Forex Flash: Sentiment holds firm overnight – UBS (Barcelona) - Geoffrey Yu, Strategist at UBS notes that risk appetite recovered in earnest overnight as investors shrugged off some initial fears over downgrades in Europe and lack of progress in the fiscal cliff talks in the US.

He sees that Australian GDP came in broadly in line with expectations for Q3 at 3.1% YoY, but mentions that the in house UBS economists note that CAPEX growth was reasonable soft. Looking to Japan, BoJ Governor Nishimura noted that “powerful easing” would continue despite USD/JPY looking like it has reached a ´policy limit´ as elections loom.

Yu notes that a strong recovery in Chinese equities also helped sentiment, giving markets more confidence in the cyclical rebound story. Ahead today he sees services PMIs are out in Europe but the market will also have an eye on US labour market data, with the ADP a possible precursor to the upcoming payrolls release. Non-manufacturing ISM is also out, and the RBNZ decision is due late during the US session.