Forex Flash: EUR/USD bears beware ahead of Spanish bailout - UBS
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FXstreet.com (San Francisco) - From Mansoor Mohi-uddin, Managing Director and Head of Foreign Exchange Strategy at UBS: "We think investors shouldn't short the euro until Madrid requests a sovereign bail-out. The single currency may rise initially as the European Central Bank has committed to buying Spanish bonds in the secondary markets. That would suppport sentiment temporarily."
UBS continues: "But we fear the ECB later on will not be able to stop purchasing paper even if Madrid misses its conditions for borrowing from the European Stability Mechanism. That suggests the euro would fall in the medium term as the ECB keeps expanding its balance sheet. As a result we expect the euro to return to 1.15-1.20 in 2013 against the dollar."
UBS continues: "But we fear the ECB later on will not be able to stop purchasing paper even if Madrid misses its conditions for borrowing from the European Stability Mechanism. That suggests the euro would fall in the medium term as the ECB keeps expanding its balance sheet. As a result we expect the euro to return to 1.15-1.20 in 2013 against the dollar."
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