Figures released from ADP Employer Services today shocked traders in the hour before the start of the North American session, as companies added the fewest amount of jobs since September. A mere 38000 jobs were added in May, the smallest increase in the labor market in nine months. The revised figure for April showed that 177000 jobs were added in April; the median forecast according to a Bloomberg News survey called for a 175000 increase in May. Following the release, the Dollar Index plummeted from 9547.09 to as low as 9527.34.
Rising food and energy costs are appearing to weigh on businesses in the world’s largest economy, and ahead of Friday’s government labor market report, traders appear to be realigning their expectations for the unemployment rate to remain above the psychologically significant 9.0 percent threshold, which the labor market slid above in April for the first time since January.
Additional disappointing readings of the American economy will likely increase calls for further quantitative easing after the Federal Reserve’s second round of stimulus finishes at the end of June, which could further weaken the Dollar, while boosting riskier assets such as gold, oil and silver. With the release of the Institute of Supply Management’s report on manufacturing in May due at 14:00 GMT today, the North American session could shape up to be rocky for the U.S. Dollar, as initial estimates suggest that manufacturing activity declined in the world’s largest economy in May.
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USDCHF: In wake of the ADP employment data, the Greenback immediately began to fall across the board, particularly against the Swiss Franc in another move to risk-aversion. The Franc was up against all of the major currencies earlier in Wednesday’s session as well, after a report showed that retail sales in Switzerland in April rose at their fastest pace in two years, causing speculators to ramp up their bets of a potential Swiss National Bank rate hike in the coming months. In fact, the number of basis points priced into the Franc over the next 12-months rose by 3.0-bps to 32.0-bps. While the expectation remains softer compared to other central banks and currencies, with the expectations for the British Pound, Canadian Dollar, and U.S. Dollar falling, the shift in interest rate differentials in favor of the Franc boosted the funding currency further. The Franc has had a remarkable run against the U.S. Dollar this year so far, gaining 10.88 percent since the turn of the year.
Taking a look at price action, the technical picture has shaped up for a rebound in the U.S. Dollar against the Swiss Franc, given the accelerated rate of erosion the Greenback has had against the European funding currency. That being said, despite the pair sitting at the bottom of a descending channel that began in the third week of January, with the Dollar-Franc pair hitting an all-time low earlier today, and the fundamental picture dictating continued trepidation by the market, it appears that the USD/CHF pair could fall further before establishing a bottom. Accordingly, the daily RSI is at 25, and with the MACD Histogram diverging further in a bearish direction, more losses could be on the horizon for the pair.
Written by Christopher Vecchio, Currency Analyst
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