EUR Stumbles
Reports that the Greek Court of Auditors has ruled the proposed pension reforms – namely, increasing the retirement age by two years to 67 and cutting pensions by between 5-10% – may be unconstitutional undermined EURUSD at a time when markets have been expecting a ‘solution’ that would avert a near-term crisis. This ruling clearly complicates the process, as Greek lawmakers are expected to vote on the reforms next week. To be sure, they could choose to simply disregard the Court’s ruling and proceed with a vote on the legislation. Yet, the door will be open to legal challenges after the fact, which could delay implementation, magnify uncertainty about the Troika’s response, and trigger fresh EUR selling. USDJPY remains well supported, gleaning encouragement from the generally firm barrage of US data. The manufacturing ISM index defied the deterioration indicated by most regional results by edging up to 51.7 in October on the back of better readings for production and new orders. The Conference Board’s consumer confidence index, though slightly below consensus at 72.2 in October, still reached its highest level since early 2008. The latest construction spending figures for August-September were collectively more positive than assumed in Q3 GDP, telegraphing a modest upgrade to a 2.1% annual rate from the originally reported 2.0% pace. Initial jobless claims are trending lower, with the latest 4-week average of 367k down from 376k a month ago and 372k two months ago. And the October ADP estimate of private payrolls came in at 158k, up from a revised 114k in September. Methodological changes suggest one should not draw too many conclusions for the October employment report, but anything stronger than the current consensus calls for payrolls (125k) and the unemployment rate (7.9%) should keep USD risks skewed to the upside vs EUR and JPY.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank