US dollar soars as rosy ADP report shapes high expectations for NFPs next

Asia-Pacific Market Briefing – ADP Employment Report Sets High Expectations for NFPs

The US dollar outperformed its major counterparts on Thursday, with the DXY dollar Index gaining 0.85 percent.

If the currency maintains its position, the US dollar will be heading for its best week since the middle of September. Meanwhile, the Australian dollar underperformed. This meant AUD/USD sank 1.35% in the worst single-day performance since December 15th.

The catalyst for the currency’s rise could be traced to December’s ADP employment report. Private US businesses reportedly added about 235k jobs, much higher than the 150k consensus. This painted a rosy picture for the jobs market ahead of the highly anticipated non-farm payrolls report due over the remaining 24 hours.

Looking at the daily chart below, the US dollar can be seen soaring alongside front-end government bond yields. This is a sign that markets likely priced out some dovish expectations in the Federal Reserve towards the latter half of this year. Meanwhile, the S&P 500 can be seen sinking alongside a rising US dollar as markets turned to risk aversion.

US dollar soars with bond yields on ADP data as S&P 500 Sinks

Friday’s Asia-Pacific trading session – eyes on sentiment

The disappointing Wall Street trading session could set a sour tone for markets during Friday’s Asia-Pacific trading hours. That is leaving indices like the Nikkei 225 and ASX 200 vulnerable. But, keep in mind that until NFPs are behind us, some traders may be reluctant to take major bets, opening the door to choppy ranges in the short term. Still, volatility risk could continue to work against the sentiment-sensitive Australian dollar.

US dollar technical analysis

The DXY US dollar index closed at its highest since early December as prices moved further above the critical 103.93 – 104.33 support zone. This also meant that the currency confirmed a breakout above the 20-day Simple Moving Average (SMA), exposing the 50-day equivalent. Key resistance seems to be the 23.6% Fibonacci retracement level at 106.12.

Meanwhile, positive RSI divergence has been showing that downside momentum was fading. That can at times precede a turn higher.

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