Eur:usd Forcast

Main drivers for EUR:USD exchange rate in the period October - December 2012

- Growth Outlook. Modest global growth outlook, deteriorating growth perspectives in Europe and some positive market data from U.S. Latest events in global financial markets have pushed to downgrade growth expectations for Q4 2012 and whole 2012 for almost all major markets. Euro area has been hit especially sharply - down to -0.4% due to latest events in Spain and Italy, while U.S. has gained to 2.3%.

- European crisis - Europe has made the progress in terms of diminishing monetary union brake up risk, but risk of bank insolvency has occurred. Risks of Greece default has not vanished, but at least has brought in come clarity, although uncertainty about Spain and Italy is still open. Market is expecting Spain bailout, while Italy is involved in pre-election fights and can postpone debt issue to after-election period. Data about Euro zone, including Economic Sentiment Indicator, after fall to 0.2% in Q2, are expected to show even more negative economic growth figures in Q3 and putting pressure on Q4.

- Central bank activities. ECB and the Fed have engaged in QE activities and their relative performance will be one of EUR:USD exchange rate determinators.

o ECB OMT bond-buying programme has diminished monetary union break-down risk, but still risk of short-term rally versus long-term uncertainty remains as the high-debt countries are given an opportunity to fix their economies, but it is clear that there won't be a quick and easy solution. It is not clear on what conditions the programme will be implemented as even Spain, being in centre of crisis, is not eagerly applying for the funding.

o QE3 from the Fed followed a week after ECB announcement. Programme is planned to be open till significant improvements of economic data, especially in labour market. It is believed that U.S. continues "money-printing" practice, although it might be beneficial for U.S. households as mortgage rates go down. QE3 can be a protective tool to overcome next year Fiscal Cliff.

- U.S. presidential elections. Financial markets are waiting for the election outcome as pre-election environment is pretty uncertain. Presidential elections and uncertainty surrounding fiscal cliff make businesses to postpone capital investment and hiring decisions as there is uncertainty about spending and taxation next year.

- Credit Rating agencies and their announcements about country credit rating downgrading can significantly influence financial market and investor confidence and thus also currency exchange rates in one or another direction.

4. Factors playing in favour of USD strengthening/weakening

On relative basis U.S. economy is encouraging - European macro data are suffering while U.S. figure indicate some slight positive trends. Nevertheless the U.S. growth