FOREX WEEKLY. Weekly information issued by the FOREX Advisory Team. Trader view in 2 snapshots. 19 July Global Forex Sentiment

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1 FOREX WEEKLY 19 July 2017 Weekly information issued by the FOREX Advisory Team Global Forex Sentiment Global manufacturing looks solid and synchronized into Q3, with data from China and the euro area signaling upside risks to some growth forecasts. Despite soft inflation, Fed Chair Yellen continued to guide markets to gradual normalization and In Europe, eeconomic data continue to point to an acceleration of economic activity and strong IP figures in May add upside risk to Q2 growth. Given stronger growth, low interest rates and fiscal measures, most countries have exited the Excessive Deficit Procedure (EDP), with all eyes now on France and Spain. The ECB should stay on hold this week, but President Draghi will have to clarify the GC's position on the possible upcoming adjustments signaled in Sintra. Despite a fall in the UK unemployment rate by 0.1pp to 4.5%, real core wage growth printed negative for the third consecutive month, with more negativity likely. Central MPC member Ben Broadbent claimed that it is tricky to judge the mood of UK businesses at the moment, so he was not ready to vote for a Bank Rate hike. In next week's Outlook Report, the BoJ appears likely to lower its FY17-18 CPI forecasts, reflecting sluggish price hikes into FY17, while raising its GDP projections. Inflation could be dialed down further if major telecom operators lower their mobile phone communication fees, which are heavily weighted within the CPI. However, the BoJ's "Sakura" report shows Japan's economic expansion spreading nationwide, with improvements not only in IP and capex but also in consumption. A supportive global environment this summer meets tamed inflation dynamics in most of the region, providing enough room for further rates easing, especially in Brazil. In contrast, Mexico should leave rates high for a while, as the inflation outlook remains challenging. Further MXN strengthening is necessary before any rate cuts. Colombia rates should decline, but not too much, while Peru and Argentina more likely than not will see their easing cycle extended through most of H2 17. Trader view in 2 snapshots EUR USD Full view: page 2 GBP JPY Full view: page 3 Mr. Draghi under the spot. Still uncertainty with the Brexit. Sell a Call EURUSD x expiry 1 mth Buy a Put GBPJPY x expiry 2 months 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: Draghi under the spot. Trading Idea & Hedging Solution The EUR/USD has traded higher since mid June from to The trend remain bull in a short term wiew until the level of However, if we don t break this resistance, the EUR vs USD should trade sligthly lower. That is why, we recommend you to sell a Call EUR Put USD strike expiry 1 month. The premium to receive is 0.45% of the Euro. Support II Support I Spot Resistance I Resistance II Technical The single currency remains in a bullish mood even though capping forces are refraining the (weekly session) ceiling. Resistances are set at and Supports are and Market Update The European Central Bank is on track to unwind its stimulus next year but it s likely to drag out the process, economists say. The ECB will probably hold fire this week and wait until September before slowing the pace of its bond-buying program, a Bloomberg survey shows. The rollback is seen starting in January and taking nine months; up from the previously predicted seven months, with future reductions announced one step at a time. Respondents are split on whether officials might set the tone on Thursday by dropping a pledge to boost quantitative easing if needed. The survey suggests that the Governing Council session in Frankfurt on July will largely be a time for discussing how much room there is to pare back stimulus after more than four years of economic expansion. While inflation is still short of the ECB s goal, President Mario Draghi and some of his colleagues have said in recent weeks that it may be possible to adapt the existing measures without undermining the recovery. In the US, President Donald Trump is increasingly unlikely to nominate Federal Reserve Chair Janet Yellen next year for a second term, and National Economic Council Director Gary Cohn is the leading candidate to succeed her, Politico reported on Tuesday, citing four people close to the process. Politico said sources in the White House, the Treasury Department and on Capitol Hill said that if Cohn decides he wants the job, he is likely to get it. "It's Gary's if he wants it, and I think he wants it," Politico quoted one Republican whom it said was close to the selection process as saying. Page 2

3 TRADER VIEW: GBP JPY: Still uncertainty with the Brexit Trading Idea & Hedging Solution The GBP/JPY traded around the major resistance at We think is a good opportunity to invest in a bearish trade idea as the UK with the upcoming Brexit generate uncertainty. Here the strategy expiry 2 months (spot ref ): Buy a Put GBP Call JPY strike Price: 0.95% GBP Breakeven at Support II Support I Spot Resistance I Resistance II Technical The major resistance at has not been broken. If the market surpasses this level, the way would be open to On the downside, the supports are and Below is the main support to see our target to Market Update Sterling clearly gained ground over the last few days, probably not least due to the latest reports about the Brexit negotiations. It seems that the British government wants to major steps towards the EU in the upcoming round of negotiations, which will start today. It has for example admitted by now that it would meet its financial obligations towards the EU an auspicious beginning. After all, the so-called Brexit bill had already caused tensions ahead of the negotiations. Still, it remains to be seen whether the two sides can agree on the size of the bill. The situation remains difficult for the GBP, however, as the recent reports of domestic political quarrels in the UK show. Chancellor of the Exchequer Philip Hammond complained during the weekend that some cabinet members were undermining his efforts to ensure a soft Brexit. Hammond, in turn, is accused by these cabinet members it appears, of wanting to prevent Brexit. This apparent, deep split within the government is ominous. In the short term, it may not be a breakdown of the Brexit negotiations, but a breakdown of the British government which is the biggest risk for sterling. 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 June BLOOMBERG FX FORECASTS Maturity EURUSD EURCHF USDCHF Q Q Q Maturity EURJPY USDJPY AUDUSD Q Q Q Maturity EURGBP GBPUSD USDCAD Q Q Q1 months IMM POSITIONING September 2017 Contract size Position Non-commercial Commercial Last Actual Last Actual EUR 100K JPY 12'500K CHF 125K GBP 62.5K AUD 100K CAD 100K Short 108' ' ' '152 Long 185' ' ' '147 Net 77'464 83' ' '005 Short 118' '903 43'641 41'714 Long 43'648 40' ' '866 Net -75' '125 98' '152 Short 11'041 10'151 11'705 11'336 Long 10'928 10'359 9'200 10'886 Net ' Short 81'792 70'752 83'969 86'546 Long 54'025 46' ' '540 Net -27'767-24'138 24'751 22'994 Short 25'130 19'144 50'973 53'888 Long 57'544 55'950 12'063 11'922 Net 32'414 36'806-38'910-41'966 Short 73'672 54'684 38'736 76'801 Long 34'300 46'080 71'029 70'170 Net -39'372-8'604 32'293-6'631 Page 4

5 GLOBAL MARKET FOCUS China data s China's Q2 GDP beat expectations, rising 6.9% y-o-y in real terms and 11.1% in nominal terms. The manufacturing recovery, which started in mid-2016, gained further strength as both output and investment accelerated. Private business investment also strengthened further, growing 8.2% y-o-y. PMI reading and confidence indicators suggest that the cyclical recovery should continue in the coming months, although at a softer pace as the housing sector moderates. The private-sector dominated manufacturing sector will continue to lead the recovery, which is positive for productivity growth and can also help to ease debt concerns. Policy wise, the National Finance Work Conference over the weekend suggests regulatory reforms and SOE deleveraging are the next items on the agenda for Beijing. Both are good for the long run health of the economy. Nonetheless, a balanced approach should be taken in order to minimize the spillover effect on the private corporate sector. 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 5