Tuesday's positive data on the US economy prevented the dollar to grow significantly, as it stimulated demand for US stocks. At the same time, we are waiting for the publication of new employment figures today and on Friday, as well as an increase in the yield on US Treasury bonds, supporting its course.
According to data released on Tuesday, the ISM Manufacturing PMI for August soared from 54.2 points to 56.0 points, with a forecast of 54.5 points. However, the values of the manufacturing business activity index (PMI) turned out to be slightly weaker. The indicator turned out to be slightly below the forecast - 53.1 points, but still above the July value of 50.9 points, which still shows positivity. At the same time, retail sales from Redbook were positive, showing growth in annual terms by 4.6% against 0.6%, and to 5.8% against 4.1% in monthly terms. So, after evaluating the presented statistics, the market perceived them as positive, which justifiably supported the demand for risky assets.
How will the updated employment values from ADP affect the dollar rate?
It is noteworthy that the Fed's decision to target inflation at 2.0% is not the end. This indicates that another stimulating measure will start, which is more global and even ambitious at the present time. After deciding on such extraordinary measures, the regulator is going to stimulate the employment growth in the country by reviving the real sector of the economy. The expansion of the number of new jobs amid growing economic activity of businesses will lead to an increase in consumption in the country and, as a result, to an increase in inflationary pressure. These measures will surely affect the rate of the US currency negatively, but on the contrary, the shares of companies will receive noticeable support.
In this regard, ADP's employment data will be uniquely important. It is estimated that the US economy received 950,000 new jobs in August, compared with 167,000 in July. These are more optimistic values, and if they are still at least slightly higher than the consensus forecast, then we can expect a new surge of optimism in the US stock market with a possible limited increase in the dollar rate, followed by its mirror decline against all major currencies. Now, the dollar will grow in view of increased demand for defensive assets, only if the values surge and turn out to be worse.
Conclusions
Assessing the possible dynamics of world markets in general and the currency market in particular, it can be noted that higher values of the number of new jobs from ADP will support the demand for risky assets and put pressure on the dollar, whose dynamics is currently tightly linked to the demand for shares of American companies.
Forecast of the day:
The EUR/USD pair was unable to break out of the "rising flag" trend pattern located above 1.1985, due to weak data on consumer inflation in the euro area, as well as in anticipation of positive values from the ADP. The pair is balanced near this level and its movement will depend entirely on the values of the indicator. If the price stays above 1.1900, it will resume growth to 1.1985. But if this does not happen, we can expect the decline to continue to the level of 1.1785.
The USD/CAD pair is trading below 1.3085. It is under pressure from a clear decline in US oil reserves from the American Petroleum Institute (API), which supported the quotes of "black gold". We believe that if the data on oil and petroleum product inventories from the US Department of Energy also fall and oil prices rise amid dollar's global weakness, the pair will resume falling to 1.2975. From a technical point of view, it needs to hold above the level of 1.3085.
