Calm Before the Storm?
Risk appetite was soft during the New York session as investors braced themselves for the events later in the week. EURUSD momentarily broke above 1.28, but the lack of any fresh incentives kept it in ranges. The Troika review of Greece’s bailout programme is underway, and EU officials noted that the team is expected to be in Athens for a few more weeks before a final report is submitted in October. Earlier, a PASOK official noted that the Troika had rejected EUR2bn of proposed cuts in health and defence spending, even as the Greek Finance Minister acknowledged that the measures to be undertaken by Greece are “difficult” and the government is “trying to convince” the Troika that the austerity plan submitted by Greece is credible. Our base scenario expects the EU to eventually bring the Greek bailout programme back on track by the Eurogroup meeting on October 8. Elsewhere, the German Constitutional Court is likely to make a public announcement today on the legal petition by German lawmaker Gauweiler to block or postpone the court’s ESM ruling scheduled for Wednesday. It is, however, unlikely that the court says anything to defer the scheduled ruling. Apart from this, investors will be watching out for the EC’s proposals for single banking supervision and the Dutch general election results on Wednesday. The FOMC decision on Thursday, followed by the respective Eurogroup and ECOFIN meetings on Friday and Saturday, should offer further guidance to the FX markets. Following the ECB’s announcement of the Outright Monetary Transactions (OMT) programme that reduced tail risks in the Eurozone – not to mention the incorporation of a QE announcement by the Fed this week from our US economics team after the weak payrolls data – we revised our short-term FX forecasts. Our 1m and 3m EURUSD forecasts have been raised to 1.30 (from 1.25) and 1.25 (from 1.20), respectively, but the 12m target remains 1.15. There is not much on the data calendar for the day ahead, though Japan’s Business Outlook Survey for Q3 may attract some interest.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank