(04 OCTOBER 2017)DAILY MARKET BRIEF 1:Dollar rally on pause ahead of ADP report

After printing fresh highs against most of its peers yesterday, the greenback finally took a breather on Wednesday and consolidated gains as investors await ADP employment report, Markit PMIs and ISM non-manufacturing. The dollar index edged down 0.10% to 93.50 as the greenback fell 0.25% against the yen, 0.15% against the pound sterling and 0.08% against the single currency. The Swedish krone and the Australian dollar were the best performers, adding 0.27% and 0.26% respectively.

The ADP employment report is due for release this afternoon. Job creation expectations are relatively low for the month of September, mostly due to the negative effect on business confidence after the country was hit by a series of hurricanes. The market anticipates the US economy created 135,000 private job in the previous month, compared to 237k in July.

The ISM non-manufacturing is expected to edge slightly higher to 55.5 from 55.3 in the previous month. The second estimate of the services PMI should confirm the recent easing in business confidence in the service sector (55.1 first estimate).

Overall, the dollar consolidation suggest that investors are pocketing short time profit stemming from their long USD positions. The publication of a shortlist of potential Fed Chairman, regarding the possible removal of Janet Yellen at the head of the Federal reserve, which contains some candidates well-known for their dovish stance on monetary policy triggered profit taking across the board. The uncertainty surrounding the feasibility of Trump’s tax reform also kept investors on the sidelines. Although we maintain our bullish view on the greenback, we do not ruled out short-term USD weakness.

By Arnaud Masset