Today’s ADP report out of the US delivered a drastic blow to bullish expectations for a positive non-farm payroll report on Friday which will cover the month of February. December as well as January showed a US labor market which is not nearly as strong as many have anticipated and the most evident sign of a severe disconnect between financial markets and reality.
January’s NFP report was especially terrible as weather was a non-factor and traders have to accept that it was simply a bad NFP report which suggests a much weaker US economy. Today’s ADP report which covers the private sector only continued the serious of economic disappointments. Economists expected the ADP report to show a net gain of 155,000 new jobs created in the private sector. The report only showed 139,000 jobs were created while January was revised down from 175,000 jobs to 127,000.
The downward revision to January is especially worrisome as it is likely to result in a downward revision for January’s NFP report while February is poised to come in much weaker than consensus estimates. Adding to worries about the labor market was today’s ISM Non-Manufacturing Report which showed a contraction in the service sector labor market. The service sector accounts for over two-thirds of all economic activity.
The US Federal Reserve may have to adjust its tapering as economic weakness in the US will leave the Fed no choice but to reduce tapering or risk another financial meltdown as confidence would fade. Should the Fed reduce tapering or decide to skip a taper it would send conflicting signals to forex traders and the US Dollar is likely to be exposed to violent swing with a general downtrend.
The US economy appears to be much weaker than expected and today’s ADP report suggests that Friday’s NFP report will deliver a third consecutive disappointment. Should the NFP indeed come in weaker than expected the US Dollar will fall into a tailspin and sell-off sharply on high volume. Forex traders should be careful with their US Dollar trades this week amid uncertainty over the NFP report on Friday.