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ADP report in focus ahead of Friday's payrolls print

We saw a negative start to August for European markets with the DAX leading the way lower, having only put in a new record high the day before, after poor manufacturing PMIs and disappointing earnings prompted profit taking.   

Yesterday’s weakness appears to have been prompted by concern that the economy is a little bit weaker than perhaps people would like, raising concern for earnings growth heading into the second half of the year.

US markets also finished the day lower, although closing well off the lows of the day with the Dow managing to eke out a gain. US yields also finished the day higher, on the rising realisation that rates may well have to stay at current levels for quite a while yet.

This profit taking has continued overnight after Fitch downgraded the US credit rating to AA+ from AAA, while simultaneously boosting demand for haven assets, with Asia markets falling sharply, and which looks set to translate into a sharply lower European open.

The increase in crude oil prices over the past 4 weeks is also raising concern that the falls in input prices that we’ve seen over the last few months might start to hit a floor and start rising again.

Yesterday we got another snapshot of the US labour market as US job openings (JOLTS) fell to their lowest levels since April 2021, although they are still well above the levels, they were pre-pandemic.

The latest employment component in the July ISM manufacturing survey also slowed to its lowest level since July 2020.

Today we get the latest insight into private sector hiring with the ADP employment report for July which is unlikely to repeat the bumper 497k seen in the June numbers. We should also be prepared for a downward revision to that report with July expected to see a more moderate 190k, as we look towards Friday’s more important non-farm payrolls numbers.

While stocks slipped back yesterday the US dollar rose to a 3-week high, gaining ground across the board on the grounds of the broader resilience of the US economy.

EUR/USD – still finding support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week’s high at 1.1150.

GBP/USD – has continued to slide lower towards trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.    

EUR/GBP – popped briefly above the resistance at the 0.8600 area, before slipping back again, with the risk of a return to the recent lows at 0.8500/10. We need to see a concerted move above 0.8620 to target the July highs at 0.8700/10.

USD/JPY – continues to move through the 142.00 area, with the next target at the previous peaks at 145.00. Support comes in at this week’s lows at 140.70.


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