USD/JPY and USD/CAD Consolidate Ahead of ADP Employment Report

Following last week’s sharp decline, the US dollar has entered a consolidation phase against most major currencies. At the same time, some instruments, including USD/JPY, are showing a moderate recovery as markets await fresh macroeconomic signals. Today’s key event will be the release of the preliminary ADP private-sector employment report. Forecasts suggest that job growth will slow to 68,000 after 98,000 in the previous month. If the data comes in below expectations, pressure on the dollar could increase as markets price in a more dovish Federal Reserve stance. Conversely, a stronger report could support the US currency ahead of the official US labour market data release.

Additional attention will be focused on US services sector activity indicators. Markets expect the preliminary S&P Global Services PMI to improve to 53.6 points, while the ISM Non-Manufacturing Index is forecast to rise to 54.5. Strong readings could partly offset any weakness in the ADP report and confirm the resilience of the largest sector of the US economy. It is worth noting that market participants traditionally view the ADP report only as an early indicator ahead of the official Nonfarm Payrolls release. Although the trends in the two reports do not always align, today’s data could significantly influence short-term expectations regarding the health of the US labour market.

USD/JPY

Last week, following the Federal Reserve meeting, USD/JPY declined sharply, losing more than 500 pips over several trading sessions. At the beginning of the current week, after testing the key support level at 155.30, buyers managed to push the pair back towards 158.00, while forming a “doji” candlestick pattern, which may signal a weakening of the bearish momentum. If the price breaks above yesterday’s high, the corrective move could extend towards 158.70–159.40. Weaker US employment data could trigger a renewed downward move.

Key events for USD/JPY:

• Today at 15:15 (GMT+3): ADP change in US non-farm private employment;
• Today at 16:45 (GMT+3): US Services PMI;
• Tomorrow at 17:00 (GMT+3): US ISM Non-Manufacturing PMI.

USD/CAD

Last week, USD/CAD retested the key support level around 1.4000, forming a “bullish harami” pattern after the rebound. Technical analysis of USD/CAD suggests the potential for further recovery towards 1.4130–1.4170. Weaker US economic data, however, could trigger another test of the 1.4000 level.

Key events for USD/CAD:

• Today at 17:30 (GMT+3): US crude oil inventories;
• Today at 23:05 (GMT+3): speech by Federal Reserve Governor Lisa D. Cook;
• Tomorrow at 16:30 (GMT+3): Canada Services PMI.

The main drivers for the US dollar today will be the preliminary ADP employment figures and US services sector activity data. If the releases confirm the resilience of the US economy, USD/JPY and USD/CAD could continue their recovery following the dollar’s recent correction. Weaker data, on the other hand, could strengthen expectations of a more accommodative Fed policy, adding further pressure on the US currency and allowing sellers to regain control. However, investors are likely to draw more definitive conclusions about the labour market after the official Nonfarm Payrolls report is released later this week.

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