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Strong ADP Stokes Risk Flows EUR/USD Hits Fresh Yearly High

Last updated 3/2/2011 9:15 AM ET (GMT -5) 5 Comments

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Boris Schlossberg

Director of Currency Research, GFT

The ADP report printed better than forecast at 217K versus 180K jobs indicating that US employment data is likely to show improvement in the Non-Farm payrolls report due this Friday at 13;30 GMT. Last month’s NFP data diverged greatly from the ADP reading however the Bureau of Labor Statistics attributed the discrepancy to bad weather in January. With weather conditions stabilized in February the two reports should dovetail and show significant growth in US labor demand.

According to ADP the growth in US labor markets was driven by service sector expansion which added 202K new jobs. The job gains were mostly centered is small and medium businesses indicating that economic activity at the local level is beginning to pick up – a dynamic that bodes well for US GDP growth in Q1 of this year.

The news proved positive for the risk trade as focus shifted away from concerns over rising oil prices to continued confirmation of the global economic growth. The EUR/USD rose to set fresh yearly highs at 1.3862 boosted by the positive price action in the equity markets and rising inflation pressures in the Eurozone. The pair recovered all of its losses from overnight trade and looks ready to challenge the 1.3900 barrier if risk appetite accelerates as the day progresses.

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Comments (5)

NeoFX

March 02, 2011 at 03:37 PM ET

It's amazing how you guys always find a "reason" for things not turning out the way they "should've turned" out.

Don't get me wrong, I was long on all euro pairs last night, especially EUR/USD; but also long G/U and A/U. But that was merely from a technical perspective.

The US ADP today were very positive. If dollar had gone, you'd be here writing about how extremely positive Payrolls gave push to the greenback and on and on and on........................ Well they didn't.

Couldn't we say that in this case the Technicals perhaps trumped the Fundies?

I'm just saying.......Talk about justifications.

neo

MHW

March 02, 2011 at 04:20 PM ET

Neo, please do everybody here a favor by just sticking to TA.

bschlossberg

March 03, 2011 at 05:44 AM ET

In North America the focus will turn to the ADP employment report due at 13:15GMT. Over the past several months the data has been wildly off the mark in predicting the NFP report due on Friday, so the currency market may view today' results with a large dose of skepticism. However, if the ADP report prints widely off the mark, especially to the downside, it could have an impact on early North American trade reviving risk aversion flows if equities continue their slide from yesterday. On the other hand a better than expected reading from the ADP could calm the markets and send risk FX to further gains as the day progresses.


Written 4 hours before ADP - so your accusation of justification is baseless. I always believe that Fundamentals and technicals must be viewed holistically as part of the whole analytic process. Maybe you should consider doing the same.

MHW

March 03, 2011 at 07:27 AM ET

And while fundamentals and technicals are part of the same pie,
they work on different layers of the same pie. In this sense,
they are independent of each other. An understanding of anything
fundamental only requires a genuine interest in the subject and
then some good analysis of it. Price charts of currency pairs
are usually never required to understand fundamentals.

Charts are mainly good for one thing - they help define actual
trading opportunities when its time to trade. Chart reading is
then layered on top of the fundamental layer or foundation, if
the trader has one at all.

NeoFX

March 03, 2011 at 11:18 AM ET

Boris,

it wasn't a personal attack at you. It was more of a general view on the fact that sometimes even the most obvious outcomes are actually ignored by the market.

ADPs are some of the biggest market movers, for instance. But even such an influential report could be shadowed by something else of perhaps greater importance elsewhere overseas (i.e. Trichet's speech on the rate hike today)

It's so much to keep track of that it can be overwhelming. And therefore news can also be interpreted a million ways.

By looking at the charts I had 115.00 pegged for the eur/jpy just the other night (as well as long on eur/usd, and eur/chf). This was before Trichet's speech today obviously.

It just seems to me that technicals almost always have already discounted the price even before fundamental announcments actually come out. It's so much simler than keeping up with so much stuff all over the world.

that's all.

Neo

P.S. I actually think EUR/USD could make a run for the 1.4400 level again, whereas EUR/JPY could go to 118.00 soon.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.