US Dollar Sags Following Weak ADP Data. Forecast as of 02.10.2025
In the absence of BLS statistics on the US labor market, investors have overreacted to the ADP employment data. However, the weak data pushed the EURUSD pair higher only in the short term. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US labor market is freezing up.
- The odds of a Fed rate cut are increasing.
- The Supreme Court protects the independence of the Fed.
- Short trades on the EURUSD pair can be opened below 1.171.
Weekly US Dollar Fundamental Forecast
The US dollar keeps taking punches, but the euro is too exhausted to make any. The EURUSD pair has failed to recover after the release of weak private sector employment data from ADP and another record high in the S&P 500 index. This failure suggests that bullish momentum has lost steam. In fact, there is nothing new about Europe. With the exception of the euro rally on news of Germany’s fiscal stimulus and US tariffs on Liberation Day, there is little to be optimistic about.
The shutdown has become a headache and disappointment for investors. History and bank commentary signal US dollar weakness during government shutdowns. However, the greenback is not plummeting. According to MUFG and ING, Donald Trump’s threat to lay off government employees en masse will further cool the labor market, forcing the Fed to cut rates aggressively. This is clearly negative for EURUSD bears.
US ADP Employment Change
Source: Wall Street Journal.
Judging by the latest statistics, the labor market has frozen even without the US president’s involvement. In September, ADP private sector employment fell by 32,000, compared to a forecast of +45,000. The August data was revised downward from +54,000 to -3,000. Markets usually respond less strongly to such reports than to non-farm payrolls, but beggars can’t be choosers. The shutdown pushed back the release date of the BLS figures to a later date. In addition, the updated ADP methodology is considered much more insightful: it predicted a cooling of the labor market before the official statistics did.
As a result, the chances of a federal funds rate cut in October rose from 96% to 99%, and in December, it rose from 77% to 87%. On paper, this should have knocked the US dollar down, if not for one thing.
Market Expectations for Fed Funds Rate
Source: Bloomberg.
The Supreme Court allowed Lisa Cook to remain as a Fed official until her case is heard in January. The judges have become the last bastion in the fight for the Fed’s independence. This ruling diminishes Donald Trump’s chances of gaining control of the FOMC. As a result, the probability of a sharp 50-basis-point cut in the federal funds rate in December decreased from 28% to 1%, allowing the US dollar to recover.
If the euro had been able to exploit the greenback’s weaknesses, it would have taken it down long ago. However, the single currency either lacks the will or is exhausted. According to HSBC, speculators have become too enthusiastic about buying the EURUSD pair. Now, the pair needs a new driver to continue the rally. One has not yet emerged, so the bank is suggesting a ceiling of 1.2.
Weekly EURUSD Trading Plan
Indeed, the EURUSD pair’s inability to break through 1.18 increases the risk of price consolidation within the 1.165–1.177 range. At the same time, if the pair breaks through the support level of 1.171, it may plummet to the lower boundary of the trading range. Therefore, it is better to refrain from entering the market or employ a strategy combining short-term sales with a shift to long trades opened on a rebound.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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