The begin by noting that the FOMC minutes this week indicated that a change in how the Fed conveys its forward rate is on its way, but unlikely to arrive in December. On the political font, following President Obama's victory there have been indications of some willingness to compromise on measures to avert the fiscal cliff leading to a dollar rally against G10 and EM with equities generally falling lower.
Looking at the Euro crisis in 2013, they note that the eurozone premium risk has declined following the ECB's OMT programme was announced. They write, “This comes despite negative news, such as the renewed tensions on Greece and the delays in Spain asking for a bailout. However, the stabilisation in sovereign funding costs, albeit at relatively high levels, has not translated into an easing of financial conditions in Spain.”
On a broader basis, they note that Eurozone growth has not been able to bounce, as evidenced by the continued weakening in Eurozone PMIs. Furthermore, they suspect that Eurozone growth is likely to remain weak going forward and as such, maintain the view that there will be a larger downside into 2013.
From a short term tactical perspective, however, they are not inclined to chase the recent move lower, as a Spanish application for aid could see EUR/USD bounce to around 1.2900. Looking at USD/JPY, they are looking to enter long on dips and in the Antipodes they are fundamentally bullish NZD and are selling AUD/USD on the recent spike. Looking to Asia, they have paid attention to the impending Korea elections and are expecting USD/KRW to decline toward 1060 over the next six months.