Euro In Search Of Drivers
With Japan on holiday and the news wires virtually silent, overnight price action in Asia was subdued. Today’s light data calendar will only intensify the focus on Fed Chairman Bernanke’s congressional testimony due on Tuesday and Wednesday. The latest Fed minutes showed the vast majority of FOMC officials are not convinced that a third round of asset purchases is warranted. But since the FOMC last met on June 20, incoming economic data shows the US economy has slowed further – something Bernanke may acknowledge in person. Nevertheless, our US economists look for Bernanke to remain non-committal on the policy front and play for time given that the Aug. 1 FOMC meeting would be too soon for the Fed to act. Instead they think he will set the stage for a crucial Fed decision on Sept. 13. Even then, they doubt another round of balance sheet expansion is on the cards, and this keeps us bullish on the US dollar – especially given the recent decisions by the ECB and the Bank of England to provide additional policy stimulus. In Asia this week, the RBA’s minutes from the July 3 meeting will be a key focus too. At that meeting, the bank’s easing bias was heavily diluted, and any sign the RBA has reached the bottom of its easing cycle could lend the Australian dollar some temporary support. We remain cautious on the currency however amid signs that slowing Chinese growth is starting to have a detrimental impact on Australian exports. Our China economist also revised down her 2012 and 2013 growth forecasts to 8.0% (from 8.2%) and 8.3% (from 8.5%) respectively which keeps us doubly-cautious. The rebound in AUDCAD has presented a potentially-attractive selling opportunity, although we are reluctant to advocate selling the cross here given the considerable risk that the Bank of Canada will back away from its explicit tightening bias at Tuesday’s policy meeting. Our US economists are below consensus and expect today’s retail sales to come in flat.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank