Last week saw the release of the ADP and the NFP, two hard hitting employment related statistical release that often create large, but short-lived moves in the forex market. For a bit of context, the ADP and the NFP figures for Non-Farm Employment Change differ in many different ways, with the first being the source. ADP (Automatic Data Processing) is a private company involved in providing cloud based human capital resource management solutions, whereas the NFP is provided by the US Bureau of Labour Statistics, as part of the public sector. The two reports also differ greatly in their sample and methodology, with the NFP being processed from the results such as the Current Employment Survey (147,000 businesses representing 634,000 workers from all 50 US states) and the CHS (a sample survey of 60,000 households), whereas the ADP report is based on payroll data stored in their system which is then heavily processed and adjusted by Moody’s Analytics.
The previous week saw the 2 figures coming in at a better than forecasted -27k for ADP and a far below forecast -701k for NFP, however historically the ADP released on Wednesday has been considered a semi-reliable leading indicator for the Friday NFP. Based on simple-minded intuition a positive statistic followed by such a largely disappointing statistic should lead to a panic move away from the USD and investors should observe a significant if temporary fall in the USD across the board. Instead if we observe market movement on the hourly chart for when the NFP was released last week, we see a small rise in the EURUSD pair of around 40 pips over the next few hours, which is of comparable size to the move results from last month NFP release of a better than forecasted 273k alongside a better than expected 183k ADP, clashing with our expectations. To understand this relative lack of market movement in response to fundamental news, we must understand the underlying market sentiment which responded to this data release. The prevalence of the coronavirus outbreak within the news and its impact upon the global market now and into the future has become clearer, creating a dominating and long lasting risk-off attitude and the widespread adoption of a recession mindset within the market which is only occasionally abated by news of policy makers taking drastic steps to combat the virus. Therefore, in these conditions the USD can constantly find demand as a safe haven asset despite USA having the highest number of infections currently. This behaviour is due to expectations by expert within the industry who say that employment data will only worsen for this month, however at the end of the day the USD remains the best of a bad lot.