FOMC to begin the monetary normalization process

The USD is poised to resume its upward trend as markets continue re-pricing further hikes for the Fed for 2016. Although the probability of a December liftoff is very high (90%), Fed Funds implied probability of increasing the rate 1.00-1.25% for December 2016 still looks low at 24%. Once the FOMC decides to begin the monetary normalization process, it will keep increasing Fed Fund rate at a pace of 25 basis points, which implies that there is further room for the futures curve to move up and support the USD. 

"We see the latest employment report as a confirmation that the US economy remains very healthy, and that the job market keeps its momentum although the unemployment rate is at NAIRU", says Barclays.

Increase in wages, if sustained, will give more confidence to the FOMC that inflation is going to reach the 2% target in the years to come.

Next week we will get data that are likely to confirm the view of a healthy consumer with Retail Sales and U. of M. Consumer confidence. For the former, an increase of 0.4% m/m is expected in line with market consensus. For the latter, an increase to 91 from 90 is expected.