Forex Flash: US fiscal crisis & US debt downgrade are the biggest risks - BoA ML survey (San Francisco) - The United States is the biggest concern across the market according to the latest BofA Merrill Lynch Fund Manager Survey released on Tuesday. The investors are more concerned on US fiscal crisis than a EU sovereign deflation and/or a China hard landing.

"When asked what are the largest tail risks," said the survey, "investors still rank the US fiscal crisis (37%) well above EU sovereign deflation (23%), a China hard landing (14%) and oil price spike (11%)."

Investors believe that a US downgrade is more likely than the USD/JPY at 100.00. Asked about What will happen first, managers are more bearish than bullish on economy as they see downside surprise more likely.

"Despite the most bullish FMS since February 2011, investors still think downside surprises (US debt downgrade & Spanish bailout) are more likely than upside surprises (US unemployment below 7% & 100JPY = 1USD)," points the survey.

Said that, the growth optimism surged to a 33-month high, "the number of investors taking 'larger-than-normal' risk hit the highest level since 2004 while the number 'taking out market protection' fell to the lowest level since Q1’2008," according to the survey.

"Clearly for risk assets to remain bid, growth and earnings data will need to accelerate before Q2," the report points.