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ADP Suggesting Strong NFP

The Improving Trend in Private Employment Figures Likely to Boost Payrolls and Lower Unemployment

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Nonfarm payrolls will be released early this week ahead of the Independence Day holiday in the United States as ADP payroll figures show a steadily improving upward trend. Expectations are for another strong number, albeit below the prior months staggering gains.

ADP Trend Improves

All eyes will be on the dollar today in the hours leading up to today’s nonfarm payroll figure. Current expectations are for 230,000 jobs added in June after recording a stunning 280,000 increase in May. Yesterday’s ADP private payroll numbers showed the economy added 237,000 jobs in the latest period, signaling a strong improvement in the prevailing trend. Early indications today are strong and consensus has the number at 234,000, however, Goldman Sachs has revised their estimates lower, pointing to a gain of 220,000 which is a number expected to hold firm through the end of 2015. The one conflict with the latest ADP figures is the fact that Challenger Job Cuts numbers released yesterday pointed to rising layoffs, driven primarily by losses in manufacturing. Although the unemployment rate is set to fall to 5.40%, this might postpone that development as the stronger US dollar hurts the export market.

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Referendum Countdown

The main question across Europe is will the Greeks vote “yes” or “no” in Sunday’s referendum. It has become an incredibly divisive issue within the country although polls are currently showing the “yes” vote in the lead with a narrowing majority. As Greece enters the fourth day of capital controls, the situation is increasingly disparaging after images yesterday showed pensioners desperately trying to withdraw the maximum amount from the country’s fledging banks. So far the ECB is staying calm and not engaging in collateral haircuts which could add to the current malaise in the Greek banking system. Although discussed, the lack of implementation means that Greece still has the support of the ELA to back banks in a time when deposit outflows are accelerating. No real progress will be accomplished until after the weekend according to Eurogroup President Dijsselbloem with Europe awaiting the outcome of the vote.

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Energy Extends Drop

After the API surprise, Department of Energy data released yesterday showed an unexpected build to inventories, with stockpiles rising 2.386 million barrels. This has reversed 8-straight weeks of declining inventories just as production remains near recent highs. WTI hit the lowest levels seen since late May before rebounding back above the $57 handle while Brent was less affected. The spread between the two benchmarks continues to widen, with the difference rising above $5 after trading below $3 in the prior week. Although the Iranian nuclear negotiations carry on, oil prices are testing the bottom of a multi-month range and any further losses could create larger downside momentum pressures. Natural gas prices also fell yesterday, snapping two-straight sessions of gains before rebounding late in the session and trending higher overnight. The risks to the oil and gas patch have not abated according to the latest inventory numbers with oversupply jeopardizing recent price gains.

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XAGUSD Descending Triangle Technical Pattern

The ascension in the dollar has pressured commodities lower as increasing demand for quality has fueled another round of momentum higher for the US currency. Driven in part by improving economic fundamentals and weakness abroad, the dollar is also benefiting from anticipation of higher rates around the corner with liftoff expected for September. Today’s employment data will give further indication regarding the rate hike timeline. Any continued increase in the dollar will see precious metals likely fall lower. The descending triangle pattern presently forming in silver prices has a bearish bias, with any move below support at $15.490 paving the way towards substantial further losses. However, should silver prices happen to move above the near-term downtrend line, it could indicate a breakdown in the pattern and potential reversal higher.

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