They say the market is pricing in a slower pace of tightening that the Fed’s March SEP estimates and that there’s a chance they could be moved to show higher rates for 2015/16, alongside better inflation and jobs projections. If so they see short end bond yields rising and taking the dollar with them.
“The main risk to our view would be that Chair Yellen downplays the FOMC forecasts and focuses on downside growth risks and the lack of convincing wage growth in her press conference,” MS adds.
MS like an EUR/USD short and are orders in to short at 1.3620 with a 1.37 stop and 1.31 tp, and have another to short at 1.3715, stop at 1.3860, tp 1.32. I’m not sure if it’s still valid but they were also looking to short at 1.3780 back in May
Their dollar bullishness is also surprising given that they went short USD/JPY last week at 102.20
