- ADP´s private-sector labor report is forecast to show a modest increase of 420,000 jobs.
- The payrolls firm has been mostly missing the mark after coronavirus broke out.
- Even a minor beat could be sufficient to trigger a dollar bounce after the massive sell-off.
Setting achievable goals – a charitable of saying a low bar – makes beating it easy and could trigger a positive market reaction. Is the dollar set to jump?
Economists seem to have gotten used to disappointing figures from ADP's jobs report and now expect a modest increase. The calendar is pointing to an increase of 420,000 private sector positions in November, a slower pace of job restoration.
As the chart below shows, the actual figures published by ADP fell below estimates in five out of seven last publications.
Source: FXStreet
The data also reveals another actionable phenomenon – the figures are significantly revised to the upside every month and to round numbers. Since the coronavirus pandemic broke out early in the year, ADP has been struggling to assess the number of workers in the US economy.
The sharp fluctuations and various furlough schemes have tested statistical models and wreaked havoc. The company has tended to report relatively low numbers in comparison to the official Nonfarm Payrolls report from the Bureau of Labor Statistics (BLS) and was forced to adapt.
For traders, it means that any beat would be surprising in two ways – varying from the trend of missing estimates and suggesting an even higher increase in the official number of jobs.
Dollar reaction
The US dollar has been on the back foot in recent weeks, as demand for the safe-haven dollar fell. Political certainty in the US and several encouraging covid vaccine announcements have pushed investors into riskier assets.
This trend may have been overstretched, resulting in multi-month and nearly multi-year lows for the greenback against its major peers. EUR/USD, GBP/USD and AUD/USD are some of the examples.
Oftentimes, it only takes a small spark to trigger a correction. Such a phenomenon was seen in late November when Markit's Purchasing Managers' Indexes beat estimates. America's leading PMIs come from ISM, not Markit, yet the news triggered a rush into greenbacks.
Will the same knee-jerk reaction return? The chances are high, even if the upside surprise is small, or perhaps in case of a minor miss such as 400,000 jobs gained in November.
Conversely, a minor miss of estimates will likely be shrugged off by markets as yet another disease-distorted figure. The dollar is unlikely to suffer, as long as ADP prints a figure above 300,000. Only a substantial shortcoming would cause a pause for thought.
Conclusion
The bar is low for ADP's NFP to beat estimates, and given previous disappointments, any beat would seem promising for the US labor market. With the dollar stretched to the downside, the ground seems ripe for an upwards bounce in the dollar.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.