The US dollar correction higher continues

ADP Nonfarm Payrolls accelerates, boosts US dollar

The US dollar powered higher overnight as safe-haven flows after the ADP Employment data flowed US bond markets, pushing yields lower. The pace of the correction hinting that much of the recent short-dollar positioning was of the fast-money type, which needed few cues to head for the exit door.

The dollar index rose 0.40% to 92.65 overnight; it’s second such gain in a row. This morning in Asia, the index has advanced another 0.20% to 92.84, just shy of its overnight high. A move through 92.87 could signal that a deeper US dollar correction is upon markets, possibly as far as 93.50.

German and French Services PMIs will be published this afternoon, with both indices projected to show substantial gains. With the euro on the back foot overnight, after the ECB’s Chief Economist expressed discomfort about the high level of the currency and its deflationary effect on import prices, weak readings could be enough to push the euro into a deeper correction.

The euro and Australian dollars both suffered 0.50% losses, with the British pound falling by 0.25%, supported by selling in the EUR/GBP cross. That pattern has continued into Asia with EUR, GBP, AUD, GBP and CAD all 0.20% lower amongst the pro-cyclicals. The euro has support at 1.1770, with GBP support at 1.3300 and AUD at 0.7300. A failure of these support zones will signal deeper corrections ahead of tomorrow’s US Non-Farm Payrolls.

Overall, the price action looks corrective, and not structural. The fundamentals driving US dollar weakness are as strong as ever, particularly the overnight fall in US long-bond yields. Bears may have to endure more pain yet into the end of the week, although a positive Jobless Claims figure tonight would alleviate the bearish noise. Tomorrow’s Non-Farm Payrolls data is gaining in importance by the day and will likely dictate how far the dollar correction will run.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes.

He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.

A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others.

He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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