ADP and NFP – 6th April
Last week saw the release of the ADP and the NFP, two hard hitting employment related statistical release that often create large, but short-lived moves in the forex market. For a bit of context, the ADP and the NFP figures for Non-Farm Employment Change differ in many different ways, with the first being the source. ADP (Automatic Data Processing) is a private company involved in providing cloud based human capital resource management solutions, whereas the NFP is provided by the US Bureau of Labour Statistics, as part of the public sector. The two reports also differ greatly in their sample and methodology, with the NFP being processed from the results such as the Current Employment Survey (147,000 businesses representing 634,000 workers from all 50 US states) and the CHS (a sample survey of 60,000 households), whereas the ADP report is based on payroll data stored in their system which is then heavily processed and adjusted by Moody’s Analytics.
The previous week saw the 2 figures coming in at a better than forecasted -27k for ADP and a far below forecast -701k for NFP, however historically the ADP released on Wednesday has been considered a semi-reliable leading indicator for the Friday NFP. Based on simple-minded intuition a positive statistic followed by such a largely disappointing statistic should lead to a panic move away from the USD and investors should observe a significant if temporary fall in the USD across the board. Instead if we observe market movement on the hourly chart for when the NFP was released last week, we see a small rise in the EURUSD pair of around 40 pips over the next few hours, which is of comparable size to the move results from last month NFP release of a better than forecasted 273k alongside a better than expected 183k ADP, clashing with our expectations. To understand this relative lack of market movement in response to fundamental news, we must understand the underlying market sentiment which responded to this data release. The prevalence of the coronavirus outbreak within the news and its impact upon the global market now and into the future has become clearer, creating a dominating and long lasting risk-off attitude and the widespread adoption of a recession mindset within the market which is only occasionally abated by news of policy makers taking drastic steps to combat the virus. Therefore, in these conditions the USD can constantly find demand as a safe haven asset despite USA having the highest number of infections currently. This behaviour is due to expectations by expert within the industry who say that employment data will only worsen for this month, however at the end of the day the USD remains the best of a bad lot.
Figure 2: WTI Monthly Chart
West Texas intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing.
The coronavirus pandemic has greatly impacted global demand for crude oil since the beginning of 2020. Combined with the price war initiated by Saudi Arabia due to a failed talk on production cut with Russia earlier last month, the WTI crude oil closed at a decade-low price of US$20.10 per barrel in March. This price broke current support level given by previous lows, and drove the 12, 60 and 120 monthly moving averages further downslope. Meanwhile, the RSI hit below the oversold level of 30. A global coalition of oil-producing nations have postponed an emergency summit planned for Monday, which weakened previous hopes for a global collaboration among major oil producers. If a consensus on virtual production cut could not be reached, the oil price might dip further below its current price level.
Figure 3: EURUSD Hourly Chart
With the release of the ADP Non-Farm Employment Change that showed a cut of 27000 jobs instead of 150000 jobs forecasted in the US on the 1st April, this translated to an appreciation of the USD currency. This is displayed in the 1 hr chart of the EURUSD pair where USD weakens as the bears dominate by selling the EUR. Five exponential moving averages have been used which essentially averages a certain number of closing prices of previous candles with more weight put on more recent candles. In this chart, 6, 18, 50, 100 and 200 closing prices have been used to calculate the EMAs. Towards, the end of this week, these moving averages align themselves in order with the 200 EMA on top down to the 6 EMA at the bottom, therefore signifying a downtrend. Further, a support level which represents a psychological trading level and can signify a cluster of buyers ready to push the price back up, is currently at 1.0765. Combined with an RSI showing that it is already above the oversold level of 30, the price could slow down its bearish momentum. Moreover, the Non-Farm Employment Change was released on the 3rd April that showed a higher unemployment rate than forecasted, therefore, the USD could depreciate such that EURUSD will return signs of bullish momentum in the week ahead.