The ADP Employment Change report is anticipated to reveal a slowdown in job creation within the US private sector during November. This report, which is set to be released by the ADP Research Institute on Wednesday, is expected to show that US employers added 150K jobs last month, a decrease from the 233K jobs added in October.
The ADP report is often regarded as a precursor to the more significant Nonfarm Payrolls report scheduled for Friday. It typically comes out two days prior to the official Nonfarm Payrolls (NFP) report and is seen as an early indication of the Bureau of Labor Statistics (BLS) jobs report, although the correlation between the two has been somewhat erratic over time. For instance, in October, ADP reported a gain of 233K jobs, while the BLS official figure was only 12K.
Employment growth has been a central factor in shaping Federal Reserve (Fed) policy. Since Fed Chief Jerome Powell and other rate setters signaled that inflation was convincingly approaching the central bank’s 2.0% target, US employment data has taken the spotlight in determining monetary policy decisions. The Fed has been delicately balancing its dual mandate of maximum employment and price stability in the post-pandemic economy. In 2022, in response to soaring inflation, the Fed raised interest rates to record highs to cool the economy and control prices. The labor market was a crucial element in this equation. Tight job conditions could have further fueled inflation, but recent months have shown signs of a more balanced economic state. This led the Fed to adjust its strategy. At its September meeting, it surprised the markets with a 50 basis-point (bps) rate cut and hinted at potential further reductions. True to this, the Fed implemented an additional 25 bps rate cut at its November 7 meeting. After this, Chair Powell stated that the Fed was in no hurry to continue cutting rates, suggesting a possible pause in December. This hawkish shift significantly reduced market expectations for further cuts at the December 18 gathering. Fed officials, including Powell, have consistently described the US economy as being “in a good place.” Currently, the CME Group’s FedWatch Tool indicates a more than 75% probability of a quarter-point rate cut later this month. However, the upcoming employment data could alter these odds. A stronger-than-expected ADP Employment Change report might support maintaining the current interest rate, strengthening the US Dollar (USD) by upholding the Fed’s restrictive stance. Conversely, a weaker report could reignite speculation about another rate cut, potentially undermining the Greenback’s recent strength. Nevertheless, any reaction to the ADP report might be short-lived. Investors are likely to wait for Friday’s Nonfarm Payrolls (NFP) report, which generally offers a more comprehensive view of the labor market, before making major decisions.
The ADP Employment Change report for November will be released at 13:15 GMT on Wednesday. As the market awaits this report, the US Dollar Index (DXY) is aiming to solidify a favorable start to the week. It has rebounded from last week’s lows near 105.60 and has briefly regained the 106.70 area so far. From a technical analysis viewpoint, Pablo Piovano, a Senior Analyst at FXStreet, notes that the US Dollar Index (DXY) is steadily climbing. The next major target is the recent cycle high just above 108.00 level on November 22. Beyond that, it aims for the November 2022 top of 113.14 (November 3). On the downside, any decline would first encounter support at the weekly low of 105.61 (November 29), followed by the crucial 200-day SMA, currently at 104.04, and the November low of 103.37 (November 5). Further drops could test the 55-day and 100-day SMAs at 103.95 and 103.29, respectively. A more significant retreat might even bring the index closer to its 2024 bottom of 100.15, recorded on September 27. Additionally, the Relative Strength Index (RSI) on the weekly chart hovers around the 58 region and is trending upwards. At the same time, the Average Directional Index (ADX) has lost some momentum, dropping below 44 but still indicating a firm uptrend.
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