US dollar’s earlier gains erased post lower than expected ADP data

The US Dollar Index (DXY) could potentially snap its winning streak after the ADP print, as traders believe the ADP still holds above 100,000 despite undershooting estimates. The dollar is rolling over and trading in the red due to underperforming ADP figures, which have triggered risk on equities and seen US yields decline further. The Greenback is holding steady in the reaction, with traders seeing support in the ADP’s holding above 100,000.

The Goods and Services Trade Balance went from a $61.5 billion deficit to a $64.3 billion deficit, while Nonfarm Productivity for the third quarter saw an uptick from 4.7% to 5.2%. Unit Labor Costs for the third quarter declined from -0.8% to -1.2%. Equities are trying to turn the tide on their negative performance for December, with Asian equities rallying over 1% and European and US indices in the green, though less than 1%.

The CME Group’s FedWatch Tool shows a 99.7% chance that the Federal Reserve will keep interest rates unchanged at its meeting next week. Yields in Europe are falling even quicker, meaning the US Dollar is valued higher in terms of return than most of its peers. This rate differential could see the DXY head back to levels near 105.00-106.00.

The DXY broke the high on Monday and closed off near 103.54 on Tuesday. If employment data triggers rising US yields again, a two-tiered pattern of a daily close lower followed by an opening higher would quickly see the DXY back above 104.28, with the 55-day and 100-day Simple Moving Averages (SMA) turned over to support levels. If it fails, the lows of June make sense to look for support near 101.92.