Friday Reversal
FX markets staged a quick turn around on Friday with risk currencies making back some of their losses from the previous trading days. EURUSD pushed through 1.30 and AUDUSD through 1.05 on little news or data flow, most European equity indices were trading in the black while commodities and precious metals were bid. There appears to be some movement on negotiations between Spain and European policymakers – the Financial Times reported that EU officials are working with the Spanish government behind the scenes on the details of a new economic plan for Spain, which could eventually pave the way for a formal aid request. Details are vague but it appears that the Spanish government will submit a structural reform plan to the EU by next Thursday, hoping that the EU’s “pre-approval” will help it avoid taking tougher austerity measures when it finally requests EFSF aid. In the US, several regional Fed presidents had their say: Rosengren expects QE3 to cut the unemployment rate by a “couple of tenths” of a percent; Lockhart noted that job growth of 150k per month is needed to cut the unemployment rate. Interestingly, Kocherlakota (traditionally one of the more hawkish members of the FOMC), said that he would want rates at 0% until unemployment rate falls to 5.5% a process which he said could take 4 years. The increased focus on employment will make USD more sensitive to payroll numbers in the coming months, and even yesterday’s weaker than expected jobless claims report had a material currency impact. Claims last week came in at 382k above the 375k consensus and taking the four-week average to 378k (the highest since June
30). Ahead today CPI numbers are due in Canada.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank