike remains in the works, traders’ priorities lay with the unexpectedly strong data and the risk for an upside surprise in NFP that may catch dollar bears wrong footed.
We expect the pair to face upside pressure at 1.3610, while boosted at 1.3570. A no change in the unemployment rate and an NFP figure of higher than 120,000 would be sufficient in dragging the euro below 1.3570, prolonging losses towards 1.3545. Upside remains capped at 1.3630. A figure below 100,000 would be instrumental in boosting the pair beyond 1.3630 towards 1.3655.
Sterling seen uninspired at $2.01
We expect sterling to enter a new zone of consolidation within the 2.0065 to 2.0100 range as the Bank of England is out of the picture until two week’s time when the minutes of yesterday’s rate hike decision are due. Our expectations for a positive dollar reaction from today’s NFP translate into a neutral to negative sterling move. Support stands at 2.0065. Upside initially capped at 2.0130, followed by 2.0150.
Our bullish forecast for EUR/GBP yesterday calling for a 67.80 target was realized with the cross jumping from 67.50 to 67.80 before retreating towards 67.60. We see renewed ground for regaining the 67.70s. A decline towards the 67.40s will be considered as an entry opportunity for fresh gains.
USD/JPY seen accumulating further but modest gains
The breach of the 122.90 resistance to 123.00 sets the stage for further gains towards 123.25, at which point we expect consolidation to neutralize the gains near 123.35, which is a double top and a 61.8% retracement. A breach of 123.40 is seen capped at 123.50. Previous 122.85 resistance acts as a key interim support, followed by 122.65.
CAD awaits crucial Canada employment
The 7 am EST release of Canada’s June employment payrolls is expected to show a modest rise to 16,500 from 9,300, with the unemployment rate unchanged at 6.1%. The report could be crucial in affirming expectations of a rate hike next week in the event of a figure of no less than 10,000. Considering CPI inflation being above the 2.0% target for three consecutive months, markets would need to see a figure of less than 3,000 to 5,000 and a bounce in the unemployment rate for these expectations to be swayed downwards. In this scenario, we expect USD/CAD to push towards 1.0590, with a firm U.S. payrolls acting as a trigger towards 1.0630. Canadian job strength is seen producing limited losses in USD/CAD at 1.0535 until the U.S. release.
Ashraf Laidi
Chief FX Analyst
CMC Markets US
140 Broadway, 30th Floor
New York, NY 10005
(212) 644-4220
a.laidi@cmcmarkets.com
