USD heavily sold as weak ADP figure raises NFP fears. Fed’s Mester adds to bearish pressure. Equities higher on USD drop. CAD & EUR lead way in FX. Oil reverses off yesterday’s lows on big EIA drawdown news. OPEC+ steps up oil output.
Key Factors for Today
- USD lower on ADP miss and dovish Fed comments
- NFP release on watch
- Equities rally on USD weakness
- CAD & EUR leading FX, JPY the laggard
- Oil prices rally on big EIA drawdown
Coming Up
- USD US average hourly earnings
- USD US NFP
- USD US unemployment rate
ADP Miss Weighs on USD Ahead of NFP Today
The US Dollar was seen heavily sold yesterday, reversing all of Tuesday’s gains in response to a much weaker than expected ADP employment number. At 128k, the reading was less than half the 295k expected. Weakness in this indicator has now raised fears of similar weakness in today’s headline NFP release. The market is looking for jobs to have cooled to 325k from the prior month’s 428k. The bigger focus will likely be on earnings growth. If seen rising, as expected, this should keep hawkish Fed expectations intact heading into next week’s CPI figure.
Fed’s Mester Raises Post-July Pause Prospects
USD weakness was compounded yesterday by comments from Fed’s Mester who once again raised the prospect of a post-July pause. Mester said that while further aggressive action was needed over the coming months, policy action from September onwards would be highly dependent on inflation, meaning the pace of hikes could go up pr down.
Equities Surge Higher on USD Weakness
It was a better day all around yesterday for equities markets. While UK markets were off for the holiday there, Asian, European, and US markets all rallied amidst the drop in USD. The Nikkei is now back up to its highest level since early April, racking up a run of 7 winning days out of eight. Should today’s US data see the Dollar come under further pressure, we can expect these gains to extend into next week. In the US, the ongoing rebound in tech stocks is helping lift core sentiment despite the revenue downgrade we saw from Microsoft.
CAD Rallying on BOC Rate Hike & Oil Gains
In FX, CAD has been the strongest performer across late Asian and early European trading on Friday. The BOC rate hike midweek, along with stronger oil prices, is helping lift the currency. EUR has also picked up steam into the end of the week with hawkish expectations growing ahead of next week’s ECB meeting. JPY has been the biggest loser again so far today with better risk sentiment diluting safe-haven flows for the Yen.
Gold & Silver Fail To Breakout
Despite the drop in USD, gold and silver prices have been unable to breakout so far this week. On the back of yesterday’s rally, gold and silver have both seen softer trading across the European open on Friday. Today’s US data will now hold the key for direction cues into next week.
Crude Rallies Off Lows on Big EIA Drawdown Oil prices have started Friday’s European session with a little bit of weakness. However, crude is still well up off yesterday’s lows following a sharp reversal higher in response to the EIA reporting a huge 5-million-barrel drawdown in crude stores. OPEC announced yesterday it would increase its monthly output at a higher pace than usual to account for weaker Russian output, though stopped short of banning Russia from the OPEC+ agreement.
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