FOREX WEEKLY. Weekly information issued by the FOREX Advisory Team. Trader view in 2 snapshots. 15 December Global Forex Sentiment

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1 FOREX WEEKLY 15 December 2017 Weekly information issued by the FOREX Advisory Team Global Forex Sentiment The new key word used by the ECB yesterday was Confidence. Rising optimism was signaled in the much larger-than-expected upward revisions to the staff GDP forecasts and the significant reduction in slack creating grounds for greater confidence in the normalization of inflation. However, the ECB is in no rush to change the policy stance. The ECB still needs to see the recovery in inflation to take action. Indeed they ve revised down the core inflation forecasts from 1.3% to 1.1% in 2018 even if the headline rate has gone up with energy prices. The UK inflation data published this week were a mixed bag, with CPI surprising to the upside compared with consensus expectations and triggering an exchange of letters between the BoE Governor and Chancellor of the Exchequer (to be published in February). In contrast, CPIH and RPI surprised consensus expectations to the downside. The pound remains fragile ahead of the MPC due on Thursday. The tail risk remains for a squeeze higher in GBP vs USD as investors keep short GBP at this stage. In Turkey, GDP growth accelerated markedly to 11.1% in Q compared to 5.4% previously (revised up from 5.1%). Sequential growth, however, surprised to the downside at 1.2% after 2.2% in the preceding quarter, hinting that additional working days during Q as well as low base from same period last year were both at play behind the remarkable double-digit growth in July-September period. The TRY found stability against the usd around area after stopping short ahead of In India, headline CPI inflation rose to a 15 months high of 4.9% YoY in Nov Headline CPI inflation picked up to 4.9% YoY (vs. 3.6% YoY in Oct). That was far above consensus expectations of 4.3% YoY. Price pressure in urban areas in Nov (4.9% YoY) was a tad higher than in rural areas (4.8% YoY). Sharp increase in vegetable prices pushed food inflation up Food inflation accelerated to 4.4% YoY in Nov (vs. 2.3% YoY in Oct). Trader view in 2 snapshots EUR USD Full view: page 2 EUR NOK Full view: page 3 The EURO remains a Buy on weakness! Buy EUR Bullish Risk Reversals on dips! Norway is fighting its way back and shall be one step ahead of the EUR Buy Bearish EUR Risk Reversals 6 mths 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: Post CB s announcements the EURO remains a Buy on weakness! Trading Idea & Hedging Solution We believe that the medium to long term uptrend is intact for the EUR. However, we expect the greenback to check the key support at and potentially in the short term before rising again towards and We recommend the following strategy, Spot Ref : Buy a Bullish EUR Risk Reversal Long Call X and Short Put X expiry 3 mths Premium investment = 0.66% of EUR Place a stop loss under Medium Term Objectives and Support II Support I Spot Resist ance I Resist ance II Technical The euro is showing exhaustion at area where the end of wave B has probably materialized. Wave C shall be on its way for objectives at and potentially before turning north towards and Market Update In Wednesday s press conference following the FOMC meeting, Chair Yellen was asked to explain an apparent discrepancy in the Fed s forecasts. The perceived inconsistency was that: (1) the median growth forecast was revised up meaningfully in the coming years; (2) the median unemployment rate was revised down with the median NAIRU unchanged; (3) the median inflation forecasts were broadly unchanged; but (4) the median fed funds path was unchanged until Yellen offered a reasonable explanation for these forecasts: they are an amalgamation of sixteen different forecasts and therefore should not be treated as a single, internally consistent projection. The main difference is that the simulations would predict an additional rate hike in 2019 over the median FOMC fed funds path. The greenback seems in a bullish mental health behavior for the weeks to come with a test of the still on the cards, probably even the area. However, we maintain intact, our Buy on Dips EUR vs USD mode for a test of and a breakthrough towards and higher in the coming 12 to 18 months. The Fed s fondness for forward guidance has changed the way in which FX behaves regarding central bank meetings. But things could become more difficult for the Fed and markets if the scope for providing clear forward guidance becomes hindered. After all, providing such direction requires confidence among policymakers that there is a firm majority in favor of the described path of action. This has been relatively straightforward when the message offered was lower for longer or subsequently that rates would rise but only gradually. But if the internal consensus within the Fed begins to wobble, providing meaningful forward guidance becomes problematic. Page 2

3 TRADER VIEW: EUR NOK : Norway is fighting its way back and shall be one step ahead of the EUR! Trading Idea & Hedging Solution The NOK has suffered a long way against the EUR over the last 5 years (low seen at ). We believe that the opportunity to start buying NOK on weakness has now materialized. We recommend the following option strategy, Spot Ref : Buy a Bearish EUR Risk Reversal expiry 6 mhts Buy a EUR Put X and Sell a EUR Call X Premium investment = 0.38 % of EUR Limited loss of 3.02% USD Potential profit of 8.22% USD Objective Support II Support I Spot Resist ance I Resist ance II Technical A Major double top has potentially been seen at Bearish divergences on a weekly chart are in place calling for a correction towards key supports at , and A breach above would terminate our bearish EUR scenario. Market Update With a high printed at 9.93 at the end of November, the EUR/NOK has risen to its highest level since 2008, raising the question as to whether structural momentum for the Norwegian krone is different to what it was. The Norwegian currency has been penalized by timely factors (slowdown of property market) and structural factors (reduction in current account surplus), prompting Norges Bank to tread gingerly in the conduct of its monetary policy. However, in the medium to long term, the EURNOK should find difficult the resistance breach of We believe that with the first hike seen in December 2018 (6 months before consensus expectation) the eur-nok shall recede towards , and in the course of 2018 as fundamentals turn North. The change in the Norges Bank s (CB) depo rate projections have been accompanied by upward revisions to growth and inflation. Indeed, the bank now projects mainland GDP to accelerate by more than 2% in 2018 and 2019, at which point the output gap is expected to have closed and turned positive. Inflation, too, has likely bottomed and is expected to rise, albeit only gradually. This is mainly due to three factors: i) The pass-through from a weaker NOK; ii) higher oil prices; and iii) a faster closure of the output gap. Yet, despite the upward revisions, inflation is expected to remain below target over the forecast horizon. 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 December 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 Q3 months 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 115' ' ' '914 Long 205' ' ' '380 Net 89'681 93' ' '534 Short 150' '033 47'467 42'101 Long 39'793 34' ' '129 Net -110' ' ' '028 Short 47'765 47'458 7'692 9'737 Long 17'581 17'891 55'140 55'496 Net -30'184-29'567 47'448 45'759 Short 61'976 82'864 82'682 80'222 Long 66'549 89'270 69'411 63'128 Net 4'573 6'406-13'271-17'094 Short 38'320 43'306 64'787 62'576 Long 78'202 83'634 29'788 29'503 Net 39'882 40'328-34'999-33'073 Short 22'224 24'001 97'790 95'363 Long 67'882 66'467 35'966 39'258 Net 45'658 42'466-61'824-56'105 Page 4

5 GLOBAL MARKET FOCUS How large are direct investment into Artificial Intelligence? When analysis are pushed further into defining which technological sector is benefiting the most from investors, Artificial Intelligent is first in class. Venture-capital investment in AI in the first nine months of 2017 totaled $7.6bn, according to PitchBook, a data provider; that compares with full-year figures of $5.4bn in In the year to date there have been $21.3bn in Artificial Intelligent related M&A deals, around 26 times more than in In earnings calls public companies now mention AI far more often than big data. At the heart of the frenzy are some familiar names: the likes of Alphabet, Amazon, Apple, Facebook and Microsoft. A similar, though less transparent, battle is under way in China among firms like Alibaba and Baidu. Several have put AI at the center of their strategies. The most important is whether AI will always depend on vast amounts of data. Machines today are usually trained on huge datasets, from which they can recognize useful patterns such as fraudulent financial transactions. If real-world data remain essential to AI, the tech superstars are in clover. They have vast amounts of the stuff, and are gaining more as they push into fresh areas such as health care. A competing vision of AI stresses simulations, in which machines teach themselves using synthetic data or in virtual environments. Early versions of a program developed to play Go, an Asian board game, by DeepMind, a unit of Alphabet, were trained using data from actual games; the latest was simply given the rules and started playing Go against itself. Within three days it had surpassed its predecessor, which had itself beaten the best player humanity could muster. If this approach is widely applicable, or if future AI systems can be trained using sparser amounts of data, the tech giants edge is blunted. The tech giants ability to recruit AI expertise from universities is helped by their willingness to publish research; Google and Facebook have opened software libraries to outside developers. But their incentives to share valuable data and algorithms are weak. Much will depend on whether regulations prise open their grip. Europe s impending data-protection rules, for example, require firms to get explicit consent for how they use data and to make it easier for customers to transfer their information to other providers. China may try to help its firms by having negligible regulation. Page 5

6 DISCLAIMER This document is for distribution to professional or institutional clients or counterparties only and is not intended for distribution to or use by, retail customers or any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where the distribution, publication, availability or use of such document would be contrary to law or regulation. This publication is for information only and does not constitute a contractual document, an offer, or a solicitation of an offer, to buy or sell any investment or other financial product. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Any opinion is valid only as of the date of this publication and may be changed at any time without prior warning. Past performance is not an indication of future results. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness. Banque SYZ SA disclaims liability for any and all forms of loss or damage arising out of the use of them. Before any investment, the recipient of this document has to consult with your own legal, financial and/or tax adviser. This document may not be reproduced or distributed, either in part or in full, without the prior authorisation of Banque SYZ SA. These opinions reflect the short term views of the FOREX TRADING team and can differ from the long term investment policy of Banque SYZ SA. Page 6