Mid-Day Report: Dollar Still Pressured After Disappointing ADP Employment Report

After some brief recovery, dollar is back under pressure against Euro in early US session after worse than expected employment reports. ADP employment reported showed -79k contraction in the private job markets, much worse than expectation of -20k. Challenger report showed around 82k announced layoffs in Jun, a drop of -21% from prior month but the Q2 total is still the worse since Q4 of 2005. Markets are expecting -60k job cuts to be shown in NFP tomorrow. And the data so far argues that there isn't much room for upside surprise.

Euro, on the other hand, remains firm against dollar and surges against yen and sterling on hawkish comments from Trichet and stronger than expected producer inflation. Eurozone zone PPI report showed producer inflation accelerate sharply from revised 6.2% to 7.1% in May, beating expectation of 6.7%. ECB President Trichet warned that inflation could "explode" if ECB fails to act decisively, reaffirming the expectation that ECB will hike tomorrow. Markets are also expecting more hawkish comments from Trichet tomorrow even though he's already made it clear that it won't be the start of a series of tightening/

Sterling is pressured throughout the day after Construction PMI dropped to an 11 year low of 38.3 in June. Aussie remains supported by stronger than expected retail sales that jumped 0.7% mom in May, rebounding from prior -0.2% fall and beat expectation of 0.1%. The strength in consumer spending argues that prior tightening may not be enough to really slow demand and inflation.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.0146; (P) 1.0186; (R1) 1.0236; More

USD/CHF continues to engage in choppy sideway trading above 1.0129 low today. Further consolidation cannot be ruled out but upside of recovery should be limited by 38.2% retracement of 1.0539 to 1.0129 at 1.0286. As discussed before, break of short term rising trend line support with daily MACD dipped into negative region argues that medium term rebound from 0.9634 is already completed at 1.0623. Sustained break of 1.0147 support will add more credence to this case and bring deeper fall to 0.9995 support. Also, note that short term risk remains on the downside as long as 1.0539 resistance holds even in case of a strong rebound.

In the bigger picture, a medium term bottom is in place at 0.9634. Subsequent rally from there is still treated as correction to whole medium term down trend only. Break of 1.0147 support will be another signal that such correction has completed. Further break of 0.9995 support will confirm this case and turn short term outlook bearish for 0.9634 low. However, strong rebound from 0.9995/1.0147 support zone will argue that rebound from 0.9634 is not completed yet and will put focus back to 1.0623 resistance.

Forex News Digest

• U.S. Private Employment in June Sees Downside Surprise in ADP Report
• U.S. Planned Job Cuts Up Annualized 46.7% in June, Says Challenger
• Fed's Lockhart Says Fed Should Act if Inflation Affects Wages
• Treasury's Paulson Says Regulators Should Ensure Financial Stability
• Overnight News Recap: Trichet & Almunia Worried About Inflation
• Euro Zone PPI Jumps 1.2% in May, 7.1% in Annualized Terms
• Inflation Could Explode If ECB Fails to Act Decisively, Says Trichet
• UK Construction PMI Falls to 11-Year Low in June
• Australian Retail Sales Stronger Than Expected in May, Up 0.7%
• Asia-Pacific Market Recap: Aussie Bonds Move Lower, Japanese Bonds Higher
• BOE Shouldn't Raise Rate as Mortgage Market Nears `Famine,' Nickell Says
• U.K. Pound Falls Versus Euro, Dollar as Taylor Wimpey Fails to Raise Funds
• Yen Sales by Tokyo Individual Investors at Highest in 11 Months, Data Show

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