GBP/USD: Trading the ADP Non-Farm Payrolls

The ADP Nonfarm Employment Change measures the change in the number of employed people in the US, excluding workers in the farming industry. A reading which is higher than the market forecast is bullish for the dollar.

Update:  ADP Non-Farm Payrolls 213K – slightly above expectations

Here are the details and 5 possible outcomes for GBP/USD.

Published on Wednesday at 12:15 GMT.

Indicator Background

Job creation is one of the most important leading indicators of overall economic activity. The publication of the ADP release precedes the official Non-Farm Employment Change, which is highly anticipated by the markets and is one of the most important economic indicators.

The ADP release  slipped to 204 thousand in the previous release,  down  significantly from  218 thousand a month earlier. This was well short of the forecast of  218 thousand.  More of the same is expected in the August release, with the estimate standing at 206 thousand.

Sentiment and Levels

The  weakening euro means that  chance that inflation in the Eurozone could  beat expectations which could lead to a positive message from the ECB. However,  the monetary policy convergence  between the ECB and the Fed is clear and intensifying. With no  growth, rock bottom inflation and with the poor TLTRO, the ECB  is likely push forward and make it clear that it means business, which could push down on the euro. In the US,  last month’s weak NFP  didn’t put a dent in the surging greenback,  which seems unstoppable.  Where will the pair stop falling?  The ECB will probably feel comfortable only around  1.20-1.25, leaving more room  for  the  common currency  to fall.  So, the sentiment is  bearish on EUR/USD towards this release.

Technical levels from top to bottom: 1.2750, 1.27, 1.2660, 1.2590, 1.2544 and 1.2385

5 Scenarios

1. Within expectations: 202K to 210K: In this scenario, GBP/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
2. Above expectations: 211K to 216K: A reading above expectations would signal economic expansion, and could push the pair below one support level.
3. Well above expectations: Above 216K: A sharp rise in employment numbers could  push GBP/USD lower and a second support  level could be broken.
4. Below expectations: 196K to 201K: A weak reading could pull the pair upwards, with one resistance level at risk.
5. Well below expectations: Below 196K: Such a scenario would be bearish for the dollar, and GBP/USD could break a second resistance  level.

For more on the euro, see the GDP/USD forecast.

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