The EUR has managed to avoid further losses during the Asia session but it is clear that it will take more than a blast of liquidity by the ECB to change the overall picture for the currency. In addition, even if the funds do succeed in preventing massive deleveraging by banks and protect financial stability, the perceived debasement of the currency, albeit temporary, means the euro will need to continue declining on a structural basis. However, we do acknowledge that the measures do buy precious time for Eurozone governments, both to issue at a less-than-prohibitive cost and also move forward towards a political solution. The stumbling blocks are still material, with Greece reporting ongoing struggles to negotiate its PSI and concerns over the approval process of recently-agreed fiscal measures on a Eurozone basis will linger. Meanwhile, debt woes elsewhere will also weight on sentiment as Fitch warned the US will also face a downgrade by late 2013 if the deficit is not reduced further. Political headwinds in Washington have not been a major factor in sentiment so far but this could shift rapidly. Ahead today GDP figures are due in the UK and in the US. Our economists are forecasting a larger downward revision to GDP growth (UBSe. 1.6%, cons. 2.0%) due to services consumption and reflects new data from the recently released Quarterly Services Survey (QSS). We note that consumer spending declines may cut Q3 growth by as much as 0.5%, only marginally offset by inventories, business investment and other consumption expenditures. Net exports were probably also weaker – this will be an increasingly relevant point up ahead for countries seeking to rebalance in an adverse global trading environment. Elsewhere on the data front, US jobless claims and the University of Michigan confidence index are due. EURUSD traded 1.3045-1.3197 and USDJPY 77.67-78.08.
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UBS Investment Bank