- The ADP Employment Change report is anticipated to indicate a slight uptick in private sector job creation for September.
- The United States will release the Nonfarm Payrolls report on Friday.
- The US Dollar is consolidating after recent Fed-related losses and may face further declines.
The Automatic Data Processing (ADP) Research Institute will publish its monthly report on private-sector job creation for September on Wednesday. The ADP Employment Change report is expected to show that the United States added 120,000 new jobs in September, following the creation of 99,000 jobs in August.
Typically released two days before the official Nonfarm Payrolls (NFP) report, the ADP report serves as a leading indicator of the Bureau of Labor Statistics (BLS) jobs report, despite the uncertain correlation between the two metrics.
ADP Jobs Report: Employment and the Federal Reserve
US employment data has been a focal point for over a year due to its influence on Federal Reserve (Fed) monetary policy decisions. The Fed's dual mandate of maximizing employment and ensuring price stability has faced challenges in the aftermath of the pandemic, prompting the central bank to tighten monetary policy to restore balance.
The primary concern has been inflation, which surged throughout 2022. In response, the Fed raised interest rates to record highs and maintained them amid concerns that a tight labor market could exacerbate price pressures. However, indicators have recently shown signs of better balance, leading the Fed to cut interest rates. In September, US policymakers lowered the benchmark rate by 50 basis points (bps) and anticipate further cuts.
Market participants are now questioning whether the Fed will implement a modest 25 bps cut at its November meeting or opt for another 50 bps reduction. According to the CME FedWatch Tool, the odds for a 25 bps cut stand at 66%.
With inflation pressures easing, Fed officials have shifted their focus to maintaining a “healthy” labor market. Consequently, a stronger-than-expected ADP report could reduce the likelihood of an aggressive interest rate cut in November, providing near-term support for the US Dollar. Conversely, a disappointing report may lead to increased speculation for a 50 bps cut, weakening the USD. However, it's important to note that the report's impact may be short-lived as traders await the NFP release scheduled for Friday.
ADP Report Release and Impact on the USD Index
The ADP Employment Change report will be released on Wednesday, and it is anticipated to show that the private sector added 120,000 new jobs in September.
In advance of the release, the US Dollar Index (DXY) is consolidating below the 101.00 level after reaching a fresh 2024 low of 100.16 at the end of September.
From a technical standpoint, Valeria Bednarik, Chief Analyst at FXStreet, notes that the DXY has been under pressure since the Fed's monetary policy announcement in mid-September. Technical indicators on the daily chart suggest limited bullish potential. A bearish 20 Simple Moving Average (SMA) acts as near-term resistance around the aforementioned threshold, while a bearish 100 SMA gains downward momentum above the shorter SMA, having crossed below a flat 200 SMA.
Bednarik further observes that technical indicators remain in negative territory, lacking directional momentum, with overall risks skewed to the downside. Resistance beyond the 101.00 level is seen at 101.47, followed by the daily low of 102.17 from August 5. Support levels are located at 100.41 and the year-to-date low of 100.16, with a break below the latter potentially signaling a more significant decline towards the 99.00 level.
