➡️EURUSD holds above 1.04 ahead of ADP

The euro is holding above $1.04 against the dollar as investors await the release of key US private sector employment data later today. The figures, due at 1:15 PM GMT, will provide a crucial steer on the health of the labour market ahead of Friday's official non-farm payrolls (NFP) report.

Market Expectations

The Automatic Data Processing (ADP) National Employment Report is expected to show a robust rebound in job creation for January, with economists forecasting an increase of 150,000. This follows a weaker-than-anticipated reading in December.

Distribution of forecasts for today's report. It is clear that economists expect readings of 150 and above. The lowest forecast assumes a reading of 100 thousand. Source: Bloomberg Finance L.P. Source: Bloomberg

ADP as a NFP Precursor

While the ADP report is closely watched as a bellwether for the NFP, its track record has been mixed in recent months. The two reports diverged sharply in November, raising questions about the ADP's reliability. However, strong NFP data for December have reinforced expectations of continued expansion in the US labour market.

Recently, we have been observing a greater correlation between ADP and NFP data. On the other hand, in December we observed a huge difference. It is also worth mentioning that next Friday we will learn the revision of the employment status for March 2024, which could potentially change the NFP readings from previous months. Source: XTB Analysis Department

Broader Economic Context

The US labour market remains a key focus for the Federal Reserve, which recently tightened monetary policy in response to persistent inflation concerns. While the NFP has pointed to robust job growth, other indicators, such as the Job Openings and Labour Turnover Survey (JOLTS), have signalled a potential softening in demand for workers.

The number of people employed in the US, according to the NFP report, has reached the trend from 2010-2020. At the same time, however, we are observing a return to declines in the number of open vacancies (JOTLS report). This means that employment growth should slow down in the coming months. Source: Bloomberg Fnance LP, XTB

EURUSD Outlook

The euro has recovered from recent lows after the Trump administration's threat of tariffs on EU goods briefly pushed the currency pair below $1.02. However, the risk of a trade war remains a key concern for investors, who are also keeping a close eye on the US economic outlook.

A stronger-than-expected ADP report, particularly one exceeding 180,000 jobs, could bolster the dollar and put downward pressure on the euro. Conversely, a weaker reading below 150,000 could trigger a rally in the single currency.

Source: xStation5