The currency market has stopped the weakening of the US dollar, primarily due to the data on business activity index in the non-manufacturing sector (PMI) from US ISM. It unexpectedly sharply added 56.9 points in May against the April value of 55.5 points and the forecast of the value of 55.5 points.
Against the background of these data, it seems that many investors in the market, who bet on the possibility of the Fed to lower interest rates this year as an already inevitable fact, began to doubt that this could happen this year. Probably, having doubted this, they decided that it was still too early to do this. Indeed, the indicator values turned out to be very strong. Although they did not reach the maximum value for the last almost twenty years with 61.6 points last October, this does not detract from them.
But at the same time, they enter into a strong contradiction with extremely weak employment data from ADP, which showed the smallest inflow of new jobs since March 2010 from 27,000 in May against the April value of 271,000. They are alarming despite the fact that the values from ADP are not official and tomorrow there will be data from the US Department of Labor in the non-agricultural sector. If NFP on Friday also shows a noticeable drop in the growth in the number of jobs over the past month than predicted by a consensus forecast of 185,000, this will be the strongest blow for the US dollar, which will resume its extensive decline in the markets.
In this case, the markets will not be able to dismiss this and the Federal Reserve will really have to prepare for the start of lowering interest rates and develop more effective spare measures to curb the US economy's recession, which, in turn, is stimulated by trade wars launched by Donald Trump.
Considering this, we believe that today the foreign exchange market can consolidate without showing a certain dynamics in anticipation of tomorrow's labor market data, unless, of course, the ECB does not report something extraordinary and does not cause a new wave of chaos in the markets. However, we don't expect anything like that from him.
Forecast of the day:
The EUR/USD pair is trading above 1.1220 in anticipation of the final ECB decision on monetary policy, as well as the publication of employment data in the States tomorrow. Most likely, the pair will remain in the range of 1.1180-1.1300. Today, it can locally either decrease to the lower border or grow to the top already by the result of the ECB meeting.
The GBPUSD pair continues to move on its own wave of Brexit. It may also continue to decline to the level of 1.2600 on the wave of the EUR/USD pair movement. Either it breaks the level of 1.2675, or grow to 1.2740 on the contrary, but still remaining in the range of 1.2600-1.2740.
