US Dollar Jumps Up as Treasury Yields Leap on Fed Expectations. Where To From Here?

[MongiIG]

US DOLLAR, TREASURY YIELDS, FED, USD/JPY, ASX 200, NIKKEI 225, CSI 300 - TALKING POINTS

• US Dollar gains traction as the market eyes the Fed’s hiking timeline.
• APAC equities were mixed, with China specific news weighing the CSI 300.
• USD/JPY broke key resistance. Will the US Dollar index (DXY) do the same?

The US Dollar continued higher in Asia today after kicking off the new year with a strong rally from the open in New York.

It was underpinned by US Treasury yields, with the benchmark 10-year bond leaping from 1.5% to trade above 1.63%. Expectations of further hikes from the Federal Reserve fueled the surge in interest rates across the curve.

While risk sentiment was positive, the growth and commodity linked currencies of AUD, CAD, NOK and NZD all got hit in the North American session but have managed to recover some ground today.

The yield sensitive USD/JPY made a 4-year high, breaking above the November peak of 115.52. Gold and silver were pummeled in the US Dollar melee, but crude oil was steady for the most part, trading above USD 76 a barrel.

Australia’s ASX 200 and Japan’s Nikkei 225 went higher today, following on from a positive start to the year from Wall Street overnight. Both bourses were up over 1.8% during the day.

Going in the other direction, Hong Kong and Chinese mainland indices were lower as the Peoples Bank of China (PBOC) didn’t add as much liquidity as expected.

Additionally, the renewable sector was rattled by a Chinese government announcement that they will be removing the subsidy for new energy vehicles after 2023.

The benchmark CSI 300 was down over 1.3% at one stage but managed to claw back some of the losses in afternoon trade.

In the US later today, the ISM manufacturing survey is due for release as well as the Canadian manufacturing PMI.

US DOLLAR INDEX (DXY) TECHNICAL ANALYSIS

The US Dollar index (DXY) rejected a move toward the recent low of 95.517 and this level may continue to provide support.

An ascending trendline that currently intersects just below 95.00 might also provide support, as well as the pivot point at 94.561 or previous lows at 93.278 and 91.947.

The 0.58% rally in the US session has seen it bump against the 21-day simple moving average (SMA) and a decisive break above it could see near term bullish momentum evolve.

Potential resistance may lie at the recent highs of 96.906 and 96.938.

Despite the significant move, volatility remains subdued, as shown by the relative narrowness of the 21-day SMA based Bollinger Band.

Chart created in TradingView

Written by Daniel McCarthy, Strategist for DailyFX.com. 4th Jan 2022

[RCtrader]

Is there any significance in ADP and NFP having divergent forecast? 🤔

ADP is projected to be less than previous month while NFP is twice the amount released in December.  

[MongiIG]

14 hours ago, RCtrader said:

Is there any significance in ADP and NFP having divergent forecast? 🤔

ADP is projected to be less than previous month while NFP is twice the amount released in December.  

Hi @RCtrader

ADP and NFP

Though the two reports draw their data from the US labor market, they are quite different in concept and their monthly results have been poorly correlated since the pandemic took hold in March 2020. 

The ADP employment total is simpler and more accurate, but less encompassing. Its National Employment Report records the net employee additions or subtractions of the firm's 460,000 US clients covering about 26 million workers. Payroll services are exclusively in the private sector and do not cover government employment at the local, state or federal level. 

The Employment Situation Report from the US Labor Department attempts to catalog the entire American employment market in one document. Known colloquially as the Nonfarm Payrolls (NFP) for its most quoted statistic, it tracks both hiring's and firings as reported to the government and estimates the number of new jobs created each month but not on government books. The combination of actual job figures and these projections produce the monthly NFP number. The monthly estimates are compared to the tax rolls once a year and adjusted to reflect the correct number of jobs gained or lost. By Joseph Trevisani, FXStreet: US ADP December Preview

 

Below is from US jobs report preview IG article by Joshua Mahony | Senior Market Analyst, London | Publication date: Thursday 04 November 2021

 

All the best - MongiIG

[MongiIG]

Just now, MongiIG said:

Hi @RCtrader

ADP and NFP

Though the two reports draw their data from the US labor market, they are quite different in concept and their monthly results have been poorly correlated since the pandemic took hold in March 2020. 

The ADP employment total is simpler and more accurate, but less encompassing. Its National Employment Report records the net employee additions or subtractions of the firm's 460,000 US clients covering about 26 million workers. Payroll services are exclusively in the private sector and do not cover government employment at the local, state or federal level. 

The Employment Situation Report from the US Labor Department attempts to catalog the entire American employment market in one document. Known colloquially as the Nonfarm Payrolls (NFP) for its most quoted statistic, it tracks both hiring's and firings as reported to the government and estimates the number of new jobs created each month but not on government books. The combination of actual job figures and these projections produce the monthly NFP number. The monthly estimates are compared to the tax rolls once a year and adjusted to reflect the correct number of jobs gained or lost. By Joseph Trevisani, FXStreet: US ADP December Preview

 

Below is from US jobs report preview IG article by Joshua Mahony | Senior Market Analyst, London | Publication date: Thursday 04 November 2021

 

All the best - MongiIG

Why you should know the key differences between job reports

BY PHALGUNI SONI, NOV. 20 2020. 

The employment reports are issued by Automatic Data Processing (ADP) and the Bureau of Labor Statistics (the BLS). 

Both the ADP-NER and the BLS Employment Situation reports issue monthly non-farm payrolls data for the U.S. However, there are several significant differences between the two.

The ADP (ADP) estimate includes only private non-farm payrolls, while the BLS estimate includes both private and government non-farm payrolls. 

The ADP releases just one estimate for non-farm payrolls addition, while the BLS releases an initial figure that’s revised twice to include results from companies that sent their responses late. The first BLS estimate includes results from ~70% of the survey size, while the second and third revisions include an additional 20% and 1% to 2% of survey responses, respectively.

The ADP-NER releases two days prior to the BLS non-farm payrolls release, which gives markets a heads-up on the BLS number.

Although the ADP data base and survey methodology are different from the sample used to compute the non-farm payrolls report issued by the Bureau of Labor Statistics (the BLS), ADP has estimated the data correlation between the private payroll additions reported in the ADP-NER and the final BLS Employment Situation report.

 

[MongiIG]

21 hours ago, RCtrader said:

Is there any significance in ADP and NFP having divergent forecast? 🤔

ADP is projected to be less than previous month while NFP is twice the amount released in December.  

SUMMARY

The ADP National Employment Report measures levels of non-farm private employment. The Report is based on the actual payroll data from about 24 million employees processed by the Automatic Data Processing, Inc.

 

 

 

 

NFP will be on Friday 7th Jan 2022 at 13:30 UK time