Our recent meetings in the US suggest, however, that investors are rather sceptical that the Fed will hike rates anytime soon. This scepticism is further reflected in the recent drop in market USD-longs across the board.
We think that investors relying on the rates market alone to determine investors' positioning ahead of the Fed are running the risk of overestimating the implied likelihood of a rate hike. This also suggests that both the USD and the US rates should be more sensitive to positive data surprises or relatively hawkish Fed comments than to disappointments.
Ahead of this week's NFP, CACIB economists are looking for below-consensus 165K gain in payrolls (market expectation is 180K) and AHE (2.2% vs. 2.3% for the consensus) but lower unemployment rate (5% vs 5.1% for the consensus).
We think that USD should remain resilient even in the face of potential data disappointments and expect our long USD/JPY to outperform.
*CACIB is long USD/JPY from 120.45 targeting a move to 126.20, with a stop at 117.40.
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