In a day in which confusion dominated the economic headlines, the US dollar was ramping higher against the JPY after ADP (private payrolls) and ISM non-manufacturing (services) showed opposite data.
The thing is that in any NFP (Non-Farm Payrolls) week, the days that really matter are Thursday and Friday and until then, market participants try to position for the big release. Private payrolls were released on Wednesday while NFP is at the end of the trading week, always in the first week of each and every month.
The ADP data showed a lower than expected job creation. As a consequence, the EUR/USD jumped from below 1.09 all the way to the 1.0940 area, while USD/CAD and USD/JPY fell to 1.3130 and 124.00 respectively.
However, it proved to be only a support level for the US dollar as buyers stepped in, once again, and almost two hours later, when the ISM non-manufacturing was released, USD/JPY made a move into the 125.00 like the ADP didn’t even matter.
On one hand, the move was justified as the ISM print came into the 60 territory, and we know by now that any release above 50 signals an expansionary sector. Therefore, a 60 is really good – and it is actually coming in at a 10 year high. This of course fueled the expectations of a rate hike in September, so the US dollar was bought again.
Moreover, the employment component in the ISM release was showing impressive strength, and this increases the possibility for the NFP on Friday to really beat expectations. Hence fueling some more US dollar and rate hike expectations.
There was one pair that didn’t react much to the US news: the GBP/USD. The reason for that is that the Bank of England’s decision is due together with the inflation report, and a shift in language is expected. I don’t know if that is true or not, but if you look at the daily chart on the GBP/USD pair, it is forming a bullish triangle.
All in all, there seems to be little in the way of a rate hike, and by reading this series of articles here on a daily basis, you are basically seeing the psychology of market participants as each and everyone is trying to make an educated guess regarding the rate hike in the US.
Giving all the discussions so far, it may not even matter for the US dollar by the time it is delivered. Time will tell.
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