The Bank of Japan left policy entirely unchanged at its meeting overnight, as widely expected. Market focus is now fixed squarely on Europe again as the ECB gears up for the first of two three-year LTROs. By all accounts, the take up is expected to be strong and, if so, markets would likely interpret this as a positive development. Asian equities and the AUD in particular were stronger overnight, partly in anticipation of what the liquidity injection will mean for risk appetite. Not only will some of the funding be recycled back into government debt, but the release of abundant liquidity would also secure bank financing over the coming year. We still believe it is difficult to reconcile a government desire for banks to continue buying debt with the need for banks to reduce risk exposure associated with government debt, but it appears all parties involved want to use the tenders as a stop-gap while governments move forward with the fiscal compact in the Eurozone. In other news, economic data continues to surprise to the upside in the US, but also in Germany. New Zealand current account figures were also released overnight, which showed a wider than expected deterioration to –N$4.6bn. EURUSD traded 1.3072-1.3127 and USDJPY 77.76-77.91. The BoE minutes are also scheduled for release shortly before today’s LTRO announcement.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/12/UBS2112.pdf
UBS Investment Bank