USD Into NFP: 'Stockholm Syndrome' - Goldman Sachs

This is via eFX

In a couple of note to clients this week, Goldman Sachs outlines its forecasts for the US June jobs report on Thursday and flags a kind of "Stockholm Syndrome" in markets. The following are the key points in GS notes along with its recent EUR/USD and USD/JPY forecasts.

US June Jobs Report:

Change in Nonfarm Payrolls (Jun): GS 220K, consensus 230K, previous 280K.

Change in Private Payrolls (Jun): GS 213K, consensus 225K, previous 262K.

Unemployment Rate (Jun): GS 5.40%, consensus 5.40%, previous 5.50%.

Average Hourly Earnings YoY (Jun): GS (0.10% mom), consensus 2.30% (0.20% mom), previous 2.30% (0.30% mom).

Stockholm Syndrome:

"We flag a weird kind of "Stockholm Syndrome" in markets, which have bought into the notion of "secular stagnation" in the US, while also lauding the "cyclical recovery" in Europe. A simple look at GDP levels hows just how disconnected from reality these narratives are. Obviously, there are many reasons for this disconnect, but we think the most obvious one is the perception that slack in the US remains large, while potential growth in the Euro zone has fallen," GS clarifies.

"We revert to what should be the ultimate arbiter in all this: inflation pressure. After all, if the output gap in Europe is in fact small, inflation pressure should be rising. And if it is large in the US, inflation pressure should be low. Our scan across the G10 shows that inflation pressure in the Euro zone and Japan remains low, while it is highest in the US. Under the hood, fundamentals are lining up for a stronger Dollar, "secular stagnation" and "cyclical recovery" notwithstanding," GS argues.

EUR/USD, USD/JPY Forecasts:

"We continue to see EUR/$ at 0.95 one year from now and $/JPY at 130," GS projects.

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I wouldn't have used the 'Stockholm Syndrome' in this context myself.