G10 currencies
UBS View see UBS FX forecasts, below-right Recommendations
¢ The negative momentum on the EUR is likely to persist. The growth outlook has deteriorated in the last Tactical (6 months)
couple of months to a point, which challenges the fiscal austerity efforts seriously. e Long USD, GBP and CAD
¢ The USD profits from European troubles, but the upside remains limited by expansive fed policy e Short EUR, and CHF
¢ The GBP is resuming its uptrend despite stimulus measures by the Bank of England. The main reason is Strategic (1 to 2 years)
the need for diversification of the EUR and better current economic indicators. e We recommend investors diversify from ¢ The AUD seems to have found a bottom, and should recover on the back of better risk sentiment. We large USD and EUR exposures into minor believe the CAD remains one of the most attractive currencies. currencies. Structural financing issues
¢ The SNB has shown that it will defend the CHF-floor. EURCHF will remain in the 1.20-1.25 range.
4 Positive scenario FX targets: EURUSD >1.35 / EURJPY 120 e Eurozone economies avoid a material contraction and financial market conditions recover. EURUSD should trade above 1.40 in this case. Yen weakness could develop, since hopes for global growth would make the carry-trade role of the yen more prominent.
weigh on each of the major currencies.
e The best diversifiers based on long-term macroeconomic fundamentals are the CAD and the SEK. The AUD, NOK and CHF should only be added at better entry
levels. 4 Negative scenario FX targets: EURUSD <1.20 / EURJPY 100 e European growth outlook deteriorates further with continued recession in 2013. The euro could rapidly UBS CIO FX forecasts fall below 1.20. A European debt default cascade is a tail risk for the single currency. Risk aversion would 9 | (5D aay _— — lead to an extended USD and JPY rally. EURUSD 1.2485 1.22 28 32 1.31 ; , , ; USDIPY 79.88 83 85 30 80 Note: Scenarios refer to global economic scenarios (see slide 7) leone 756 — 4 ed aed ae \ : AUDUSD 0.9993 0.97 00 1.05 0.75 What were Why it matters GBPUSD 1.5548 1.56 65 1.70 1.69 watching NZDUSD_0.7851 0.75 0.79 0.83 0.60 ; . ; ; ; USDCHF 0.9617 0.99 0.95 0.93 1.01 Chinese growth We expect Chinese growth to land softly and then recover. Should China disappoint us EURCHF 1.2006 1.21 21 1.23 1.32 with a hard landing, then we have a problem. Risk unwinding will support USD and JPY SRY Soya to oy to tas versus risk takers currencies. SURGEE ~~ eee cas 078 0.78 077 . . . . . . EURSEK §.8133 &.65 8.55 &.40 8.86 European - With Greek elections out of the way, the main focus lies on Spain and on potential ECB ERK aa a7) ai a dA Bey sovereign crisis, rate cuts. Any improvement in Spain should support the euro, a rate cut would probably ECB policy hurt it. Key dates: ECB Meetings on 5 July and 2 August Sees _ cine oe al ee Note: Past performance is not an indication of future returns. US growth and _—Wvill the Fed add QE to current Operation Twist programs? How will presidential Fed policy elections change political powers in Washington? Keys to address long-term financing response issues. Key dates: 1 August, FOMC meeting; 6 November, US Presidential
36 UBS
elections
31 For further information please contact CIO's asset class specialist Thomas Flury, thomas.flury@ubs.com
Please see important disclaimer and disclosures at the end of the document.
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