The ADP report is expected to show modest gains in U.S. private employment

• The ADP Employment Change report is expected to show a slight improvement in the number of private jobs created in September.
• The United States will release the Nonfarm Payrolls report on Friday.
• The US dollar is consolidating losses after the Fed initiative and risks falling further.

The Automatic Data Processing (ADP) Research Institute will release its monthly private sector job creation report for September on Wednesday. The so-called ADP Employment Change Report is expected to show that the United States (US) added 120,000 new jobs in September after adding 99,000 jobs in August.

The data is typically released two days before the official Nonfarm Payrolls (NFP) report for the same month and is usually considered an advanced indicator for the Bureau of Labor Statistics (BLS) jobs report, despite a questionable correlation between both indicators.

ADP Jobs Report: Employment and the Federal Reserve

U.S. employment data has been the focus of attention for over a year as it impacts the Federal Reserve's (Fed) recent monetary policy decisions. The Fed's dual mandate to ensure maximum employment and price stability came under fire in the post-pandemic period, and the central bank opted to tighten monetary policy to rebalance the situation.

The main issue was inflation as price pressures skyrocketed throughout 2022. The Fed pushed interest rates to record highs and left them there because of the risk that a tight labor market will further fuel price pressures. Nevertheless, indicators have improved in recent months and the Fed finally decided to cut interest rates. US policymakers cut interest rates by 50 basis points (bps) at their meeting in September, while expecting further cuts.

However, market participants are now wondering whether the central bank will make a discretionary rate cut of 25 basis points or another 50 basis point cut at its November meeting. Before the data is released, the odds for 25 basis points are 66%, according to the CME FedWatch tool.

Meanwhile, Fed officials have shifted their focus from inflation to employment. As price pressures ease, maintaining a “healthy” labor market is now their main goal.

Against this backdrop, a stronger-than-expected ADP report will likely reduce the chances of another aggressive rate cut in November and provide short-term support for the US dollar. On the contrary, a disappointing reading could force speculative interest to increase bets on a further 50 basis point rate cut, resulting in a weaker USD. Finally, it is worth remembering that the report may be short-lived as market participants will most likely wait until the NFP release scheduled for Friday.

When will the ADP report be released and what impact could it have on the USD index?

ADP will release the U.S. employment changes report on Wednesday, which is expected to show that the private sector added 120,000 jobs in September.

Ahead of the release, the US Dollar Index (DXY) is consolidating below the 101.00 level after setting a new 2024 low of 100.16 in late September.

From a technical perspective, Valeria Bednarik, principal analyst at FXStreet, says: “The DXY remains under pressure since the Fed's policy announcement in mid-September, and the technical readings on the daily chart suggest that its upside potential remains significantly limited.” A bearish one Simple Moving Average (SMA) of 20 provides short-term resistance around the aforementioned threshold, while a bearish 100 SMA gains bearish momentum well above the shorter and after breaking below a flat 200 SMA.”

Bednarik adds: “Technical indicators, meanwhile, remain in negative territory, lacking directional momentum. Overall, the risk is trending downwards. Resistance beyond the 101.00 level is at 101.47, followed by the intraday low at 102.17 on August 5th. Support, however, can be found at 100.41 and the annual low of 100.16. A break below the latter could see a steeper decline towards the 99.00 level.”