US ADP jobs report overview

Wednesday's US economic docket highlights the ADP report on private-sector employment for May, due for release later during the early North American session, at 12:15 GMT. Consensus estimates point to an addition of 170K private-sector jobs during the reported month, down sharply from the 296K in April. The data will provide fresh insight into the US labour market conditions and drive expectations for the official jobs report, popularly known as NFP scheduled on Friday.

According to Yohay Elam, Senior Analyst FXStreet: “After leaping to the highest level since July 2022 in the latest April publication, the upcoming May report could be weak. If my scenario materializes, investors' knee-jerk reaction would be to sell the US Dollar on estimates that the odds for a rate hike in June are lower. It is essential to note that officials at the Federal Reserve (Fed) are split on whether to increase borrowing costs or pause. Bond markets reflect that uncertainty with roughly even odds – and any data point could make a difference.”

How could the data affect EUR/USD?

Ahead of the US labour market data, the US Dollar (USD) remains below its highest level since mid-March set on Wednesday amid reduced bets for another 25 bps rate hike by the Federal Reserve (Fed) in June. Hence, any disappointment from the ADP report might prompt fresh USD selling, allowing the EUR/USD pair to build on its modest intraday positive move back above the 1.0700 round-figure mark.

Conversely, a stronger reading is unlikely to impress the USD bulls amid bets that the Fed will eventually pause its rate-hiking cycle and ahead of the official jobs report, popularly known as NFP on Friday. This, in turn, suggests that the immediate market reaction to a positive surprise is more likely to be muted, warranting some caution before placing aggressive bearish bets around the EUR/USD pair.

Eren Sengezer, Editor at FXStreet, offers a brief technical outlook and outlines important technical levels to trade the major: “EUR/USD stays outside the descending regression but is yet to make a four-hour close above the 20-period Simple Moving Average (SMA), currently located at 1.0700. In case this level is confirmed as support, the pair could target 1.0740/50 (50-period SMA, Fibonacci 61.8% retracement level of the latest uptrend) and 1.0800 (100-period SMA, Fibonacci 50% retracement).”

“If EUR/USD drops below 1.0680 and returns within the descending channel, 1.0650 (mid-point of the descending channel) and 1.0630 (lower-limit of the descending channel) could be seen as next support levels,” Eren adds further