After firm gains on Tuesday a disappointing US job figure pushed the Dollar to weekly lows. The ADP employment figure monitoring private hiring has shed 23k jobs against market consensus of a 40k rise. The highly regarded figure which is considered to be a good indicator for the key Nonfarm payroll which follows has shaken investors’ confidence on the US job market recovery with market players fearing Friday’s nonfarm figure could majorly disappoint. Investors are eyeing the US job market very closely for 2 major reasons, the health of the US job market is the main factor affecting the Fed’s rate policy moreover since around 2/3 of the US economy is consumer spending, only an improving job market can support a recovery in customer spending.
Dollar selling accelerated on upbeat EU inflation- Meanwhile in the EU the inflation figures released showed EU inflation rose to 1.5% yy up from 0.9% yy in February mainly attributed to the recovery in energy prices. Although rate hikes in the EU and the US still look remote with FX traders targeting the end of 2010 for the first tightening step, the FX sentiment is fluctuating alongside investors’ bets which side will raise rate first. With the weak US jobs figure denting US tightening bets and the EU upbeat inflation heating up speculations on rate hikes in the Euro zone by the end of 2010. The EUR/USD gain was well supported with Euro rising strongly from as low as 1.3414 to its weekly high at 1.3548.
Ahead of the NFP figure in Friday- Market is eyeing a 200k gain in the Nonfarm figure and any figure below will be considered a disappointment. Although the Dollar was sold heavily after the US ADP employment figure the consensus is still that the US recovery is to outpace that of the Euro zone. If the Nonfarm figure will be in line with expectations the Dollar which currently trades close to its support levels could rebound very quickly. The effect on Friday might be diluted as the US stock markets will be close for a holiday, but the gap is expected to be closed on the following Monday. A disappointment from the figure will move the Dollar to retest its support levels as investors’ confidence in a US job market recovery could be shaken.