The dollar has problems strengthening. Today's NFP report

Today the most important question is whether the labor market report will strengthen the market's skepticism towards the Fed's approach, which was signaled at the last meeting, or weaken it. Yesterday's reaction of the dollar to the macro data was temporary. EURUSD in the afternoon and evening hours returned to the levels before the publication. The dollar has a problem with sustained appreciation.

Strong market reaction

The ADP report surprised with a strong result. It amounted to 497 thousand. new jobs in the private sector and was this is the best result since February 2022 and more than twice as high as the average for the last several months. Let us remember, however, that the ADP is not a reliable leading indicator for the official labor market report. Despite everything, due to the big surprise of yesterday's reading, there was a strong reaction of the market. However, it turned out to be temporary. In turn, the weekly number of applications for benefits turned out slightly higher than expected by economists (248 thousand against 246 thousand).

In the previous reported week, it amounted to 236. We also received the ISM report. The main indicator grew more decisively than expected and showed the number of 53,9 points. The price paid index fell to its lowest level since March 2020 and the new orders sub-index.

The picture of the economy is quite clear. Services are still in good shape. Disinflationary processes are visible a the labor market remains strong. These are pretty clear reasons to believe that the Fed will raise the key interest rate on July 26 and stick to its restrictive approach.

Non Farm Payrolls

What should we expect from today NFP data? The labor market report for May contained several contradictory signals and made the market wonder how to interpret it. Although employment increased significantly by almost 340. people, the unemployment rate, which was based on another survey, rose from 3,4 percent. up to 3,7 percent Ultimately, however, the dollar managed to strengthen that day, but it was temporary appreciation.

Today, the market consensus points to a change of 230. new jobs and a drop in the unemployment rate to 3,6 percent. If the data is difficult to interpret, the reaction to USD may be limited. I think that the dollar's reaction is likely to be more pronounced in the event of a disappointing outcome. The market is sensitive to any negative signal from the labor market and it can be said that it has been waiting for it for a long time.

EUR / USD exchange rate is approaching a medium-term uptrend line that runs through the lows of October 2022 and the turn of May and June this year. From a technical point of view, I assume that soon the short-term declines that have been going on for more than 2 weeks may end and then it is possible that another upward momentum will begin.

Source: OANDA TMS Brokers