Hollande In Berlin
Data in the US continued to show positive signs, with new home sales in July growing by 3.6% m/m and 25.3% y/y alongside an uptick in the August Markit PMI to 51.9. Initial jobless claims increased by 4k, but the four-week average remained unchanged at 368k. In the wake of the dovish Fed minutes, the data offered little support for the dollar, which continued to struggle through the New York session. EURUSD rose to 1.2590, while USDJPY tested sub-78.40 territory. Broader risk appetite, however, cooled, with AUD and CAD losing ground against USD, JPY and CHF against the background of softer equities. Spanish bonds also pared their early gains. True to usual dovish form, Chicago Fed President Charles Evans noted that the Fed needs to take “more action” and inflation currently is “modest to say the least”, while his St Louis counterpart, Bullard, tried to put Wednesday’s Fed minutes in context by noting that the minutes “are a bit stale” and it would be “unusual for the Fed to take action on this data constellation”. Evans and Bullard are both non-voting members of the FOMC. The Eurozone manufacturing PMIs came in better than expected in August, but remained in the contraction zone for a seventh consecutive month, suggesting that the path towards solving the Eurozone debt crisis will be “long and difficult” – as German Chancellor Merkel noted. Merkel met French President Hollande on Thursday with a “full agenda” to discuss the Eurozone crisis. She noted that France and Germany will “encourage Greece to pursue the path of reform” but reiterated that any decision could be taken only after reviewing the Troika report. The latest FOMC minutes and more positive Eurozone news have prompted us to lower our short-term forecasts for USD while keeping our longer-term bullish view unchanged. We revised our 1m EURUSD target from 1.20 to 1.25.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank