The outcome of Friday’s US labour market report becomes more important by the day, says Morgan Stanley.
"Yesterday it was Vice Chair Fischer suggesting that labour market data were more reliable than GDP data, echoing last week’s suggestions from Chair Yellen underlining the importance of activity relative to price data," MS notes
"Hence, a strong NFP payroll report may not need the support of higher wage data to have a significant impact on the markets’ interpretation of Fed policy. Should the NFP come in strong, we would not hesitate to add to USD long positions, especially bearing in mind that Fischer is saying that the Fed had no intention of talking the USD down," MS argues.
MS expects the US jobs report for March to show a gain of 195k (consensus at 250k) in non-farm payrolls with the unemployment rate at 5.6% (consensus 5.5%).
Beyond this week's NFP, MS thinks that the combination of low bond yields and falling commodity prices will keep the USD on the top of its long positions list.
"Relative to the low-yielding Asian and European currencies, the USD has established a ‘high’ yielding status, benefitting from debt-related, USD-supportive capital inflows," MS adds.
Going into this week's NFP, MS maintains a tactical short EUR/USD position from around 1.09 targeting 1.05.
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