Stock market rally is presumed to be coming to an end. The two-day rebound, to about three levels of stock indexes before the collapse in the US, is almost over.
The strong growth of stock indices since this week began was not fundamentally justified by anything and in our opinion, it was just a simple rebound that followed the strongest weekly decline last week. This is due to the events of an insufficient exchange game of retail investors, which led to a sharp closure of the positions of hedge funds, which themselves traded without coverage. Nevertheless, the situation has now returned to normal after the pullback and investors will closely monitor the incoming economic statistics, which is expected to be really interesting.
Another important signal for the unusual situation was the uncorrelation between the movements of US stock indices and the US dollar. In these two days, the US currency received support, but at the same time, stock indexes also rose. This is not common, since the growth of indices in the US was always accompanied by the US dollar's decline for recent years. Now, the correlation is likely to recover after the indices return to the values before the collapse last week.
Today, the publication of employment data in the United States begins. Traditionally, on the first Wednesday of the month, the values for the number of new jobs from ADP are released. According to the presented forecasts, the US economy in the non-agricultural sector only received 49,000 new jobs in January, compared to December's drop of 123,000. In addition to these data, Fed's Bullard and Harker are also expected to make a speech today.
How can the market react to the employment data from ADP?
Against the background of lower values in the number of new jobs, the currency market may react with a sharp decline in the US dollar, but this is unlikely to lead to the beginning of its downward trend. The main reason lies in the fact that there is nowhere to decline. The labor market is in such a bad state that all the negativity is probably already in the dollar quotes. At the same time, if the values suddenly become noticeably higher than 49,000, it will support the US currency, but such movement is not expected to turn into a strong upward trend. Most likely, the current sideways trend in any of the scenarios will continue.
At the same time, negative employment figures may exert local pressure on stock indexes, unless investors perceive them as a buy signal. According to the "the worse, the better" rule, this means that the problems with the labor market will stimulate congressmen's activity to adopt J. Biden's proposed new incentives.
Forecast of the day:
The EUR/USD pair remains under pressure. In the wake of the publication of ADP's employment data, it may further decline to 1.1970 after declining to the level of 1.2015.
The GBP/USD pair is trading above the level of 1.3635. A decline below this mark will allow the pair to further decline at 1.3525.
