04.12.202510:54 Forex Analysis & Reviews: USD suffers severe blow from labor market data

The US dollar experienced a significant decline yesterday following reports that American companies cut jobs in November by the largest amount since the beginning of 2023, which heightened concerns about a more pronounced deterioration in the labor market.

According to the data released by ADP Research on Wednesday, the private sector lost 32,000 jobs, while economists had anticipated an increase of 10,000 jobs.

The weak ADP report published yesterday intensified fears of a faster worsening of the labor market outlook ahead of the Federal Reserve's final meeting for the year, which is set to take place next week. The report may have a greater impact than usual, given that it is one of the few relevant reports officials will have by then, as the government shutdown delayed the release of the November employment report.

Notably, significant job losses were observed in the manufacturing sector, raising concerns about a slowdown in industrial production. The services sector, which typically drives job growth, also showed signs of weakness, indicating broader issues within the economy.

As mentioned earlier, traders are closely monitoring developments in the labor market, as it remains a key factor for the Federal Reserve's monetary policy decisions. Amid concerns regarding economic slowdown and its potential impact on the labor market, Wall Street reacted to the ADP data with a decline. Investors were selling off stocks, particularly those of companies sensitive to economic cycles. Treasury yields also fell as investors sought refuge in safer assets. The U.S. dollar suffered significantly, especially against the British pound.

The upcoming Federal Reserve meeting next week becomes even more critical as officials will assess the state of the economy and make decisions regarding the future trajectory of monetary policy. Given the delay in the release of the employment report for November, the ADP data clearly signals the Fed to consider further rate cuts.

However, many experts believe the decision will be quite complex and contentious. Citigroup Inc. indicated that the decision would likely be quite controversial and noted that while a rate cut is expected, the forecasts would be tighter since the upcoming Fed meeting would also present new quarterly economic projections.

Nela Richardson, the chief economist at ADP, stated that hiring has recently been unstable as employers are contending with consumer caution and macroeconomic uncertainty. She added that although the slowdown in November was significant, it was primarily driven by a decline in small businesses.

According to the report, companies with fewer than 50 employees cut 120,000 jobs, marking the largest monthly decline since May 2020. At the same time, businesses with 50 or more employees increased their workforce.

As noted earlier, the sector that saw the largest job losses was professional and business services, followed by information services and manufacturing. Employment growth was recorded in the education and healthcare sectors.

The November unemployment report in the US, originally scheduled for December 5, will be published on December 16, as data collection was halted due to an unprecedentedly long shutdown. The report will also include employment data for October outside of agriculture.

Regarding the current technical picture for EUR/USD, buyers need to focus on reclaiming the 1.1680 level. Only this will enable them to target a test of 1.1705. From there, they could aim for 1.1725, but doing so without support from major players will be quite challenging. The ultimate target will be the maximum around 1.1753. If the trading instrument declines near 1.1650, I expect serious actions from major buyers in that area. If no one is there, it would be wise to wait for a new low around 1.1625 or open long positions from 1.1590.

As for the current technical picture for GBP/USD, pound buyers need to reclaim the nearest resistance at 1.3360. Only then will they be able to target 1.3395, above which it will be quite difficult to break through. The ultimate target will be the area around 1.3415. In the event of a drop, bears will try to take control of 1.3320. If successful, breaking this range would inflict a serious blow to the bulls' positions and push GBP/USD down to a minimum of 1.3290 with the potential to reach 1.3270.