The market is looking for a solid May job report, especially after ADP’s upside surprise. According to data collected by the ADP Research Institute, US companies added 253k jobs in May, well above estimates of 180k, while the previous month’s reading was upwardly revised to 174k.
Expectations for Nonfarm payrolls, which are due for release at GMT 12:30 today, are therefore quite high, suggesting that the risk is mostly on the downside for the greenback. Markets are expecting a reading of 182k in May, compared to 211k in April. In this current set-up, a weaker print will drive the USD lower, especially against the euro, while an upside surprise should have limited effects as it is already priced in.
We believe the market is impatiently waiting for the recent and sustained employment gains to finally translate into wage growth. Indeed, a solid pick-up in average hourly earnings (expected at 2.6%y/y) should drive the USD higher as it would allow for a more aggressive path of tightening from the Federal Reserve. EUR/USD has been treading water slightly above 1.12 in the European morning.
By Arnaud Masset