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EUR/USD: Strong ADP bolsters expectations ahead of Friday’s jobs

FX:EURUSD   Euro Fx/U.S. Dollar
The EUR/USD             fell after strong ADP reading yesterday, but the reaction was short-lived and the rate is back above 1.0600 today.
U.S. private employers added 216k jobs in November, well above market expectations for 165k gain. The ADP figures come ahead of the U.S. Labor Department's more comprehensive non-farm payrolls report on Friday, which includes both public and private sector employment .
The Federal Reserve said in its Beige Book that the economy continued to expand in October and November. The survey showed that most districts expected positive outlooks, and six districts expected moderate growth in the future. According to the survey, a majority of districts reported higher retail sales and improved residential real estate activity. Manufacturing activity was mixed. Several districts cited the strong USD as a headwind while some reported robust demand. Employment continued to expand, with seven districts reporting tightening labor market conditions. Districts noted slight upward pressure on overall prices.
Cleveland Fed President Loretta Mester said the U.S. economy needs higher interest rates although the central bank will closely scrutinize the expected changes in America's fiscal, trade and immigration policies. Mester did not specifically refer to proposals by U.S. President-elect Donald Trump to slash tax rates, boost infrastructure investment and curtail immigration. But she said changes in these policy areas appeared likely and that the U.S. central bank would have to weigh how they affect employment and inflation .
Mester dissented at the Fed's last two policy meetings when the central bank kept interest rates steady. She voted in favor of quarter percentage point increases in the Fed's targeted range for overnight lending between banks.
Fed Governor Jerome Powell said Federal Reserve policymakers should put less emphasis publicly on the short-term outlook for interest rate increases and more on the economics driving monetary policy and the uncertainty of forecasts.
European Central Bank President Mario Draghi said the ECB has bought governments time with its super-easy monetary policy , yet reform efforts looks to be softening, a major worry as productivity growth is already weak, innovation is low and ageing populations will be a huge drag. In a clear sign that the ECB is not about to end its easy policies, Draghi said the bank would next week examine a combination of instruments and timeframes, like the size and time horizon of its bond purchases, to support the economy.
The ECB meets next week in Frankfurt and is expected to announce an extension to its stimulus measures to lift growth and inflation . But many of the bank's critics argue that its policies are near their limits given years of stimulus, so more of the same will hardly do anything for growth.
Yesterday’s fall in the EUR/USD             is not being continued today and the rate is fluctuating near 7-day exponential moving average . Very strong ADP reading reduces the likelihood of significant USD rally in case of better-than-expected non-farm payroll data on Friday. In turn, we may see some profit taking on recent EUR-selling positions if Friday’s jobs report disappoints. Our short-term EUR/USD             outlook remains slightly bullish .

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