Yesterday the BIS warned in their annual report that it was an open question whether stimulus by central banks would lead to sustained recovery, while waiting too long to withdraw support could create inflation and new imbalances. Nevertheless the report acknowledged that now is too early to implement exit strategies, which is the same message the Fed and other central banks which met last month have been trying to send, and markets have acknowledged the necessity to continue tolerance for extraordinary measures. To jump on an exit strategy to satisfy the "must have it here and now" mentality could be very damaging in the future. The sharp declines in consumer credit and mortgage credit is a clear sign that banks wary of extending credit in the current economic environment and provisions are still being made against asset impairments. The plight of banks in the coming months remains a possible trigger for a market correction. As well, Eurozone eastern bank risk is also potentially harmful to the EUR should defaults surface and cause rise to uncertainty and risk aversion.

CAD The mixed near-term outlook for the USD has also held the pair in check for now. We maintain our 1m USDCAD forecast at 1.15 and still target the pair at 1.25 in 3m.. The current tightening in monetary conditions, which is represented by past months CAD's strength, is clearly unwelcome as the economy is still not on the full path towards recovery. The strength was largely due to USD weakness and stronger oil. BoC Governor Carney reiterated in a speech that credit and/or quantitative easing remain viable policy options at the current juncture. But intervention also remains a possible option, particularly as the BoC has seemed hesitant to engage in credit and/or quantitative easing. The BoC will likely continue to watch levels closely despite the recent weakening trend in the CAD during June.

Source: UBS, Chris Lori, Bloomberg