BoJ Is Next
EURUSD held above 1.31 during New York hours even as Spanish yields continued to inch higher. Spanish 10y yields rose by about 20bp on Monday as concerns that Spain may not request for an EU aid grew. ECB Governing Council member Coene noted that if “markets see that Spain will not” ask for an EU aid, “spreads will rise again” and reiterated that the ECB will not buy bonds unless the Spanish government makes a formal aid request. Coene acknowledged that the OMT programme is designed only “to buy time” for structural reforms to take effect. German Chancellor Merkel noted that it is unlikely that the single banking oversight will be functional by Jan 2013 She added that that it is more important to take “credible steps” than “act quickly”. It appears that markets have to wait longer than expected to get clarity on Greece, Spain and the banking supervision – and this continued delay is expected to put downward pressure on EUR. GBP gained against its peers overnight as investors closed some of their large short positions. GBPAUD gained by one big figure as AUD was weighed down by subdued risk appetite. The Canadian international securities transactions report showed that foreign appetite for Canadian securities returned in July with net purchases of CAD6.7 bn, after divestments of CAD7.8 bn in June. USDCAD fell temporarily following the backward looking report but bounced back owing to USD strength across the board. The BoJ will start its two-day policy meeting today. Our economists expect the central bank to stand pat this week and see next month, when the BoJ releases its inflation projections, as a better time to provide further stimulus. We expect USDJPY to be a range trade for now and stick to our 1m forecast of 78. Also on tap today are the RBA and the Riksbank minutes, UK August CPI data and German ZEW survey.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank