USD: The obvious potential outperformer of the week ahead

Barclays notes:

Even if the Fed seems to be hesitant about committing to start normalizing monetary policy in the near future, we think recent data supports our view that the likelihood of a September rate hike is higher than market pricing (less than half of a hike). We have high conviction in the resumption of a EURUSD downtrend and recommend staying short EURUSD.

Data-wise, this week we will get non-farm payrolls for June, for which we are more constructive than the market. We are forecasting a creation of 250k jobs, compared to the market consensus of 227k. This would push down the unemployment rate from 5.5% to 5.4% assuming the participation rate does not change materially. As in recent employment reports, the market will closely follow wage developments as a measure of labor slack and upcoming inflationary pressures. 

We and the market expect a y/y increase of 2.3% in the average hourly earnings. In this regard, we believe the USD will continue to be supported especially versus the EUR, for which we get preliminary inflation data that should confirm that although the recent pick-up in inflation is welcome by the ECB, the pace at which prices are moderating is not enough to affect ECB's reaction function. 

Last but not least, the June manufacturing ISM is going to be released on Wednesday; we expect a 53 reading in line with market consensus (53.1), which would be a marginal increase from May (52.8).