The ADP report is expected to show modest gains in US private employment

• The ADP Employment Change report is expected to show a modest improvement in the number of private jobs created in September.
• The United States will release the non-farm payrolls report on Friday.
• US dollar consolidates post-Fed losses and risks further decline.

The Research Institute for Automatic Data Processing (ADP) will release its monthly report on private sector job creation 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 usually released two days before the official non-farm payrolls (NFP) report for the same month and is usually seen as a leading indicator of the Bureau of Labor Statistics’ (BLS) jobs report, despite of a questionable correlation between both indicators.

ADP Jobs Report: Employment and the Federal Reserve

US employment data has been in the eye of the storm for over a year amid its impact on the latest Federal Reserve (Fed) monetary policy decisions. The Fed’s dual mandate of maximum employment and price stability has come under siege in the wake of the pandemic, and the central bank has opted to tighten monetary policy to bring things back into balance.

The main issue was inflation as price pressures surged throughout 2022. The Fed pushed rates to record highs and kept them there amid risks of a tight labor market, which further fueled price pressures . However, indicators have come into better balance in recent months and the Fed has finally decided to cut interest rates. US policymakers cut the benchmark rate by 50 basis points (bps) when they met in September, anticipating further cuts down the road.

That said, market participants are now wondering whether the central bank will offer a discretionary 25 bps cut when it meets in November or go ahead with a 50 bps cut again. Ahead of the data release, odds of 25 bps are 66%, according to CME’s FedWatch tool.

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

With this in mind, a stronger-than-expected ADP report will likely reduce the chances of another aggressive rate cut in November, providing near-term support for the US dollar. Conversely, a disappointing reading may force speculative interest to increase bets for another 50bps rate cut, resulting in a lower USD. Finally, it’s worth remembering that the report could have a short-lived impact, as market players will most likely wait until the NFP release scheduled for Friday.

When will the ADP Report be released and how could it affect the USD Index?

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

Ahead of the release, the US Dollar Index (DXY) is consolidating below the 101.00 mark after hitting a new 2024 low of 100.16 by the end of September.

From a technical perspective, Valeria Bednarik, chief analyst at FXStreet, says: “DXY has remained under pressure since the Fed’s monetary policy announcement in mid-September, and technical readings on the daily chart suggest its bullish potential remains well-capped. A 20-bear simple moving average (SMA) provides near-term resistance around the aforementioned threshold, while a 100-bear SMA gains downward momentum well above the shortest and after breaking below a flat SMA of 200.”

Bednarik adds: “Technical indicators, meanwhile, remain in negative levels, lacking directional momentum. Overall, the risk is tilted to the downside. Resistance beyond the 101.00 mark comes in at 101.47, followed by the daily low at 102.17 posted on August 5. Supports, on the other hand, can be found at 100.41 and the low to date of 100.16. A break below the latter could anticipate a steeper decline towards the 99.00 figure.”