The dollar-positive afterglow from Friday's strong US payrolls report lasted into the Asia session on Monday. EURUSD is now firmly back on the 1.30 handle, and both AUD and NZD are struggling. This is partly due to the absence of overnight drivers given the empty calendar. But there are forces at work too - it is becoming increasingly clear that the psychology around the US dollar is changing. The dollar no longer strengthens only in the presence of risk aversion and now stronger US economic data is just as likely to do the trick. This change in character paves the way for further dollar gains over the coming months as market expectations for further Fed easing recede.



Friday's IMM positioning data shows that a longer term structural change seems to be taking hold: net dollar positioning has now been in long territory for 25 consecutive weeks - a pattern we have not witnessed since 1999. USDJPY did slip a little overnight but only after hitting fresh ten-month highs on Friday which confirm that the month-old uptrend is still very much intact. The headline payrolls number itself came in at +227k (cons. 210k) in February, while January's and December's data were revised up by a net 61k jobs. The unemployment rate was unchanged at 8.3% - in line with expectations despite a 476k increase in the labour force.


Four policy meetings lie ahead this week: we expect no change in the Fed's policy stance on Tuesday, and nothing material from the BoJ either. Norges bank meets on Wednesday and, although we look for no change to the policy rate, Governor Olsen is not likely to waste an opportunity to try to talk down NOK. On Thursday, the SNB is very likely to keep the EURCHF floor unchanged at 1.20. Eurozone finance ministers and the IMF will likely need to sign off on the entire second Greek bailout plan this week - the finance ministers meet today, and the IMF executive board on Thursday.


Key Events


12 March 2012 Source: UBS Global Economics
Country GMT Release/Event Frequency UBS Prev/Revised Consensus Actual


Euro Area 14:30 ECB Announces Weekly Bond Purchases
Euro Area 16:00 Euro-Area Finance Ministers Meet
Canada 16:30 BoC's Macklem Speaks
United States 18:00 Monthly Budget Statement (Feb) USD bn n/a -222.5 -229.4
New Zealand 21:45 Food Prices (Feb) m-o-m n/a 0.00% n/a


Research Spotlight Payrolls Boost Dollar G10 FX Strategy


US payrolls data were again strong, with February beating expectations and January revised upward. Employment creation at this pace makes it increasingly hard for Federal Reserve doves to push the case for further quantitative easing, particularly with Eurozone tail risks now materially reduced. With central bank balance sheets in other G4 countries likely to continue expanding, and important emerging economies beating expectations for policy easing, this is a key dollar positive. Please see http://www.ubs.com/fx for details.


EUR
Targets: EURUSD 1m 1.30, 3m 1.25


ISDA formally declared a credit event in Greece on Friday. There was no immediate currency reaction even though the news came an hour before FX markets closed. An auction will be held on March 19 to determine how much holders of CDS contracts will be paid.


ISDA's CEO Pickel, said he does not expect payments to CDS holders to be a disruptive market event. He said the Greek default is just the latest of many of such events, and that the process for settling contracts has 'has worked well' previously. Pickel noted that 93% of the CDS contracts are already backed by collateral, and so suggested that the risk of a failure to pay is very small. He predicted that payouts will be even smaller than the $3.2 bn in net CDS exposure outstanding, given that a small recovery value should be expected.


Austria's Finance Minister Fekter said losses to Austrian banks arising from the triggering of Greek CDS can be 'accommodated'.


Politicians and policymakers across Europe seemed generally pleased with Friday's developments in Greece. A German Government spokesperson said German Chancellor Merkel was 'encouraged' by the result of the swap deal. France's President Sarkozy said the Greek problem has now been solved and said a page has been turned in the financial crisis. Germany's Finance Minister Schaueble said Greece is now 'on the road to recovery'. ECB Governing Council member Nowotny declared the restructuring 'a clear success', but apparently made no reference to the ECB's long-standing public opposition to a sovereign credit event occurring inside the Eurozone.


Eurozone finance ministers are due to meet again in person on Monday to discuss remaining issues around the release of funds for Greece from the second bailout fund.


IMF Managing Director Lagarde said she will recommend that the IMF Executive Board approves a four-year EUR 28 bn contribution to Greece's second rescue. The Board is tentatively due to meet on Wednesday to formally decide. Of the proposed EUR 28 bn, EUR 10 bn has been carried over unused from the original Greece rescue. Lagarde said the 'scale and length of the Fund's support is a reflection of our determination to remain engaged'.


Greece has not yet set a date for the upcoming general election. Late on Friday, government spokesman Kapsis said that the general election would happen on April 29 at the earliest, but could be delayed until May.


JPY
Targets: USDJPY 1m 80, 3m 85


Ex-Finance Minister Fujii (who held the post until January 2010) said the yen's strength is odd given Japan's 'extremely precarious' public finances.


The BoJ are due to meet again on March 12-13 but local press reports suggest the only policy manoeuvre will be a one-year extension of the special JPY 3.5 trn lending facility designed to encourage financial institutions to lend to growth industries. The programme is due to end this month, and roughly JPY 400 bn remains untapped. Of greater significance is the risk of an expansion, extension and/or amendment of the BoJ's Asset Purchase Programme next month, perhaps in conjunction with the publication of the Outlook Report on April 27.


CHF
Targets: EURCHF 1m 1.20, 3m 1.20


The Swiss government said it would stick to the current schedule for appointments to the SNB Board. As such, the third board member and next President of the SNB will be elected by the Federal Council in April.


AUD
Targets: AUDUSD 1m 1.05, 3m 1.00


China's February trade data released over the weekend showed imports up sharply by +39.6% y/y (cons. +31.8%). Total iron ore and concentrates imported were up 5.7% y/y by volume. Overall imports from Australia were up +8.0% y/y.


FX Technicals


EURUSD breaks 1.3096


EURUSD BEARISH Break below 1.3096 has opened 1.2974, the Feb. 16 key low, a move below which would signal scope for deeper pull back. Resistance is at 1.3291.
USDJPY BULLISH Focus is now on 82.79, a break here would open 83.13 next. Support lies at 81.87.
GBPUSD BEARISH Decline through 1.5697 has turned the model bearish and opened 1.5645 ahead of 1.5614. Resistance is at 1.5884.
USDCHF NEUTRAL Initial support lies at 0.9072 ahead of 0.9022. Key resistances are at 0.9300 and 0.9342.
AUDUSD BEARISH Pressure is on 1.0509, a move below which would open 1.0476. Resistance is at 1.0691.
USDCAD BEARISH Support lies at 0.9873 ahead of 0.9842, the year-to-date low. Resistance is at 0.9991.
EURCHF NEUTRAL The cross continues to trade choppy in a narrow range. Resistance is at 1.2084 and support is at 1.2040.
EURGBP BULLISH Resistance is at 0.8410; a recovery through this would signal extension of gains towards 0.8433. Support lies at 0.8343.
EURJPY BULLISH A break above 108.74 would open 109.93, the year-to-date high. Support is at 106.60.


*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