FOREX WEEKLY. Weekly information issued by the FOREX Advisory Team. Trader view in 2 snapshots. 6 December Global Forex Sentiment

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1 FOREX WEEKLY 6 December 2017 Weekly information issued by the FOREX Advisory Team Global Forex Sentiment In Europe the economy grew by 0.6% q-o-q in Q3. That took y-o-y growth to 2.5%, the highest rate since Q and above the average growth seen before the financial crisis. If anything, the PMIs point to growth picking up even further in the near term. Strong demand from abroad and bullish sentiment at home are continuing to support the cyclical recovery. For the inflation outlook, the big news over the past couple of months has been the rise in the oil price, now up more than 30% since its late-june low. Over the next year or two, this will partly offset the disinflationary impact of the euro appreciation. In the US, Q3 productivity growth was unchanged at 3.0% in the second estimate, having picked up significantly from a 1.5% reading in Q2. Nonfarm business output rose 4.1% q/q saar (3.9% in Q2 and 1.8% in Q1), driving much of the improvement in productivity over the past two quarters. Employee hours slowed to 1.1% (2.4% in Q2), further helping the productivity rebound. Compensation per hour was revised lower to 2.7% (from 3.5% in the advance estimate) and adjusted for inflation real compensation was up 0.7% (from 1.5% in the advance estimate). In India, MPC maintains a neutral stance in its policy review on 6 Dec, the Monetary Policy Committee (MPC) maintained the repo rate at 6%. The decision (5 out of 6 MPC members voted in favor of keeping rates on hold) was in line with consensus expectations. The MPC forecasts inflation to rise from the current levels. However, keeping in mind the output gap dynamics, it decided to maintain a neutral policy stance and monitor incoming data. MPC retained its FY18 real GVA growth forecast at 6.7% YoY. In the media briefing, the RBI official mentioned that they expect GVA growth to pick-up to 7% YoY in Q3 FY18 and 7.8% YoY in Q4 FY18. Trader view in 2 snapshots EUR USD Full view: page 2 USD TRY Full view: page 3 The EURO shall keep strengthening! Implied vols are low, Buy EUR on dips! The new Turkish lira is expected to bounce Buy TRY vs USD through options and limited loss 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 EURO shall keep strengthening! Buy EUR on dips! Trading Idea & Hedging Solution We believe that the medium term uptrend is still valid for the EUR at this stage. However, we expect the greenback to check the key support at in the meantime before rising again towards and We recommend the following strategy which benefits from low implied volatilities, Spot Ref : Buy a EUR Call Strike with Knock In barrier at expiry 3 mths Premium investment = 0.48% of EUR vs the vanilla option which costs 0.99% of EUR 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 On the ECB stance, ccommunication has become a monetary policy tool in its own right and forward guidance is seen by the ECB as having successfully contributed to the easing of the policy stance in recent years. There are alternative views. The BIS is worried that policy predictability is undermining the ability to tighten the monetary stance. As the Executive Board changes over the next couple of years, there may be an opportunity for the ECB to rethink not just the content but the role and value of forward guidance. Growth in the Eurozone accelerating, at its strongest pace in more than six year. The Composite PMI improved to 57.5 in November (from 56 in October) at the level of the Eurozone, with an outperformance by France (60.4 compared with 60.1), while Germany consolidated at a high level (57.3 compared with 57.6). The Spanish composite PMI came in at Greek interest rates back at levels before the rescue, much where they were end-2009, below 4.8%, after the Eurogroup expressed satisfaction concerning the third review of the country s bailout. Page 2

3 TRADER VIEW: USDTRY : The new Turkish lira is expected to bounce. Buy TRY vs USD through an opton strategy and with limited loss Trading Idea & Hedging Solution Political uncertainty is definetely on stage in Turkey. We believe however that the market has outstreched and shall start showing signs of TRY recovery. We monitor decent bearish divergences from a technical analysis point of view. We recommend the following option strategy, Spot Ref : Sell a 3 mths USD Call Spread with short the USD Call Strike and long the Call Strike Buy a 3 mths USD Put Strike (atms) Premium investment = 0.90 % of USD Limited loss of 2.18% USD Potential profit of 10.9% USD Support II Support I Spot Resist ance I Resist ance II Technical Major bearish divergences are seen on a weekly chart pointing to downside USD correction towards key supports at and Key resistance is found at , a breach would terminate our bearish USD scenario. Market Update The annual CPI in Turkey accelerated to 13%YoY in November from 11.9% in October, well above market expectations. This is the highest print since December 2003, and represents the all-time high during Turkey's formal (and shadow) inflation-targeting regime. All core indicators were higher in November. the marked extent of slippage in both headline and expectations against the 7% upper uncertainty bound as well as ongoing deterioration in trend inflation both insinuate CBT's current stance is - simply - not tight. The cheapest option for MPC to deliver in the December 14th meeting would be a 125bps hike in the late liquidity window (LLW) to 13.50% and bps upward guidance in the effective rate (to % range). The bottom line is, while this is still an endogenous process, the minimum threshold for policy response is now set for the Committee. Given current pricing, any under-delivery would receive adverse market reaction. 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 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 100' ' ' '897 Long 195' ' ' '056 Net 95'437 89' ' '841 Short 166' '433 44'944 47'467 Long 44'382 39' ' '434 Net -122' ' ' '967 Short 50'561 47'765 7'173 7'692 Long 20'821 17'581 55'040 55'140 Net -29'740-30'184 47'867 47'448 Short 58'658 61'976 82'274 82'682 Long 58'358 66'549 75'131 69'411 Net '573-7'143-13'271 Short 38'317 38'320 64'409 64'787 Long 78'134 78'202 27'595 29'788 Net 39'817 39'882-36'814-34'999 Short 22'199 22'224 96'416 97'790 Long 67'324 67'882 34'230 35'966 Net 45'125 45'658-62'186-61'824 Page 4

5 GLOBAL MARKET FOCUS Shall the flattening yield curve call for lower interest rates? The central bankers may control short-term interest rates, but long-term ones are mostly free to wander. They do not always behave. When Alan Greenspan, then chairman of the Federal Reserve, was raising short rates in 2005, he described a simultaneous decline in long rates as a conundrum. His successor-to-be, Ben Bernanke, blamed foreign investments in American assets because of a global saving glut. The yield curve matters. It has inverted ie, long-term rates have dipped below short-term ones just before each of the past seven American recessions. Such an inversion remains a long way off, but some rate-setters seem wary of the risk. In October, Robert Kaplan, president of the Dallas Fed, said he did not want the federal-funds rate to nudge up against the ten-year Treasury-bond yield. Likewise, Patrick Harker, his counterpart at the Philadelphia Fed, warned in November that inverting the yield curve would not be a good thing. The yield curve reflects where markets expect its policy to head which they might be better able to predict than central bankers themselves. But long-term rates also include the term premium the reward investors require for locking their money away, and for taking the risk that their forecasts are wrong. If inflation is unexpectedly high, long-term bondholders returns are reduced, and they cannot profit from the rising short-term rates that an inflation surprise typically provokes. So part of the term premium is compensation for inflation risk. Falling inflation risk might explain today s droopy yield curve, according to a recent note by Michael Bauer of the San Francisco Fed. Price rises have been oddly subdued this year. Despite unemployment falling to just 4.1%, inflation (excluding food and energy prices) is only 1.3% by the Fed s preferred measure. Inflation expectations, as measured by surveys of forecasters, have not fallen. But investors may increasingly see the main risk as too little inflation, rather than too much. If so, the inflation-risk premium should have fallen, and could even turn negative. 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