The highlight was the ADP non-farm employment change which came in at a much better-than-expected 215,000 (versus 172,000 expected). There was also a very strong new home sales (up 25.4% in October and highest monthly percentage gain since 1980) reading and encouraging Beige Book commentary which helped add to the tapering argument.
This ADP print certainly raises upside risk to Friday’s November payrolls which are expected to come in at 184,000. A non-farm payrolls print around 200,000 is what many analysts feel is needed to reinforce the December taper argument. Should we get some revisions from previous months, then we could see fresh buying in the greenback. On the US economic calendar later today we have unemployment claims due out and expected at 328,000. Given the last few upward surprises to this reading, I wouldn’t be surprised to see the trend continue. Meanwhile we will also get the 3Q GDP revisions while Fed members Lockhart and Fisher will speak.
Central bank watch
The single currency will be interesting to watch with the ECB meeting set to be held later today. While policy is expected to remain unchanged, Mario Draghi’s speech will deserve some attention given the complications the region’s economy is currently facing. The recent CPI reading out of Germany showed some positive signs, but it is hard to ignore the significant deflation risk the rest of the region is currently facing. Analysts believe the ECB may be forced into unconventional policies should the unevenness in the recovery persist. Price action in EUR/USD has been whippy to say the least with an initial drop to 1.3528 finding buyers before spiking back up to 1.36. With EUR/USD at 1.36, the prospect of the ECB talking down the EUR is relatively high, although it will be fairly happy with the spike higher in excess liquidity in the eurozone. The BoE is also set to meet later today with nothing new expected.
Japan stimulus expected
The yen has been weakening in Asia after having shown some strength in US trade. USD/JPY moved below 102 for a short while, but is back in the 102.40 region. Speculation that the Japanese government will announce a significant stimulus program in excess of five trillion yen has kept traders looking to buy dips in USD/JPY. Weekly fund flows data showing net buying of foreign bonds by Japan could have helped drive some yen weakness. Given the stimulus announcement is due this week, I would expect to see the pair remain underpinned heading into the announcement. From a USD perspective, should the upcoming data top estimates, then this would also help underpin USD/JPY.