Some risk of USD ending up lower after NFP, absent a significant topside miss – Scotiabank

USD struggles to hold post-ADP gains ahead of NFP. Economists at Scotiabank analyze the greenback’s outlook.

USD’s reaction to better-than-consensus data will be limited

The strong ADP data lifted market expectations an upside surprise to the data which may mean the USD’s reaction to better-than-consensus data will be limited. And there is a risk that the ADP data overstate the strength of the labour market relative to the official data significantly, perhaps due to seasonal effects (ADP gains reflected a surge in hospitality/services). 

The USD is taking a cautious approach to the data. After gaining on the ADP report on Thursday, the USD slipped broadly and closed lower on the day – a bearish signal both in technical terms and its inability to profit from clearly positive data. 

There does appear to be some risk of the USD ending up lower after the US jobs data, absent a significant topside miss. 

DXY weakness below 102.75 support would be a clearly bearish cue for markets.

See – Nonfarm Payrolls Preview: Banks see labour market still quite strong