I’ve been majorly under the weather with man flu today, so the Asian session morning blog has been pushed back and shortened into a look at EUR/USD as we head into tomorrow’s NFP release.
As always, the night before NFP, we get the ADP private sector report, which came in as follows:
“USD ADP Non-Farm Employment Change: 172K v 158K expected”
In a post-Brexit 2016, no matter how good the labour market is doing, I just have a lot of trouble seeing the Fed risking the economy as a whole by hiking rates.
This ADP number is a small beat so if you want to make the prediction that tomorrow’s NFP will also be a small beat, it just wont be enough to be USD positive.
Sure, trying to look for NFP clues in the ADP release is notoriously unreliable… but we do it anyway. Because the clue isn’t in the number itself, it’s how the market is positioned in expectation.
We know that the Brexit vote was a huge strain on EUR/USD, just as it was on all risk pairs. Along with GBP/USD of course, EUR/USD is obviously one of the most sensitive pairs to the vote.
But with Cable taking most of the heat, it’s the USD side of the EUR/USD that’s keeping it afloat. Heck, while Cable has continued to print new lows, EUR/USD has actually retraced, and is holding, HALF the fall!
Over and over you see this pattern of a major trend line breaking and re-testing to give only a short term bounce. This is where the n00bs get sucked into the trade because it looks a textbook re-test of previous support now as resistance, but then the smart money takes over.
From here, the more likely path that price will follow is to the upside, creeping along the underside of the trend line until it is re-activated as support once again.
This fits in with the fundamental thinking behind how the market is positioned heading into NFP and most importantly, the next FOMC meeting in July.
“USD Non-Farm Employment Change: PENDING”
But on the other side of the coin, would there be a positive NFP beat that would get the Fed, and USD longs interested? I say no, but this is 2016 after all!
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Dane Williams – @VantageFX
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