ADP jobs forecast met with nonchalance

EURUSD (1.2755)
The publication of the ADP employment forecast was met with a wave of nonchalance yesterday. This was the guide for the US non-farm payrolls that went so spectacularly
wrong last month and traders understandably were reluctant to adjust their predictions this time around. But is this correct? Admittedly, at just under 100k, the ADP figure was not too far away from the current consensus. However, rationally, one should update one’s beliefs/knowledge according to the underlying historical relevance of incoming information. Last month, analysts considered the ADP forecast as a good indicator for the Department of Employment figure – so much so that they rushed to adjust their own forecasts in the light of it. One call that went down in flames cannot undermine the validity of the whole series. But this last episode remains very salient for most traders, very available. Many will remember what position they held, how much money they lost, etc.

As a result, the tendency will be to overweight the recent experience and to underweight the entire historical relevance of the information. The perception of a sideways range for the euro continues to be the determining factor for traders. Some may well have tried short-sales yesterday. Thus, our preferred strategy is unchanged: above 1.2850 we would target 1.2990 and beyond (1.3310). To the downside, new short-sellers will furnish demand as early as 1.2670 today. So, there too, we would try a bullish attempt with a risk limit set at 1.2610.

USD JPY (114.40)
A report that the PBOC was desirous to increase yuan flexibility hardly qualifies as breaking news. However, in a market where traders are generally well prepared for yen strength, it was widely discussed and recycled. But the dollar moved very little. We remain reluctant to propose any bearish strategy for this reason, although we do concede that the risk is for further weakness to 113.35. An important upside hurdle stands at 115.80. Beyond there, a squeeze
would lift the USD to 118.50.

EUR JPY (146.45)
The cross gave back some of the recent gains yesterday but still holds above the critical support now at 145.80. Whilst it remains below 147.50 we do not envisage any resumption of the major uptrend so we would still favour a bearish strategy in case of a violation of the key support. The target would then be 143.20/25.

GBP USD (1.8745)
Even though the Bank of Italy’s increased preference for Pounds over dollars in its official reserves has unfolded since 2004, market commentators still attributed yesterday’s Sterling rise to the publication of the fact. Cable already enjoys a bullish potential to 1.8965. But with supports too weak or too distant, 1.8690 and 1.8540, respectively, they fail to provide an adequate risk-reward profile for a bullish strategy. Additional supply comes in at 1.8825 today.

AUD USD (0.7645)
The current target remains 0.7810. The A$ retreated from a new three-month high yesterday. This morning, a disappointing business confidence survey appeared to dampen AUD interest rate expectations, which almost resulted in a test of our 0.7630 downside risk-limit. The development has erased some of the bullish dynamism, which means that intermediate supply is now to be expected as early as 0.7695. In case of a violation of the risk-limit, the next demand level stands at 0.7575.