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ADP Drives USD Higher Ahead of NFP

The US Dollar is trading higher ahead of tomorrow’s keenly awaited NFP figures for last month. The first release of the New Year comes on the back of a stronger-than-forecast set of ADP figures on Thursday. The ADP release for December was seen coming in at 164k vs 101k prior and 120k expected. Unemployment claims were also seen beating expectations at 202k vs 220k prior and 217k expected. If similar strength is seen in tomorrow’s figures this should help keep USD supported through the weekend.
 

Rate Cut Pricing Shift

Pricing for expected Fed rate cuts has weakened recently with traders no longer pricing in a cut at the upcoming FOMC meeting at the end of the month. Pricing for a .25% cut at the March meeting is now sitting around 60%. If incoming data highlights residual strength in the economy, particularly if we see any uptick in inflation, this will likely see rate cut expectations being further paired back helping drive the USD recovery further.
 

Two Way Risk

On the other hand, if tomorrow’s data comes in below expectations, particularly wage growth data, this could easily see a jump in rate cut pricing, unseating USD near-term. As such, plenty of two way risk into tomorrow’s data with potential for decent volatility across FX markets.
 

Technical Views

DXY

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The rally in DXY has seen the index trading back up off the 101.22 lows to test the bear channel top from last year’s highs. While price holds above the 101.22 level and with momentum studies turning higher, the focus is on a break of the channel top and a test of the 103.48 level next. 

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