FOREX WEEKLY. Weekly information issued by the FOREX Advisory Team. Trader view in 2 snapshots. 13 October Global Forex Sentiment

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1 FOREX WEEKLY 13 October 2017 Weekly information issued by the FOREX Advisory Team Global Forex Sentiment The Spanish government has decided yesterday after an extraordinary meeting to ask to the President of the Generalitat Carles Puigdemont to clarify if yesterday he made a declaration of independence or not. Indeed, the government had no other option than reacting firmly to the legal challenge of the separatists. The only unknown was which legal tools it was going to activate. Finally, even though the use of the article 155 of the Constitution can be seen as disproportionate since it results in, at least, a partial suspension the autonomy, it also gives an opportunity to Carles Puigdemont to defend his aims within a legal framework. In the USD, Headline PPI rose 0.4% (consensus 0.4%), and core prices also were up 0.4%, (consensus 0.3%). However, the strength in core prices reflected trade services (margins), which can be volatile. Core ex trade services came in up 0.2%, in line with expectations and the recent trend. According to the BLS, "Hurricanes Harvey and Irma had virtually no impact on data collection efforts or survey response rates, and no changes in estimation procedures were necessary." Regarding US rates, the consensus is predicting that a shrinking Fed balance sheet will push yields higher - maybe even risking a new taper tantrum. But that same prediction was wrong when Fed's QE1 ended in 2010, when QE2 ended in 2011, and when the Fed started tapering its QE3 program in Dec Headline CPI inflation remained stable at 3.3% YoY in September 2017 versus the previous month. This was below consensus expectations of 3.6%. Price pressure in rural areas (3.1% YoY in September) was lower than that in urban areas (3.4%YoY) September Taiwan exports grew at the fastest pace since July The data is likely distorted by the timing of the Mid-Autumn festival. Notwithstanding these distortions, exports have been on a steady rise over recent months, helped by improving global trade volumes, the extended global tech cycle and recovering commodity prices. Trader view in 2 snapshots EUR USD Full view: page 2 NOK SEK Full view: page 3 EUR Downside correction mode is intact! The Kingdom of Norway shall rise again! Build a short EUR/USD Position. Build a Long NOK vs SEK Cash Position. A publication of the FOREX Advisory Team Banque SYZ SA Tel. +41 (0) fxtrading@syzgroup.com Contacts: José-Manuel Luna Pier-Luigi Bonelli Ugo Biancaniello Table of contents (click on hyperlinks) Trader view Bloomberg FX Forecasts... 4 IMM Positioning... 4 Global Market Focus... 5 Disclaimer at the end of the document.

2 TRADER VIEW: EUR USD: The EUR downside correction mode is still intact! Trading Idea & Hedging Solution We still keep our medium term bullish view on the EURUSD. However, in a short term view we believe the EUR vs USD should correct lower towards and We recommend the following short term strategy (spot ref ) : Sell Forward 2 mths EUR vs USD at actual spot level (Forward price is ) Objectives and Buy a protective EUR Call Strike 1.20 expiry 2 months Premium = 0.85% of the EUR Max loss = 1.85% & Potential Profit 4.05% Support II Support I Spot Resist ance I Resist ance II Technical The EUR/USD has confirmed finishing its wave V of C and initiated a major up move towards and posting a high at Downside Short term corrections are expected with key support at and Market Update Economics and politics are the two key drivers of G10 FX markets presently. ECB officials are considering cutting their monthly bond buying by at least half starting in January and keeping their program active for at least nine months, according to officials familiar with the debate. Reducing quantitative easing to 30 billion euros ($36 billion) a month from the current pace of 60 billion euros is a feasible option, said the officials, who asked not to be identified because the deliberations are private. While the central bank s governors are split on the need to identify an end date for purchases, a pledge to keep buying bonds until September -- with the proviso that it could be extended if needed -- may offer grounds for compromise, they said. Policy makers led by President Mario Draghi are becoming increasingly confident that ECB policy makers will on Oct. 26 agree to the specifics of how much debt the euro-area s central banks will buy in the coming year. Others are concerned that inflation remains too weak. At this stage, our long term EUR bullish scenario shall be fed by the above ECB s likely strategic plan. However, very short term we believe that the EUR is on for downside correction towards key support levels at and Page 2

3 TRADER VIEW: NOK SEK : The Kingdom of Norway shall rise again! Trading Idea & Hedging Solution Fundamentals in Norway are pointing towards a Full Green set of cards. We very much like starting to build a long term long position in NOK and sell the SEK which is lagging behing Norway s economical recovery. We recommend the following strategy (Spot Ref ): Buy 1/3 Cash Position here a Forward price of expiry 6 mths ( ) Buy another 1/3 Cash Position at Spot Forward Buy the last 1/3 Cash Position at Spot Forward Place a stop loss at Potential Loss 3.03%. Potential Profit 11.98% Support II Support I Spot Resist ance I Resist ance II Technical The NOK vs SEK has completed its long term wave V and has initiated a major A-B-C upward correction which shall open and A break below would terminate our bullish NOK scenario. Market Update Norway's FX based inflation has likely bottomed and the current level of trade weighted NOK implies an increase in FX-based inflation over in the next couple months. The pick-up in Norwegian growth should soon begin to eat up economic slack and points to a gradual pick-up in inflation. The annual growth in nationwide house prices has come off from a peak of 13% yr/yr in February to 3% as of August but this is mostly due to base effects. The outright decline in prices has been a more modest 2% from the peak. Despite low oil prices, growth has remained positive thanks to accommodative monetary and fiscal policies. The adjusted fiscal rule budgets should aim for structural deficits at 3% of the value of the oil fund appropriately implies a broadly neutral fiscal stance going forward. Improving the business environment, stronger competition, and better skills and education are key for raising growth potential and maintaining inclusiveness. Furthermore, Norway has successfully sustained an egalitarian social and economic model, especially for women and vulnerable families. Comprehensive social programs have protected Norwegians from the adverse effects of globalization. Page 3

4 SYZ ANALYSTS FORECASTS Ccy Pairs 6M 1Y EUR/USD GBP/USD USD/JPY USD/CHF USD/CAD AUD/USD EUR/JPY EUR/GBP USD/CNY USD/ZAR USD/TRY USD/MXN USD/BRL USD/RUB BLOOMBERG FX FORECASTS Oct ober Mat urit y EURUSD EURCHF USDCHF Q Q Q Mat urit y EURJPY USDJPY AUDUSD Q Q Q Mat urit y EURGBP GBPUSD USDCAD Q Q Q IMM POSITIONING December 2017 Cont ract size Posit ion Non-commercial Commercial Last Act ual Last Act ual EUR 100K JPY 12'500K CHF 125K GBP 62.5K AUD 100K CAD 100K Short 95'512 96' ' '511 Long 183' ' ' '203 Net 88'167 90' ' '308 Short 114' '413 50'047 53'797 Long 42'963 58' ' '230 Net -71'347-84'643 90' '433 Short 16'788 20'907 6'109 5'938 Long 14'926 17'614 13'773 17'459 Net -1'862-3'293 7'664 11'521 Short 75'091 60'376 80'987 78'951 Long 80'145 80'325 66'178 47'590 Net 5'054 19'949-14'809-31'361 Short 26'313 26' '186 96'957 Long 103'507 98'499 14'921 14'774 Net 77'194 71'812-89'265-82'183 Short 28'083 22' ' '354 Long 102'688 97'204 33'487 35'298 Net 74'605 75'128-96'830-97'056 Page 4

5 GLOBAL MARKET FOCUS Would the Emerging markets boost Global Growth? Higher exports have helped lift GDP. In the first half of 2017 the four biggest emerging economies (Brazil, Russia, India and China, known as the BRICs) all grew simultaneously for the first time in three years. Emerging-market growth still cannot match that in the miracle years of , but it has been equally broad. So far 21 of the 24 countries in the MSCI emerging-markets index, the most popular stockmarket benchmark, have reported GDP figures for the second quarter of this year, and all of them were up on the previous quarter. Not since 2009 has growth been positive in every member that publishes quarter-on-quarter numbers. This improvement in emergingmarket growth has been accompanied by renewed enthusiasm for their currencies, bonds and shares. In August these countries recorded their ninth month in a row of capital inflows from portfolio investors, the longest streak since 2014, according to the Institute of International Finance. An index of emerging-market exchange rates compiled by MSCI has risen by 14% since its trough in January It has enjoyed its best 18 months since Even ill-favoured currencies such as the Russian rouble, Mexican peso and Chinese yuan have defied their doubters, strengthening against the dollar this year. Page 5

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