Dollar says bid in wake of ADP

Talking Points

· Japanese LEI in line with estimates

· EZ Retail slips on poor German data

· ECB expected to keep rates unchanged

· US ISM Non-Manufacturing on tap

Dollar Stays Bid in Wake of ADP

Dollar consolidated its gains from yesterday against both euro and yen in a relatively uneventful overnight session in the currency markets as traders continued to jockey for position ahead of Friday’s release of US Non- Farm payrolls. The release yesterday morning of ADP’s estimate of 360K new jobs for June was so far above the consensus estimate of 160K that it shocked the market and quickly reversed a small euro rally sending the pair 80 points lower in a matter hours. The ADP forecast has been wrong on previous occasions and almost no analyst believes the NFP’s will match ADP’s estimates, however, the market now clearly anticipates that payrolls will expand by at least 150K-200K new jobs. One additional clue to tomorrow’s number will lie with the employment component of today’s ISM Non-Manufacturing report. Tuesday’s ISM Manufacturing data actually contradicted the optimists contracting for the first time in 13months. The ISM Non-Manufacturing data, however represents a much larger slice of the US economy and as such would lend more credence to bullish expectations were it to show an improvement.

Meanwhile, European data ahead of today’s ECB rate announcement offered little support to euro bulls. The currency market does not expect a rate hike from the ECB at this meeting and tonight’s EZ Retail PMI numbers served only to confirm the consensus. While the French data showed an improvement from the month prior, both Italian and German Retail PMI numbers printed lower. The news was especially surprising in the case of Germany which many analysts expected would receive a massive boost in retail from hosting the World Cup. It now appears that most of the benefit went to German producers who saw Factory Orders climb 17.3% on a year over year comparison. In any event, with consumers still hesitant to spend despite an uptake in the EZ economy, the ECB is likely to stay pat until their meeting in August.