Hozzászólás

Morning Adviser Americas 10/12/2010 12:20:00 PM

FOMC Minutes Due

By Manuel Oliveri

Risk sentiment suffered in Europe Tuesday, mainly on the back of weaker Asian markets. An initial trigger was China's decision to hike its deposit reserve ratio for several banks.

Elsewhere, EURUSD traded 1.3775-1.3851 and USDJPY traded 81.80-82.13. Most European stock market indices are trading in the red, with the Eurostoxx50 down by 1.1%.

The main focus today will be on the 1800 GMT release of the FOMC minutes.

Research Spotlight

"The Futility Of War" Macro Keys The media are voicing concern that the world is about to embark upon a global "currency war", as countries try to devalue their way to export-led recovery. Before such apocalyptic fears take hold, it is worth reflecting that major currency pairs have not moved much since the start of 2007. While a 30%-plus FX move in a single year would change prices and demand patterns, the dislocation and political response it would generate would be the economic equivalent of a nuclear winter. Please see the "The Futility of War" note on www.ubs.com/fx for details.

EUR Targets: EURUSD 1m 1.40, 3m 1.25 At -0.1% m/m (cons. -0.1%, prev. -0.1%) and 1.3% y/y (cons. 1.3%, prev. 1.3%) the final reading on CPI for September was released in line with previous estimations. German wholesale prices rose in September by 1.0% m/m (prev. 1.6%). ECB Governing Council member Noyer said that price stability is still not in question, and that upside risks are very limited. He also said that massive direct interventions in debt markets must remain exceptional. On a different note he highlighted that developments in the market are still closely observed. Elsewhere, ECB Governing Council member Nowotny said that there is no danger of inflation or deflation, and that the idea of a currency war is absurd. The EUR remains driven by external factors such as Fed easing expectations. We believe that Fed easing is largely priced in while growth prospects for the Eurozone as a whole have become more muted due to export competitiveness. With respect to QE we believe that investors may be disappointed by the Fed's final decision in terms of amount and ambition.

JPY Targets: USDJPY 1m 80, 3m 85 Finance Minister Noda repeated that he is watching FX markets with great interest, and said Japan is willing to take decisive steps, including FX intervention, if needed. Economics Minister Kaieda repeated comments that Noda made over the weekend, saying that Japan's explanation for its FX policy met with a certain understanding at the weekend IMF meetings. USDJPY will likely remain driven by external developments, and hence US yields will be key in directing the pair. As Fed easing is largely priced in, and as the Fed's decision in terms of amount and ambition may disappoint investors we expect downside in the pair to be limited. Hence we keep our medium-term forecast at 0.85.

SEK Targets: EURSEK 1m 9.35, 3m 9.30 At 1.8% y/y (cons. 1.7%, prev. 1.4%) and 0.8% m/m (cons. 0.7%, prev. 0.0%) CPIF was released above expectations. At 1.4% (cons. 1.3%, prev. 0.9%) and 0.8% m/m (cons. 0.6%, prev. 0.0) CPI without assuming constant interest rate costs also rose. Although most recent data will likely keep the Riksbank cautious with respect to inflation, we are of the view that prices are peaking around current levels.

GBP Targets: GBPUSD 1m 1.59, 3m 1.47 At 3.1% y/y (cons. 3.1%, prev. 3.1%) and 0.0% (cons. 0.1%, prev. 0.5%) CPI was slightly lower in September. RPI inflation was released at 4.6% y/y (cons. 4.4%, prev. 4.7%) and 0.4% m/m (cons. 0.1%. prev. 0.4%). The trade balance narrowed from GBP8.7bn in July to GBP8.3bn in August. Our economists note that today's CPI release is in line with the BOE's inflation report and should therefore have no material impact on the MPC. BOE's Miles said that growth and inflation prospects remain exceptionally uncertain and that quantitative easing remains a potentially powerful tool. He added that it is not obvious yes what the next direction of monetary policy is, but that the BOE may yet come to the use of quantitative easing. We are cautious on sterling as fiscal austerity will dampen growth and keep monetary policy accommodative.

AUD, NZD Targets: AUDUSD 1m 1.00, 3m 0.93; NZDUSD 1m 0.76, 3m 0.73 Business confidence in September in September fell to 10 from 11 in August. Business conditions have weakened slightly for business which are dependent on domestic demand. Elsewhere concerns with respect to the high valuation of the AUD to weigh on export competitiveness are rising. Prime Minister Gillard, for instance, highlighted that the strong currency pressures Australia's exporters.

FX Technicals

EURJPY support at 110.66 EURUSD BULLISH Snapback from 1.4029 eyes 1.3689 support. Next resistance lies at 1.4194 USDJPY BEARISH Trend is bearish; initial support at 81.39 ahead of 79.75. Resistance remains at 83.03 ahead of 83.99 GBPUSD BULLISH Move above 1.6018/69 would trigger further gains towards 1.6276. Support at 1.5670 ahead of 1.5503 USDCHF BEARISH Look for a break below 0.9500 which will expose 0.9078 next. Resistance at 0.9739 ahead of 0.9918 breakout low. AUDUSD BULLISH Upside potential held at 0.9918 below 1.000 psychological resistance next. Support at 0.9709 reaction low. USDCAD BEARISH As long as resistance at 1.0380 holds, expect losses to target 1.0063 with scope for 0.9931 and 0.9820 next. EURCHF BULLISH Trend is bullish; break of 1.3494 would expose 1.3697 measured objective. Support at 1.3265. EURGBP BULLISH Upside gains capped at 0.8808 ahead of 0.8894. Support holds at 0.8689 ahead of 0.8563 EURJPY BULLISH Clearance of 113.26 exposes 110.66 support, but overall outlook is bullish with resistance at 115.68 ahead of 116.68 Fibonacci resistance.