USD FOMC minutes will be closely watched

Fed minutes on Wednesday will provide insight into the significant forecast revisions that were made at the March 17-18 meeting alongside the dropping of "patience" from its policy statement. The downward revision in the long run unemployment rate forecast points to perceptions of remaining spare capacity in the US economy. 

The markets already appear to have priced in this Fed dovishness aggressively (only 22bp of hikes priced for the end of 2015 according to Fed funds futures). We would look to be long USDs into the minutes as these are also likely to highlight the Fed's intentions to begin the normalization process in 2015.

The decline in US yields following the March employment report also appears to be exaggerated. The slowing pace of job growth is bringing the medium-term trend closer to what is sustainable given the economic outlook. However, the uptick in average hourly earnings and the continued decline in the unemployment rate suggest that labor markets continue to tighten and spare capacity is declining.

"Other data next week will be the ISM non-manufacturing (Monday) and wholesale inventories (Thursday). We are slightly below consensus on ISM non-manufacturing (56.0 vs. 56.6) but at consensus on wholesale inventories (0.1% m/m)", Said Barclays in a report on Monday.