Strong IFO Boosts Euro
The euro led other risk assets higher in the European session after a strong German IFO print. All sub-indices including the main business climate (109.6) were above consensus and the euro broke through the 100 day movingaverage to a high of 1.3343. This move was somewhat tempered by a European Commission downgrade of the regions GDP forecasts, including the headline number to -0.3% for 2012. The other stand-out mover in the G10 space was EURNOK which broke through a key support level at 7.48. Overnight in Asia, BoJ Governor Shirakawa said that the latest easing measures were supposed to boost sentiment temporarily and a rise in prices won’t change policy. He also suggested that they will leave policy easy for longer until the 1% target is reached, a policy that is backed by the 9-member board. Prime Minister Noda said that he wants more frequent talks with the Governor in order to boost cooperation. At least for the near-term, FX markets appear to be moving back towards data surprises as broader drivers for sentiment. Data, particularly in the Eurozone, remains volatile but the underlying trend is one of consolidation and long-standing bearish macro views are being moderated somewhat. At this stage we still dispute the notion that the ECB’s liquidity steps can be a catalyst for renewed credit creation for the Eurozone household and corporate sectors, as banks are largely using the funds for their own refinancing needs and the marginal impact on the real economy is expected to be limited. In the same vein, the next 3-year LTRO may also be used for ‘ring-fencing’ purposes ahead of a potential credit event regarding Greece, and actually putting the funds to work remains several layers down the order of priority. In the US, initial claims are due and the market is looking for a slight rebound to 355k from last week’s 348k. Our economists note that the upcoming reading could be affected by seasonal adjustment problems relating to the Presidents’ Day holiday. Overnight EURUSD traded in a range 1.3231 – 1.3323, USDJPY 80-07-80.38.
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UBS Investment Bank