Looking For Direction
EURUSD traded in the 1.285- 1.3000 range for most of last week. In the US, data continued to be positive with the University of Michigan confidence index unexpectedly jumping to 83.1 in October, the highest print since September 2007. The week ahead will see several important US data releases, including September retail sales ahead today, CPI and industrial production on Tuesday, housing starts on Wednesday, jobless claims on Thursday, and home sales on Friday. Stronger data will help USD as it will discourage the Fed from increasing its monthly asset purchases (as part of QE3) at year-end. With Spain not showing any signs that a request is imminent and EU Economy and Monetary Commissioner Rehn noting that he expects a decision on Greece only in the next Eurogroup meeting in November, EUR bulls could be disappointed after the EU summit on October 18-19. IMF meetings in Tokyo ended on Sunday. Fed Chairman Bernanke defended Fed’s monetary policy noting that US recovery has been “frustratingly slow” and encouraged policy makers in emerging markets to let their currencies appreciate to contain inflation generated by greater capital inflows. Brazil’s finance minister Mantega accused the Fed of starting a “currency war”. Japanese Vice Finance Minister Nakao noted that Japan will “positively consider” ESM bond purchases. Dutch Finance Minister de Jager noted that giving more money for Greece for its delay in implementing reforms is a “perverse incentive” and added that when Greece implements all the necessary measures without further delay, “more money is not needed”. He remarked that Spain has implemented a lot of reforms, the results of which are yet to show, and so a Spanish bailout “is not the question at the moment”. Chinese trade data released on Saturday showed that exports grew by 9.9% in September (consensus: 5.5%, prior: 2.7%) while imports were up by 2.4% y/y, in line with expectations. Markets will focus on Tuesday’s RBA minutes for further guidance on AUD. Ahead today, August industrial production data is due in Japan and Q3 consumer prices are due in New Zealand.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank