fx strategy USD beginning to stabilise EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD

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1 The views expressed in this publication are made on the basis of a 2-4 week outlook and may differ from our longer term views and forecasts from the Global Research function fx strategy fx 12 May 2014 USD beginning to stabilise The USD recovered against the EUR as the likelihood of further ECB policy easing increased following Draghi s statement. However, the USD lost out against the AUD after the RBA cited improvements in the labour market. This week, the BOE inflation report may add insight regarding the policy and GBP output while EU inflation data may give more clarity on further ECB easing. EUR/USD We turn bearish on the EUR/USD pair (from neutral earlier) and anticipate a deeper correction after it formed a key bearish weekly reversal pattern. We turn bullish on the pair (from neutral earlier), as it is likely to rebound from the lower end of the recent sideways range. We remain neutral on the pair, as we expect it to consolidate within a range. We remain bullish on the pair, as it is likely to rebound from key support levels, in our view. We remain neutral on the pair, as it is likely to consolidate within a range. XAU/USD We turn neutral on the XAU/USD pair, as technical indicators look directionless. Contents USD beginning to stabilise 1 EUR/USD XAU/USD 7 SUPPLEMENTARY PAIRS 8 Interest Rate Differentials 10 FX Implied Volatility 10 Disclosure Appendix 12 Weekly performance of pairs 2 May 2014 to 9 May 2014 EUR/USD XAU/USD % 0.92 Steve Brice Manpreet Gill Adi Monappa, CFA Audrey Goh, CFA Victor Teo, CFA Tariq Ali, CFA Chief Investment Strategist Head, FICC Investment Strategy Head, Asset Allocation Investment Strategist Investment Strategist Investment Strategist Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res EUR/USD Bearish Bullish Bullish XAU/USD USD/CNH* USD/ZAR* NZD/USD* Bullish USD/CHF* USD/SEK* Bearish USD/CAD* *SUPPLEMENTARY PAIRS - Going forward, we will maintain the EUR, JPY, AUD, SGD, GBP and XAU outlook while adding just key technical levels for the supplementary pairs This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. This is not a research report and has not been produced by a research unit. Important disclosures can be found in the Disclosures Appendix. 1

2 EUR/USD We turn bearish on the EUR/USD pair (from neutral earlier) and anticipate a deeper correction after it formed a key bearish weekly reversal pattern. Performance The EUR/USD was down (-0.80%) over the previous week, as ECB president Mario Draghi held rates steady, but indicated that the authorities were ready to provide stimulus at the June meeting. The dollar was further supported by the Fed chair s comments on the strengthening US recovery, although she continued to stress that any tightening in policy is still some way away. Technical Analysis Major technical indicators, on balance, are bearish to neutral. We turn bearish on the EUR/USD pair (from neutral earlier). The weekly bearish shooting-star pattern is expected to turn the tide in favour of the dollar. The reaction from the psychological 1.40 resistance seems strong enough to trigger further unwinding pressure, which could see a deeper retracement to the 1.36 area. We would review our outlook if it rebounds above Key Signposts Europe ZEW consumer survey (13 May), industrial production (14 May), CPI and GDP (15 May) and trade balance (16 May) are the major releases this week. US Fed monthly budget balance (12 May), retail sales, NFIB small business optimism (13 May), producer price index (14 May), CPI (15 May), initial and continuing jobless claims, industrial production, NAHB housing price index (15 May), building permits and housing starts (16 May) are the key economic releases for the week. Key technical indicators and forecast* Technical Indicator Action RSI (14) Oscillator (5,10) Sell MACD (12,26,9) Sell ADX (14) Momentum (14) Sell Key Levels Level Importance Secondary Resistance High Primary Resistance Medium Spot Primary Support Medium Secondary Support High Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical EUR/USD appears to have peaked at the key resistance of 1.40 Technical Analysis Chart: EUR/USD (Daily) EUR/USD EUR/USD This reflects the views of the Wealth Management Group 2

3 We turn bullish on the pair (from neutral earlier), as it is likely to rebound from the lower end of the recent sideways range. Performance ended down (-0.33%) over the previous week, as monetary authorities refrained from easing immediately. Safehaven flows continued to support the currency as tension in Ukraine lingered. Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Buy Buy Technical Analysis Major technical indicators, on balance, are neutral to bullish. We turn bullish on the pair (from neutral earlier). The pair ended closer to the lower end of the recent consolidation range of We expect the pair, which currently also trades below key short-term moving averages, to rebound from the extended January support. We would review our outlook if the pair falls below 100. Key Signposts Economic watchers survey (12 May), domestic corporate price index (13 May), GDP (14 May), consumer confidence index (15 May) and industrial production (16 May) are the key economic releases for the week. Key Levels Level Importance Secondary Resistance Medium Primary Resistance Medium Spot Primary Support Medium Secondary Support High Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical trades near the lower end of the sideways price channel Technical Analysis Chart: (Daily) This reflects the views of the Wealth Management Group 3

4 We remain neutral on the pair, as we expect it to consolidate within a range. Performance was up (0.92%) over the previous week, as betterthan-expected jobs data and improved trade figures out of China saw the pair rebound. Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Buy Buy Technical Analysis Major technical indicators, on balance, are neutral to bullish. We remain neutral on the pair. We see the August- November 2013 resistance line as a strong obstacle. We also expect it to remain supported above along key retracement levels as this has been tested a few times before. We would review our outlook if the pair moves above or falls below Key Signposts Australia NAB business confidence (12 May), house price index and investment lending (13 May) are the main economic releases for the week. China industrial production and retail sales (13 May) are the key economic data releases due out this week. Key Levels Level Importance Secondary Resistance High Primary Resistance Medium Spot Primary Support High Secondary Support Medium Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical gains appear limited Technical Analysis Chart: (Daily) This reflects the views of the Wealth Management Group 4

5 We remain bullish on the pair, as it is likely to rebound from key support levels, in our view Performance was down (-0.34%) over the previous week. Foreign exchange reserves continued to rise. The sentiment for Asian currencies improved as the Chinese yuan stabilised, and marginally appreciated, this week. Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Buy Buy Technical Analysis Major technical indicators, on balance, are neutral to bullish. We remain bullish on the pair. While the pair trended lower last week, we believe that, as long as it trades above the upward-sloping trend line (see chart below), the mild bullish trend is likely to remain intact. We believe downside is likely limited to the recent low of We would review our outlook if the pair falls below Key Signposts Retail sales (15 May) is the key economic data release to be watched this week. Key Levels Level Importance Secondary Resistance High Primary Resistance Medium Spot Primary Support High Secondary Support Medium Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical trades within a broad, contracting triangular range Technical Analysis Chart: (Daily) This reflects the views of the Wealth Management Group 5

6 We remain neutral on the pair, as it is likely to consolidate within a range. Performance was down (-0.11%) over the previous week. UK factory output grew at its fastest pace in nearly three years, while separate reports showed that the trade deficit had narrowed slightly in March. Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Sell Technical Analysis Major technical indicators are neutral. We remain neutral on the pair. The upside for the pair is likely to be capped at 1.70, where we see significant psychological resistance and overbought conditions. While we also expect it to find support at 1.67 (key moving average and retracement support), it is likely to remain range-bound between and in the near term. We would review our outlook if the pair falls below or moves above Key Signposts Jobless claims, unemployment, claimant count rate and inflation report (14 May) are the main data releases this week. Key Levels Level Importance Secondary Resistance Low Primary Resistance High Spot Primary Support Medium Secondary Support High Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical volatility has declined significantly Technical Analysis Chart: (Daily) This reflects the views of the Wealth Management Group 6

7 XAU/USD We turn neutral on the XAU/USD pair, as technical indicators look directionless. Performance XAU/USD was down (-0.83%) over the previous week, as the Fed Chair s testimony amid improving labour market conditions supported the dollar, overshadowing tensions in Ukraine. Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Sell Technical Analysis Major technical indicators are neutral. We turn neutral on the XAU/USD pair (from bearish earlier). It is likely to trade within a range of 1,270-1,350 in the near term, in our opinion. We believe the situation in Ukraine has been largely incorporated in the price. We would look for an opportunity to sell the pair above 1,350 levels on better risk-reward elsewhere in the short term. However, the longer-term structural outlook for the metal remains bearish. We would review our outlook if the pair rallies above 1,350. Key Signposts This short-term view should be seen within the context of our longer-term Underweight view on gold. Continued tapering of Fed asset purchases and rising opportunity costs provided by equity market resilience as well as higher yields are likely to continue working against gold, in our view. Global central bank purchases, retail demand and geo-political tensions pose risks to our view. Key Levels Level Importance Secondary Resistance 1,400 High Primary Resistance 1,350 Medium Spot 1,290 Primary Support 1,270 Medium Secondary Support 1,200 High Forecast Consensus Q ,270 Q ,250 Q ,240 Q * Please see Appendix on Pg 11 for explanation on technical Recoveries in gold prices have repeatedly faltered Technical Analysis Chart: XAU/USD (Daily) 1,800 1, ,600 XAU/USD 1,500 1, ,300 1, ,100 XAU/USD This reflects the views of the Wealth Management Group 7

8 SUPPLEMENTARY PAIRS *SUPPLEMENTARY PAIRS Going forward, we will maintain the EUR, JPY, AUD, SGD, GBP and XAU outlook while adding just key technical levels for the supplementary pairs We remain neutral on USD/CNH, but start to see signs of a top Technical Analysis: USD/CNH USD/CNH We remain neutral on USD/ZAR Technical Analysis: USD/ZAR USD/ZAR USD/CNH USD/ZAR We turn neutral on NZD/USD (from bullish earlier) Technical Analysis: NZD/USD NZD/USD Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 May-13 Aug-13 Nov-13 Feb-14 May-14 NZD/USD This reflects the views of the Wealth Management Group 8

9 We remain neutral on the USD/CHF Technical Analysis: USD/CHF USD/CHF Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 We remain bearish on USD/SEK Technical Analysis: USD/SEK USD/SEK USD/CHF 6.2 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 We turn neutral on USD/CAD Technical Analysis: USD/CAD USD/CAD USD/SEK 0.96 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Sep-13 Jan-14 May-14 USD/CAD This reflects the views of the Wealth Management Group 9

10 Interest Rate Differentials Measures the yield of holding the foreign currency relative to the base currency EUR/USD % Sep-08 Feb-10 Jul-11 Dec-12 May-14 % Difference between EUR and USD 2 yr swap EUR/USD (RHS) Sep-08 Feb-10 Jul-11 Dec-12 May-14 % Difference between USD and JPY 2 yr swap (RHS) Sep-08 Feb-10 Jul-11 Dec-12 May-14 Difference between AUD and USD 2 yr swap (RHS) EUR/USD FX Implied Volatility An appropriate indicator used to gauge future expectations of price movements based on FX options market pricing EUR/USD Jan-11 Nov-11 Sep-12 Jul-13 May W Implied Volatility 5 Jan-11 Nov-11 Sep-12 Jul-13 May-14 2W Implied Volatility Jan-11 Nov-11 Sep-12 Jul-13 May-14 2W Implied Volatility % Sep-08 Feb-10 Jul-11 Dec-12 May-14 Difference between USD and SGD 2 yr swap (RHS) 2 Jan-11 Nov-11 Sep-12 Jul-13 May-14 2W Implied Volatility % Sep-08 Feb-10 Jul-11 Dec-12 May-14 Difference between GBP and USD 2 yr swap (RHS) 4 Jan-11 Nov-11 Sep-12 Jul-13 May-14 2W Implied Volatility This reflects the views of the Wealth Management Group 10

11 TECHNICAL INDICATORS EXPLANATORY APPENDIX RSI (Relative Strength Index) The RSI indicators can be used to describe the speed at which prices move over a given time period. An RSI above 70 can indicate a currency pair is overbought while an RSI below 30 can indicate the pair is oversold. Stochastic Oscillator The Stochastic Oscillator compares where a security's price closed relative to its trading range over a given time period. The security or index is generally considered oversold when the Oscillator falls to 20%, while a reading of 80% is considered overbought. MACD (The Moving Average Convergence/Divergence) This indicator shows the relationship between two moving averages of prices. A bearish signal is provided when the main moving average line drops below the second moving average line, and vice versa. ADX (Average Directional Index) This indicator quantifies a trend's strength regardless of whether it is up or down. An index rising above zero provides a bullish signal while an index falling below zero provides a bearish signal. Momentum Indicator The momentum of a security is the ratio of today's price compared to the price at a given point in the past. If the security's price is higher today, the momentum indicator will be considered strong. If the security's price is lower today, the momentum Indicator will be weak. This reflects the views of the Wealth Management Group 11

12 Disclosure Appendix This document is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This document does not necessarily represent the views of every function within the Standard Chartered Bank, particularly those of the Global Research function. Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. In Dubai International Financial Centre ( DIFC ), the attached material is circulated by Standard Chartered Bank DIFC on behalf of the product and/or Issuer. 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