Euro Surrenders Gains
The euro gave back most of its gains on Tuesday largely due to month-end flows and positioning. However, the news flow for the Eurozone is deteriorating again as deadlines loom over the PSI talks. The latest reports suggest that Greece is now resisting further austerity measures to bring debt down to sustainable levels, but the final details are still under discussion, especially how the ECB is going to participate. Sources noted that Wednesday could see a final deal between private sector creditors and the Greek government, but public sector participation also needs to be determined and is also required. Different wires reported that negotiations had become more problematic, and the Greek government may also be adopting a more difficult position with regard to general talks with the Troika, which still need to happen if Greece is to secure funding from the second bailout package. The euro’s retreat is a clear sign that markets do not wish to be aggressively positioned for more risk as deadlines approach. However, there is still a lot that could go right which could precipitate a risk rally, but this requires delicate negotiations on a number of matters where political realities may collide with financial necessities. Elsewhere, US data ran into some speed bumps as the Chicago PMI came in weaker than expected, albeit at resilient levels. Ahead on Wednesday, manufacturing PMI numbers will be released globally and investors will be hoping for stable growth to compensate for jitters coming out of the sovereign debt front. EURUSD traded 1.3063-1.3214 and USDJPY 76.14-76.42 during the US session.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank