ADP data and dollar response

The dollar is exclusively strong in the foreign exchange market so far. Consistent with an old rule “trend is your friend”, core strategy in current conditions should be purchases of the dollar. But, as we know, fundamental factors may break trends. Therefore, it is necessary to monitor the fundamental background for threatening the dollar. The nearest on the horizon - statistics on the US labor market.

On Friday we will get the most important block of macroeconomic statistics from the USA. Referring to the data on the number of new jobs created outside of agricultural (so-called NFP - Non-farm Payrolls), unemployment rate, as well as the average hourly wage. We will discuss Friday’s data in more detail tomorrow and the day after tomorrow. Today let’s just leave on the ADP report on the level of employment in the private sector. If Friday's statistics are official data from the US Department of Labor, then unofficial data from the ADP Research Institute will be published today.

Let’s start with that even though ADP and NFP formally display similar statistics, their value rarely coincides even at the level of basic trends. Actually, the level of correlation between them in the last 3 years is about 25%. That is, only in 1 case out of four, the trends in these indicators coincide.

In this light, making any final conclusions based on data from the ADP would be clearly premature. Nevertheless, data may well influence the traders' sentiments.

Analysts' forecasts for data from ADP are very optimistic. About 190K. And although this is slightly lower than the value in the past period, the figure itself is excellent and is quite close to the average value of 204K over the last couple of years. Since the hurricane season is over, and the US economy, according to the latest figures for GDP, continues to be in excellent shape, we see no reason for failure. Rather, on the contrary, average analyst forecasts give space for a positive surprise.

Overall, our expectations from today's and Friday statistics are generally positive, so we recommend buying the dollar. The motivation for this recommendation: the total positive position of the dollar in the foreign exchange market, as well as the excellent shape of the US labor market (according to some indicators, this is a record value since the 60s of the XXth century).