FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Ahead of Friday’s Jackson Hole speech risk sentiment appears to have very little underlying momentum. Down days are immediately squared up the next. Even though fresh liquidity is by no means a given, the market is struggling to come to terms with not just whether fresh QE is on the cards, but also what kind of a signal it may send as the marginal impact of additional liquidity appears to be waning. Yesterday’s price action in gold may be a sign that some investors do not want to be excessively long QE-hedges ahead of the speech, but equities have rallied in anticipation of some relief. Nonetheless, growth concerns have not gone away – indeed our analysts have just lowered their global growth forecasts for 2012 to +3.3% from +3.8% previously. They also now expect the Fed, the ECB and the Bank of England to keep their respective policy rates on hold at least until the end of 2012. Consequently, given the absence of compelling interest rate differentials, our economists have lowered the long-term end-2012 UBS forecast for USDJPY to 75 from 100. The end-2012 forecast for GBPUSD falls to 1.51 from 1.62. Overnight most Asian indices traded on a buoyant note, USDJPY traded 76.82-77.14 and EURUSD 1.4387-1.4416. Ahead today claims data are out in the US, while Sweden sees releases of consumer confidence and the unemployment rate.
EUR
Our analysts have lowered their 2012 growth forecasts for the Eurozone to +1.0%, from +2.0% previously, citing declining growth prospects abroad, the impact of fiscal tightening, and the latest market turmoil.
The German IFO business climate was weak at 108.7 vs 111.0 consensus. The current assessment index was 118.1 vs 119.8 consensus. Clearly the numbers are disappointing and will fuel concerns about the outlook for the German economy. IFO’s Abberger said he would not yet talk of a recession but the economy is slowing down very significantly.
Eurozone industrial new orders for June fell 0.7% m/m and increased 11.1% y/y, lower than expectations for 0.4% m/m and 11.9% y/y. Our European economist notes that high volatility and a downward trend have emerged in Q2, with no strong signs of stabilization.
The ECB’s overnight lending to banks jumps to a two-week high. Banks tapped the ECB marginal lending facility for EUR2.8 bn yesterday vs EUR555 mn the day before. However, the ECB allotted $0 mn in 7-day operation, after last week using the facility for the first time since February.
CHF
Despite some market expectation to the contrary, the risk of an SNB announcement on Wednesday morning did not materialise. This suggests that the bank might want to press ahead with its sight deposit target in its current form for another week (on previous Wednesdays, for each of the past 3 weeks, the SNB had announced new measures intended to weaken the Swiss franc). CHF 3m LIBOR continues to drift lower towards the SNB’s target of “as close to zero as possible”. It fixed at 0.00667% on Wednesday. 1m and 2m CHF LIBOR remain in negative territory.
JPY
Japan’s Ministry of Finance announced it would set aside up to $100 bn of FX reserves mainly to encourage Japanese companies make acquisitions abroad. The funds are to be made available through the Japan Bank for International Cooperation.
NZD
In the Q2 retail trade survey, The volume of total retail sales rose 0.9% q/q in the June 2011 quarter (+1.1% y/y), following a 1.1% q/q increase in the March quarter (revised up from +0.9% q/q).
Our economists note that if markets stabilise, confidence rebounds and the recovery remains on track, we expect the RBNZ to be back on the tightening case by December. However, given the risks and uncertainties at the current moment, it is difficult to be confident about this timing i.e. it is not difficult to envisage a scenario where the RBNZ does not touch the OCR until sometime next year.
TECHNICAL OUTLOOK
USDCHF 0.8017 resistance.
EURUSD BULLISH A break above 1.4500 would expose 1.4578. Initial support lies at 1.4259.
USDJPY BEARISH Decline through 76.34 would expose the key low of 75.95. Initial resistance is at 77.21 ahead of 77.86.
GBPUSD BULLISH As long as the support at 1.6305, a Fibonacci level, holds, watch for a move towards 1.6534 ahead of 1.6573.
USDCHF BULLISH Rise through 0.8017 would confirm the bull trend and expose 0.8178. Support lies at 0.7744.
AUDUSD BEARISH A move below 1.0315 would open the way for 1.0246. Near-term resistance is at 1.0559.
USDCAD BULLISH Initial resistance is at 0.9939, a break above which would expose 0.9969. Support lies at 0.9799.
EURCHF BULLISH Watch for a break above 1.1555 to confirm the bullish conditions and open the way for 1.1663. Support lies at 1.1165.
EURGBP NEUTRAL Initial resistance is at 0.8830 ahead of 0.8886 while support lies at 0.8697.
EURJPY NEUTRAL Near-term directional triggers are at 111.83, a Fibonacci level, and 109.02.
SCHEDULE
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