Breaking: Private sector employment rises by 132,000 in August vs 288,000 expected

The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 132,000 in August. This reading came in weaker than the market expectation for an increase of 288,000.

Commenting on the report, “our data suggests a shift toward a more conservative pace of hiring, possibly as companies try to decipher the economy's conflicting signals,” said Nela Richardson, chief economist, ADP. “We could be at an inflection point, from super-charged job gains to something more normal.”

Market reaction

With the initial market reaction, the US Dollar Index edged lower and was last seen trading flat on the day at 108.85.

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EUR/USD Price Analysis: Further consolidation appears in store

EUR/USD remains within a consolidative mood near 1.0250.

Extra side-lined trade appears favoured in the near term.

EUR/USD fades the initial pessimism and refocuses on the upper end of the recent range near 1.0260.

The current consolidative mood carries the potential to extend further, at least until the FOMC meeting due later in the week. The upside should remain limited by the weekly high around 1.0280, while the low-1.0100s are expected to hold the downside for the time being.

In the meantime, the pair is expected to remain under downside pressure while below the 5-month support line around 1.0490.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0991.

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GBP/USD retreats to 1.2000 post-UK CPI, downside seems cushioned amid softer USD

GBP/USD continued with its struggle to make it through the 1.2040-1.2045 resistance zone.

Stronger UK consumer inflation figures failed to impress the GBP bulls or provide any impetus.

The prevalent USD selling bias acted as a tailwind for the major and helped limit the downside.

The GBP/USD pair edged higher for the fourth successive day on Wednesday and inched back closer to a two-week high touched the previous day. The uptick, however, lacked bullish conviction and once again failed near the 1.2040-1.2045 region. Spot prices quickly retreated a few pips following the release of the UK consumer inflation figures and now seem to have stabilized around the 1.2000 psychological mark.

The UK Office for National Statistics (ONS) reported that the headline UK CPI accelerated to the 9.4% YoY rate in June, surpassing estimates pointing to a rise to 9.3% from the 9.1% in the previous month. The monthly figures showed that the UK CPI rose 0.8% in June as against 0.7% anticipated and the 0.7% previous. Excluding volatile food and energy items, the core inflation gauge, however, eased to 5.8% YoY in June from the 5.9% booked in May. This, in turn, was seen as a key factor that acted as a headwind for the British pound and attracted some intraday selling around the GBP/USD pair.

On the other hand, the US dollar languished near its lowest level since July 6 amid diminishing odds for a more aggressive rate hike by the Federal Reserve later this month. In fact, several FOMC members signalled last week that they will likely stick to a 75 bps rate increase at the upcoming policy meeting on July 26-27. Apart from this, a generally positive tone around the equity markets continued undermining the safe-haven greenback and offered some support to the GBP/USD pair. This makes it prudent to wait for some follow-through selling before positioning for any meaningful slide.

Market participants now look forward to the release of the US Existing Home Sales data, due later during the early North American session. In the meantime, expectations that the recent surge in US inflation to a four-decade high would force the Fed to deliver a larger rate hike later this year should hold back the USD bears from placing aggressive bets. The speculations were reinforced by elevated US Treasury bond yields. This, in turn, should cap gains for the GBP/USD pair.

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EUR/USD Price Analysis: Downside pressure alleviated above 1.0700

EUR/USD keeps the march north unabated and tests 1.0580 .

There is a 4-month resistance line around 1.0700.

EUR/USD extends the buying bias for the second session in a row and climbs to the 1.0580/85 band on Tuesday.

If bulls push harder, then the pair could attempt a move to the minor hurdle at the June 16 high at 1.0601. Beyond this level comes the 55-day SMA at 1.0642 prior to the 4-month line around 1.0700. Spot needs to clear the latter to mitigate the selling pressure and allow for the continuation of the recovery in the short-term horizon.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.1155.

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GBP/USD needs to clear 1.2660 to extend its bullish rally

GBP/USD has lost its traction but managed to hold above the 1.26 level. The pair needs to clear 1.2660 to remain bullish.

Cable needs to flip 1.2660 into support to attract buyers

“The Conference Board's Consumer Confidence Index for May and the Housing Price Index data for March will be featured in the US economic docket. In case investors are reminded of the negative impact of inflation on consumer confidence, Wall Street's main indexes could come under bearish pressure and make it difficult for GBP/USD to gather bullish momentum.”

“In case cable breaks below 1.26 (psychological level, static level), the next immediate support aligns at 1.2570 (200-period SMA, 50-period SMA). If that latter support fails, this could be seen as a significant bearish development and open the door for additional losses toward 1.2540 (former resistance, static level).”

“The pair needs to settle above 1.2630 (ascending trend line) and clear 1.2660 (static level) to test 1.27 (static level, psychological level).”

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USD/CHF slides further below 0.9900 mark amid weaker USD, focus remains on US CPI

USD/CHF corrected sharply on Wednesday and snapped a four-day winning streak.

Retreating US bond yields prompted some USD profit-taking and exerted pressure.

The risk-on mood might undermine the safe-haven CHF and limit any further losses.

The focus remains glued to the release of the latest US consumer inflation figures.

The USD/CHF pair added to its intraday losses and dropped to a fresh daily low, around the 0.9870 area during the first half of the European session.

The pair witnessed heavy selling on Wednesday and snapped a four-day winning streak to its highest level since May 2019, around the 0.9975 touched the previous day. The ongoing retracement slide in the US Treasury bond yields forced traders to lighten their US dollar bullish bets. This, in turn, was seen as a key factor that exerted downward pressure on the USD/CHF pair.

The downside, however, seems limited amid a generally positive tone around the equity markets, which tends to undermine the safe-haven Swiss franc. Apart from this, the prospects for a more aggressive policy tightening by the Fed should help limit the downside for the buck and lend support to the USD/CHF pair, warranting caution before placing fresh bearish bets.

The Fed is widely expected to tighten its monetary policy at a faster pace to combat stubbornly high inflation. In fact, the markets are pricing in a 200 bps rate hike for the rest of 2022 amid concerns that China's zero-covid policy and the war in Ukraine would result in tight global supply chains. This could push already elevated consumer prices even higher.

Hence, the focus will remain glued to the US CPI report, due for release later during the early North American session. The data could influence the Fed's tightening path, which, in turn, would influence the near-term USD price dynamics. Hence, it will be prudent to wait for strong follow-through selling before confirming that the USD/CHF pair has topped out.

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