Still Fixated On The Euro
The focus remains very much on the post-election political show in Greece, where SYRIZA leader Alexis Tsipras stirred things up by warning that “the popular verdict clearly renders the bailout deal null”. He added that banks should come under state control and called for an international commission to investigate whether Greece’s debt is “legal”. This reminder of the potential complications ahead was enough to push EURUSD down to session lows through 1.30, but there was little follow-through in the absence of clearer signs that Tsipras will be any more successful than New Democracy head Antonis Samaras in forming a new coalition government. Nonetheless, the declines in the major equity indices highlighted the ‘risk off’ mood, which should keep the pressure on the Australian dollar heading into some key domestic (April employment) and Chinese (April exports, new bank lending and CPI) data releases later this week. UBS and the consensus expect a 5k drop in Australian employment and an uptick in the unemployment rate to 5.3%, while the Chinese export (UBSe: 7.5% y/y vs 8.9% in March) and lending (UBSe: RMB780 bn vs RMB1.0 trn in March) figures are unlikely to alleviate slower growth concerns. With the budget announcement having cemented the tighter fiscal-looser monetary policy regime shift, the Australian dollar will remain particularly sensitive to any weak data prints that will magnify the potential for RBA easing. We retain a short AUDUSD position, with a 1.03 stop and a downside target of 0.98. In the absence of a stronger FX intervention threat, the yen should have more scope to probe the upside. Indeed, those expecting a strong post-Golden Week Japanese bid on USDJPY and the yen crosses will be disappointed, as the solid domestic institutional bid for JGBs suggests the ‘home currency bias’ remains strong amid the heightened uncertainty about global growth prospects and the threat of more dovish Fed commentary in coming days. Today’s second-tier US data were predictably shrugged off, with the rise in the NFIB small business optimism index to its highest level since December 2007 countered by mixed consumer-related data – leaving the broader macro picture unchanged. Though we still do not believe the Fed will embrace QE3, the door promises to stay open for some time, limiting the upside for the US dollar. Dallas Fed President Fisher acknowledged today that “job growth is still weak” and noted “I’m not yet ready to advocate an exit strategy”. Bernanke will speak on Thursday.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank