Global macro overview for 31/08/2017:
The ADP Non-Farm Employment Change data has surprised global investors. According to the US government agency, the change in the number of newly employed people in the US, excluding workers in the farming industry, was 237k, while market participants expected only 185k after 201k figure last month. According to ADP, there was an increase in employment of 48k for small companies and 74k for mid-sized companies which were little changed from the previous month. There was, however, a more substantial increase of 115k for large companies. The biggest contributor was services sector which added 220k jobs in sub-sectors of professional and business jobs, education, health, and leisure.
This kind of data is certainly consistent with the Federal Reserve point of view, so the possibility of FED to continue the process of policy normalisation before the end of 2017 is still high. According to CME Group FedWatch Tool, the implied probability of an interest rate hike in September is low, so the FED should leave the interest rates unchanged. Nevertheless, the probability of a hike in December 2017 is still at the level of 40% and growing.
Strong job growth will raise expectations ahead of the NFP-Payrolls Friday's report, however employment growth has ceased to be a problem for the economy many months ago. The more pressing problem is the lack of wage pressure awakening despite the slowing down of free labor and the drop in unemployment to cyclical lows (4.3%). In that light, the most important number to watch from the NFP report will be again the Average Hourly Earning Index.
Let's now take a look at the US Dollar Index technical picture on the H4 time frame. The US Dollar strengthened across the board after the data, but the bull camp wasn't strong enough to break out above the golden tend line around the level of 93.50. Only a clear, impulsive breakout above the last lower high at the level of 94.16 would confirm the down trend was terminated.