Today at 12:15 GMT an important economic indicator will be released - the U.S. ADP Nonfarm Employment Change.
It is worth mentioning that ADP Research Institute is one of the world's leaders in labor market and employee performance research.
This ADP Employment Report reflects changes in the number of nonfarm jobs and is based on data from about 400,000 business sources.
Its specific feature is that this report is published 2 days before the release of the government’s employment statistics and serves as a good reference for predicting the change in the number of people employed in the U.S. non-farm sector.
In other words, the ADP report is a leading indicator for Nonfarm Payrolls.
Observation history shows that in most cases the ADP's assessment of labor market trends previews the upcoming Nonfarm Payrolls.
How could this indicator be useful in trading?
The indicator's value is conventionally interpreted as follows: "if the actual figure is above the forecast, then it is a bullish signal for the USD, while an actual figure that is below the forecast is a bearish one."
A weaker labor market (below estimates) suggests that the monetary policy is too tight, causing the economic growth to stall, therefore it needs to be eased. Or at least not to be tightened even more. This in turn may be viewed as a signal for a weaker dollar.
Vice versa, if the labor market is overheated (the indicator is higher than the forecast estimate), it means that there is room for further tightening of monetary policy and interest rate growth. Therefore, it is a signal of possible strengthening of the U.S. dollar.
If the actual value of the ADP report is above 250K - sell EURUSD.
If the actual value of the ADP report is below 170K - buy EURUSD.
Take profit or loss in 4 hours after the indicator is published.