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Tracing Job Data's Impact On Dollar Index And Forex Trends

As if the business services firm ADP's latest installment of its National Employment Report, indicating that the situation for private employment in the U.S. took a turn for the worse in September was not bad enough, the dollar fell across the board as investors dumped the dollar for higher yielding and more lucrative currencies.

The ADP reported a loss of 39,000 jobs in the private sector against expectations of new job creation of 50,000. Although most optimists were surprised by the results, ADP said there was no clear momentum in employment as of now. Although its hard to please everyone, most analysts agree that ADP numbers are one of the best single predictors of the official payrolls number, even if there have been a handful of bad misses.

Most analysts believe that it would take a payrolls reading bigger than +150k to get the market to think the Fed would reconsider QE2 and even with neutral numbers, it is likely the market will hold and the USD is most likely to continue breaking through to new levels of weakness like 1.40 or higher in EURUSD. With a negative ADP outlook, the dollar index fell to its lowest levels since January at 77.619 from 77.811 while the euro hit a fresh 8-month high at 1.3918. Despite concerns over the Eurozone sovereign debt re- igniting, most analysts believe that the dollar might just continue its ongoing fall against the Euro.

US Policy And The Weakening USD:

Given the recent USD weakening and unilateral actions on exchange rates, discussions between the G20 Deputy Finance Ministers and G7 Finance Ministers/Central Bank Governors are likely to feature currency games much more prominently than in the past couple of years. There is a deep concern that the US is likely to receive a strong degree of criticism for effectively ‘debasing’ the dollar via extremely accommodative monetary policy. Experts also feel that despite the criticism, the US government or Fed will not change course and if comments on the sidelines of the meetings foster expectation for action, eventual disappointment should only reinforce downward pressure upon USD.

Forex Trends Update: Goldman Sachs Global Economic report has meanwhile revised the majority of its FX forecasts to reflect broad dollar depreciation and it revised its euro forecasts to hit a whopping $1.55 in the next 12-months. Meanwhile, the pound hit a new 2-month high at 1.5938, while the CAD breached a new 5-month high at 1.0083, as it nears dollar parity. The riskier currencies also took advantage over its higher yields over the plummeting buck as the Australian Dollar hit a fresh 2-year high at 0.9781 while the New Zealand Dollar also hit a new 1-year high at 0.7537.


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