There is a suspicion that what happened yesterday is nothing other than a large-scale speculation, the goal of which is the subsequent sale of more expensive currencies for dollars. Market reaction was indeed the opposite of employment data and you don't need to fool yourself by talking about the fact that, they say, the reason is a new record for the number of cases of coronavirus in the United States. These sad data became known after the completion of the mover in the market. And the content of the minutes of the meeting of the Federal Committee on open market operations will not be able to refer to, since it is completely impersonal. And again, it was published after the market had calmed down. Therefore, the only explanation is only speculative trading in order to drive the single European currency and the pound as high as possible, in order to get the greatest profit when they are sold off. But before we talk about the reasons for this sale, we need to carefully look at what was happening and will continue to happen before the publication of the report of the United States Department of Labor.

So, yesterday began with the publication of the final value of the business activity index in the Euro area, which was slightly better than forecasts. The preliminary estimate showed an increase in the index from 39.4 to 46.9. The final data showed that the index rose to 47.4. And at this very moment, the single European currency, along with the pound, quickly arose.

Manufacturing Business Activity Index (Europe):

But the enthusiasm did not last long. In just half an hour, the final data on the index of business activity in the UK manufacturing sector were published, which coincided with a preliminary estimate. So the index in the United Kingdom grew from 40.7 to 50.1. And it is, of course, wonderful that the managers of UK industrial enterprises are so optimistic about the future, but market participants have not seen anything new. All this was laid down in quotes at the time of publication of the preliminary assessment. Thus, it was at this point that the dollar began to recoup its losses, and as a result, quite quickly. Meanwhile, the pound and the single European currency returned to the values at which they were before the publication of data on the Euro area.

Manufacturing Business Activity Index (UK):

But the most interesting thing started when the ADP data on employment in the United States was published. Formally, the collapse of the dollar can be attributed to the fact that the data allegedly turned out to be worse than forecasts. Indeed, employment was projected to grow by 3,000 thousand, but it turned out that it grew only by 2,369 thousand. And they say, in anticipation of the publication of the report of the United States Department of Labor, this suggests a high probability that the content of this report will be much worse than forecasts. However, such an explanation will be appropriate only if we admit that all market participants lost their minds at once and began to suffer from a tendency to mass suicide. The fact is that the data came out an order of magnitude better than forecasts. The thing is that the data for the previous month were revised for the better. Yes, even as revised. If previously it was thought that in may employment decreased by 2,760 thousand, now it turns out that it then increased by 3,065 thousand. As a result, if it was predicted that employment would grow by 240 thousand in two months, in fact it increased by 5,434 thousand. That is, more than twenty times more. In other words, this indicates that the content of the report of the United States Department of Labor will be significantly better than expected, including due to the possible revision of data for the previous month. So the weakening of the dollar is clearly purely speculative, since everyone will rush to buy it, and holders of the single European currency with the pound will be able to sell them more expensively. And against this background, of course, there is almost no point in dwelling on the index of business activity in the manufacturing sector, which also came out better than forecasts. It rose from 39.8 to 49.8, not to 49.6, as the preliminary estimate showed.

Employment Change from ADP (United States):

It is clear that once such a party went on, investors will not react in any way to today's European statistics, although it is completely in the logic of the process. After all, the unemployment rate in Europe should rise from 7.3% to 7.7%, which is quite sad especially in comparison with the United States, where all the latest data on the labor market indicate its gradual recovery. In addition, the rate of decline in producer prices in Europe should accelerate from -4.5% to -5.2%, which suggests that the recent increase in inflation is a temporary phenomenon. Deflation, in turn, continues to threaten the Euro area.

Producer Prices (Europe):

Now, we wonder how the previous United States labor market data may be revised. Let's better start from the forecasts that are based on the data that will be published. So, the unemployment rate itself should decline from 13.3% to 12.3%. Yes, this is an incredibly high level. The tendency to lower unemployment is clearly expressed, while it is growing in Europe. In addition, 2,900 thousand new jobs should be created, which is simply fantastic. The level of economic activity should rise from 60.8% to 61.0%. In short, the content of the report of the United States Department of Labor should be simply excellent. Yes, the numbers are scary, but the dynamics themselves indicate precisely the gradual restoration of the labor market. But without this, there can be no question of any economic recovery. In addition, the number of initial applications for unemployment benefits may decline from 1,480 thousand to 1,340 thousand. The number of repeated applications for unemployment benefits may decline from 19,522 thousand to 18,800 thousand. In general, everything is clear. Thus, even if these forecasts are confirmed, then it is worth waiting for a noticeable increase in the dollar. And there is a probability that the data will be better than forecasts including due to the revision of previous data.

Out-of-farm jobs change (United States):

The euro/dollar pair found a foothold in the region of 1.1180/1.1190 once again, where there is a systematic price rebound followed by a surge in long positions. It can be assumed that the upward trend will soon end, where the area of 1.1275/1.1285 could theoretically play the role of resistance, returning sellers to the market. The development prospect for this result of price fluctuations lies in the range of 1.1180/1.1285.

The pound/dollar pair returned from the level of 1.2250 to the level of 1.2500, where it locally slowed down. It can be assumed that in the region of 1.2500/1.2540, a resistance may play a role during which short positions will arise and, as a fact, the price will return to the level of 1.2350. We consider an alternative scenario in case the price consolidates above 1.2550, in the direction of 1.2620.