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Fixed Income & FX Research
FX - Strategy

UBS Investment Research
FX Morning Adviser

Global

Data Turn Afoot?
6 November 2013

The upward move in Treasury yields on Tuesday seemingly without any strong
fundamental drivers has left markets perplexed. Regardless, the dollar was forced
to respond higher in kind, though when price action is fixed-income led the pain is
more acutely felt in high-beta risk currencies such as AUD and in Emerging
Markets. Pre-positioning ahead of Wednesday’s release of auction sizes for longerdated paper aside, we believe it is valid for investors to once again look at the
prospect of a decent data run pushing an earlier tapering back on the agenda. Such
a phase would not only justify the Fed’s apparent lack of pessimism in the recent
FOMC meeting, but also provide the dollar with another chance of changing its
structural performance towards that of a risk currency.

www.ubs.com/fx

In previous editions of the Morning Adviser, we have highlighted how US data has
failed to recover from its usual mid-year ‘soft-patch’. As of the end of last week
(Chart 1), data continues to underperform expectations, extending the surprise
index decline to 32 weeks, vs. 13, 18 and 19 weeks between 2010 and 2012.
Tapering expectations no doubt played a role, while the Fed also had the
government shutdown to contend with. As we warned earlier, prolonged extension
of data underperformance would point to structural rather than cyclical problems,
and warrant a Fed response in the opposite direction. However, the FOMC only
offered a pause, and their view that fiscal retrenchment would not adversely affect
the economy (somewhat of a gamble) pointed to confidence in underlying
resilience. If so, then the market should anticipate the resilience bearing fruition in
the form of upside data surprises. Our surprise index for the US is already overdue
for mean reversion (to trend) as expectations have softened in Q3. This leaves the
dollar open to breaking back into ranges consistent with Fed on a tapering stance.
With other G10 central banks like the ECB and BoJ anticipated to go the other way
in the near future, post-positioning adjustment dollar higher will be the path of
least resistance structurally - but of course the Fed has to deliver post-data.
Timing remains the stumbling block but there are leading indicators to note.
Operationally, in G5 the BoE’s previous rounds of QE and current guidance –
irrespective of market pricing – should also buoy the Fed. Like the US the UK
economy is predominantly services-oriented: where forward guidance and prior
stimulus has driven services sector PMI to a 17-year high (Chart 2). Although the
US non-manufacturing ISM print on Tuesday was less impressive, it too surprised
to the upside convincingly, not least helped by a firm employment sub-index.
Psychological expectations will probably rise for the upcoming payrolls number,
and the broader hope that stimulus is feeding through. If data truly can lead
heading into Q4, FX markets will have quite a bit of catching up to do.
Chart 1: Data upside correction long overdue

Chart 2: Services leading the way?
65

225
200

Surprise Index

60
32 weeks

175
19 weeks

150

100

50

18 weeks

125

45

13 weeks

75
Jan-09 Oct-09 Aug-10 May-11 Mar-12
Sources: UBS Economics – surprise indices

55

40

US NonManufacturing ISM
UK Services PMI

35
Dec-12

This report has been prepared by UBS Limited

Oct-13

Jan-09 Oct-09 Jun-10 Feb-11 Oct-11
Sources: UBS FX Flow Monitor

Jul-12

Mar-13 Nov-13

FX Morning Adviser 6 November 2013

FX Technicals
EURUSD

NEUTRAL

There is scope for more upside in the near-term to unwind the recent sharp selloff. Resistance is at 1.3591. Strong support is at 1.3421.

USDJPY

NEUTRAL

Resistance is at 99.07, a break above which would open 100.61. Support is at
97.46 ahead of 96.57.

GBPUSD

BULLISH

The pair has bounced from the critical support at 1.5894, reinforcing the bullish
picture. Resistance is at 1.6122 ahead of 1.6260.

USDCHF

NEUTRAL

Any further recovery will find strong resistance at 0.9178, which is also the last
significant recovery high. Support is at 0.9052 ahead of 0. 8991.

AUDUSD

NEUTRAL

Strong support is at 0.9410. A close below this will be negative, exposing 0.9281.
Resistance is at 0.9550 ahead of 0.9630.

USDCAD

BULLISH

With the MACD above its zero line, this is a bullish condition; there’s scope for a
break above 1.0497, extending the strength to the critical resistance at 1.0568.
Support is at 1.0384 ahead of 1.0357.

EURCHF

NEUTRAL

Resistance is at 1.2376 ahead of 1. 2415. Support is at 1.2277 ahead of 1.2215.

EURGBP

BEARISH

The recent sell-off has seen the MACD cross below its zero line, this is a bearish
condition. The next major support focus is at 0.8333. Resistance is at 0.8477.

EURJPY

BULLISH

The latest weakness was staged from the resistance at 135.51. There is a strong
support at 131.15. While this holds, the potential is for resumption of strength.

*NOTE: The trend for each currency pair as defined in the table is determined by our proprietary model and is independent of our discretionary interpretation
of price action
Source: UBS FX Strategy

Key Events
Country

United States
Japan
UK
Australia
UK
UK
Sweden
Germany
Euro Area
Euro Area
UK
UK
UK
UK
Euro Area
Euro Area
Germany
United States
United States
Canada
UK
Canada
United States
UK
United States

GMT

22:00
23:50
00:01
00:30
08:00
08:00
08:30
08:55
09:00
09:00
09:30
09:30
09:30
09:30
10:00
10:00
11:00
12:00
12:30
13:30
15:00
15:00
15:00
17:00
18:10

Release/Event

Fed's Williams Speaks
BoJ October 3-4 meeting minutes
BRC Shop Price Index (Oct)
Trade Balance (Sep)
Halifax House Prices (Oct)
Halifax House Price (Oct)
Riksbank Minutes
PMI Services (Oct F)
PMI Services (Oct F)
PMI Composite (Oct F)
Industrial Production (Sep)
Industrial Production (Sep)
Manufacturing Production (Sep)
Manufacturing Production (Sep)
Retail Sales (Sep)
Retail Sales (Sep)
Factory Orders (Sep)
MBA Mortgage Applications(Nov-1)
Challenger Job Cuts(Oct)
Building Permits(Sep)
NIESR GDP Estimate(Oct)
Ivey PMI sa (Oct)
Leading Index (Sep)
BoE's Kohn Speaks
Fed's Pianalto Speaks

Frequency

UBS

Prev/Revised

Consensus

Actual

y-o-y
AUD mn
m-o-m
3mths/year

n/a
-1000
0.50%
6.80%

-0.20%
-693
0.30%
6.20%

0.10%
-500
0.90%
7.00%

-0.50%
-284

index
index
index
m-o-m
y-o-y
m-o-m
y-o-y
m-o-m
y-o-y
m-o-m
m-o-m
y-o-y
m-o-m
q-o-q
index
m-o-m

52.3
50.9
51.5
0.40%
1.70%
1.20%
0.80%
n/a
n/a
0.30%
n/a
n/a
n/a
n/a
n/a
0.60%

52.3
50.9
51.5
-1.10%
-1.50%
-1.20%
-0.20%
0.70%
-0.30%
-0.30%
6.40%
19.10%
-21.20%
0.80%
51.9
0.70%

52.3
50.9
51.5
0.60%
1.80%
1.10%
0.80%
-0.40%
0.60%
0.50%
n/a
n/a
6.00%
n/a
52.0
0.60%

Source: UBS Global Economics, Bloomberg LP, Reuters LP, Reuters, Market News International

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