While the ADP report may be a volatile leading indicator for the NFP from month to month, it is undeniably concerning that it has shown declining job growth and negative revisions for three consecutive months now.
Despite the rise in COVID cases in the United States, traders have remained generally optimistic about the near-term outlook for the world’s largest economy as an ongoing stimulus, continued reopening, and easy comparisons to the economic environment in the world. year (called “base effects”) combine to propel the recovery underway.
Based on this morning’s data however, that optimistic outlook has suffered a setback. ADP’s employment report, one of the best leading indicators in Friday’s non-farm payroll (NFP) report, fell far short of expectations. Instead of the US economy creating 695,000 net new jobs in July, as traders and economists expected, the actual figure is less than half that of 330,000.; adding insult to injury, the June reading was also revised down one notch to 680,000 net new jobs.
While the ADP report may be a volatile leading indicator for the NFP from month to month, it is undeniably concerning that it has shown declining employment growth and negative revisions for three consecutive months now. Traders are clearly scared of weak employment this morning, with major indices opening in negative territory, oil prices down more than -2% and the yield on the benchmark 10-year Treasury bond testing a 6-month low at 1.13%.
Technical view: Gold
One of the only winners in this morning’s disappointing data was gold. If the economic recovery in the United States and around the world continues to show signs of slowing, the gold should theoretically benefit from ongoing fiscal and monetary stimulus as well as falling real bond yields. As shown in the daily chart below, gold is testing its six-week high near $ 1,830, with a break above that level potentially opening the door to a continuation into the upper $ 1,800 or even towards. May peak above $ 1900:
Source: Tradingview, StoneX
Bullish readers may want to consider buying a confirmed breakout (ideally combined with a simultaneous breakout of the 14-day RSI indicator) above resistance at $ 1,833, with a target up close to $ 1,900. and a stop below the week’s low near $ 1,805. Meanwhile, a series of strong US data and rising bond yields could be a potential hurdle for gold prices, with the short-term bias returning to neutral if the yellow metal falls below $ 1,800.