fx strategy Has the USD bear trend finally started? fx 3 May 2016 This reflects the views of the Wealth Management Group

Transcription

1 fx strategy fx 3 May 2016 This reflects the views of the Wealth Management Group Has the USD bear trend finally started? Technically, the USD (DXY index) is now below its August low, suggesting a possible end to its sideways consolidation and an initiation of a bear trend. Fundamentally, additional USD strength remains anchored to possibility of Fed rate hikes. With markets not expecting a June hike, the USD may continue to weaken in the short term. Over a 2-4 week horizon, we remain bearish on USD/JPY and turn bullish on EUR/USD and GBP/USD following a break-out from consolidation patterns. In the commodity/asia ex-japan FX space, we are more cautious and believe the currency rallies have got ahead of the fundamentals. In the week ahead, manufacturing PMIs globally, speeches by FOMC board members and Friday s US non-farm payroll numbers are likely to be watched closely by currency markets. Pairs Outlook (2-4 wk) Summary comments Support 2 Support 1 Spot Resistance 1 Resistance 2 EUR/USD Bullish Breaks above 1.15 suggests more upside ahead USD/JPY Bearish Downtrend remains intact, 105 now key level AUD/USD Remain cautious following RBA rate cut USD/SGD Downtrend in place, but next support key GBP/USD Bullish Breach of consolidation range suggests further upside XAU/USD Cautious ahead of the important 1300 resistance NZD/USD Fails to make new highs, remain cautious EUR/GBP Technicals turning more constructive, but 200DMA break key USD/CNH Tight consolidation continues, broad USD outlook key USD/CHF Breach of support at may confirm downtrend USD/CAD Bearish Firm downtrend remains in place, turning bearish AUD/NZD Bullish AUD weakness overdone, we expect a rebound Darker shade indicates more important technical levels This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. Important disclosures can be found in the Disclosures Appendix. This document is provided for general circulation and information purposes only, it does not take into account the specific investment objectives, needs or financial situation of any particular person or class of persons and it has not been prepared as investment advice for such person(s). Person includes a corporation, cooperative society, trade union, sole proprietorship, partnership, limited liability partnership and any other business entity. Prospective investors should seek advice from a financial adviser on the suitability of an investment, taking into account these factors before making a commitment to invest in an investment. 1

2 Contents Has the USD bear trend finally started? 1 12 month outlook week outlook 3 FX trade notes 3 Week in Review 4 EUR/USD 5 USD/JPY 6 AUD/USD 7 USD/SGD 8 GBP/USD 9 XAU/USD 10 NZD/USD 11 Interest Rate Differentials 15 FX Implied Volatility 16 Consensus forecasts 17 Disclosure Appendix 19 Steve Brice Clive McDonnell Manpreet Gill Adi Monappa, CFA Audrey Goh, CFA Arun Kelshiker, CFA Rajat Bhattacharya Victor Teo, CFA Tariq Ali, CFA Abhilash Narayan Trang Nguyen Chief Investment Strategist Head, Equity Investment Strategy Head, FICC Investment Strategy Head, Asset Allocation & Portfolio Construction Director, Asset Allocation & Portfolio Construction Executive Director, Asset Allocation & Portfolio Construction Investment Strategist Investment Strategist Investment Strategist Investment Strategist Analyst, Asset Allocation & Portfolio Solutions This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 2

3 12 month outlook 2-4 week outlook Currency EUR JPY GBP AUD NZD CAD CHF CNY TWD KRW SGD MYR IDR INR THB PHP Bullish Bearish Please see the latest Global Market Outlook for more details 12 month Pairs EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD NZD/USD EUR/GBP USD/CNH USD/CHF USD/CAD AUD/NZD FX trade notes Initiation date Pairs Position Entry price Outlook (2-4 wk) Bullish Bearish Bullish Bearish Bullish Current price Target Stop 8/4/2016 EUR/USD Short /4/2016 USD/JPY Short /4/2016 AUD/NZD Long Please see the corresponding FX trade note for more details on each trade idea This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 3

4 Week in Review Weekly performance of core pairs 22 April 2016 to 2 May 2016 EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD NZD/USD Weekly performance of supplementary pairs 22 April 2016 to 2 May 2016 EUR/GBP USD/CNH USD/CHF USD/CAD AUD/NZD Pairs EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD NZD/USD Week in Review EUR/USD ended up (2.78). The EUR breached a key technical resistance, as the USD broadly weakened. A cautious Fed tone and a weak US Q1 GDP significantly weakened sentiment towards the USD. Euro area GDP on the other hand was better than consensus, while CPI estimates were weaker than expected. USD/JPY ended down (4.81). The pair plummeted, falling below recent lows, after the BoJ refrained from taking additional monetary policy easing measures. AUD/USD ended down (-0.53). The AUD fell, underperforming all G10 currencies after a significantly weaker than expected inflation numbers brought prospects of further RBA rate cuts this week to the forefront. Meanwhile iron-ore prices continued to rise. USD/SGD ended down (-1.03). The USD/SGD pair fell only modestly, as Asia ex-japan currencies did not strengthen as much as their G10 counterpart. Central bank intervention to curtail currency strength. GBP/USD was up (1.87). The Pound breached a key technical resistance, suggesting a possible end to the recent consolidation. UK Q1 GDP was slightly better than consensus expectations. XAU/USD was up (4.75). Gold price surged towards the important 1300 level, amid broad weakness in the USD. NZD/USD was up (2.45). The NZD surged after the RBNZ maintained rate current policy rate. Continued uptick in commodity prices and weaker USD also likely supported the NZD. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 4

5 EUR/USD We turn bullish on EUR/USD (from neutral), following break from year-long consolidation. Fundamental Overview Broad weakness in the USD appears to have taken hold as the EUR breached the key level. We believe weak sentiment on the USD is likely to continue for now as recent weaker US data and a dovish Fed tone highlights the possibility of further delay in Fed rate hikes. On the other hand, economic surprises have kept up pace in the Euro area. Technical Analysis The break above the key level suggests the year-long consolidation may have ended. Technical indicators, both on weekly and daily charts have now turned bullish. We now expect the pair to test the August 2015 high of 1.171, before moving towards (23.6 Fibonacci retracement). On the downside, we would maintain our bullish bias should the pair remain above Breaks above 1.15 suggests more upside ahead EUR/USD Mar-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Apr-16 EUR/USD 50DMA 100DMA 200DMA Bullish Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance High Resistance Medium Spot Support Medium Support Medium Key Signposts Euro area services PMI US employment report 4 May 6 May * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 5

6 USD/JPY We turn bearish (from neutral) amid resumption of downtrend following BoJ disappointment. Fundamental Overview In our view, JPY strength over the past has been due three key reasons: 1) No additional stimulus from the BoJ, 2) a generally cautious Fed, and 3) broad USD weakness. Since none of these factors are likely to change in the short term, there is room for the JPY rally to extend. However, the upcoming US employment report should be closely watched. Technical Analysis The pair failed to sustain its upside over the previous week after the resistance (50DMA) was rejected. Moreover, the sharp break below 110 and then 108, suggests strong downside momentum. Oversold technical indicators notwithstanding, we expect the pair to test lower towards 105. We would maintain our downward bias should the pair remain below 110. Downtrend remains intact, 105 now key level USD/JPY Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 USD/JPY 50DMA 100DMA 200DMA Bearish Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance Medium Resistance High Spot Support Medium Support High Key Signposts US ISM nonmanufacturing PMI US employment report 4 May 6 May * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 6

7 AUD/USD We remain neutral, looking for more convincing technical indicators for a directional view. Fundamental Overview The RBA had previously highlighted that an appreciating currency can potentially derail the recovery. Hence, the weak CPI numbers may have likely pushed central bank over the edge towards additional rate cuts. However, we also highlight the rate cut is now already in the price. We do not expect further RBA rate cuts from here. Technical Analysis The pair retreated from the key 0.78 resistance level, but was well supported above the 50DMA. However, technical indicators have become much divergent, suggesting a more neutral outlook. Hence, we would prefer to remain cautious until a decisive break of the previous highs at 0.78 is achieved. Retreat from a key technical resistance region warrants caution AUD/USD Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 AUD/USD 50DMA 100DMA 200DMA Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Sell Sell Sell Key Levels Level Importance Resistance High Resistance Medium Spot Support Medium Support Low Key Signposts Australia 1Q CPI inflation 27 April * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 7

8 USD/SGD We turn neutral (from bullish), looking for a break of an important support. Fundamental Overview We do not expect Asia-ex-Japan currencies to continue making new highs, similar to their G10 counterparts. We believe push-back from regional central banks is likely to be the main factor in this. The SGD is likely to remain the broad regional proxy. Hence, we expect limited further gains considering our outlook for the regional currencies. Technical Analysis The pair remains firmly in a downtrend on weekly charts. However, momentum appears to have slowed on daily charts. We would look for a break below recent lows (1.3345) as a confirmation of the downtrend. On the topside, we would expect a breach of the 50DMA to end the downtrend. Downtrend in place, but next support key USD/SGD Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 USD/SGD 50DMA 100DMA 200DMA Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Sell Sell Key Levels Level Importance Resistance Medium Resistance Medium Spot Support Medium Support High Key Signposts Singapore Manufacturing PMI 3 May * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 8

9 GBP/USD We turn bullish (from bearish) following breach of the consolidation range. Fundamental Overview While some recent polls may have suggested a lower probability of a Brexit, we do not believe this will alter the uncertainty with respect to the currency until the June referendum itself. Hence, we continue to expect the GBP to remain volatile over the next 2 months. Having said this, a broadly weaker USD can allow the GBP to extend gains in the short term. Technical Analysis The pair convincingly breached the upper end of its recent consolidation range and rose above the 100DMA. Daily technical indicators have now become firmly bullish. The pair is now likely to target the 200DMA, which also currently lies at an important resistance level. On the downside, a break below may suggest a continuation of the downtrend. Breach of consolidation range suggests further upside GBP/USD Mar-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Apr-16 GBP/USD 50DMA 100DMA 200DMA Bullish Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance Medium Resistance High Spot Support High Support High Key Signposts UK manufacturing PMI UK services PMI * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 9

10 XAU/USD We remain neutral on gold ahead of key resistance at 1,300. Fundamental Overview Gold saw strong demand last week amid a renewed downtrend in the USD. Going forward, gold is likely to continue to follow the USD, interest rates and inflation expectations. With real interest rates expected to remain low, there is likely to be continued interest in gold. Technical Analysis Gold breached its recent highs and currently faces strong resistance at 1,300. In our view, this level is critical for further upside. Hence, we prefer to remain on the sidelines before taking a firm directional view. Overall, technical indicators have now turned firmly bullish on the daily charts. We would maintain a bullish bias should the pair remain above 1,250, which is currently also the 50DMA. Cautious ahead of the important 1300 resistance XAU/USD 1,350 1,300 1,250 1,200 1,150 1,100 1,050 1,250 1,300 1,000 Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 XAU/USD 50DMA 100DMA 200DMA Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance Medium Resistance High Spot 1295 Support High Support Medium Key Signposts US employment report 6 May * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 10

11 NZD/USD We turn neutral (from bearish) ahead of an important resistance level. Fundamental Overview We continue to expect the NZD to remain the weakest among commodity currencies due to depressed dairy prices and increasing likelihood of further policy rate cuts. We believe, the recent strong performance is largely due to a weaker USD and increased sentiment towards commodities. Technical Analysis NZD/USD failed to breach for another week, while most technical indicators remain neutral. While the upward trending price channel remains in place, failure to make new highs suggests selling pressure in this region. A break below support near key moving averages would likely confirm a break of the channel and a potential downtrend. Fails to make new highs, remain cautious NZD/USD Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 NZD/USD 50DMA 100DMA 200DMA Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance Low Resistance High Spot Support Medium Support High Key Signposts New Zealand Unemployment rate 4 May * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 11

12 SUPPLEMENTARY PAIRS Technicals turning more constructive, but 200DMA break key View 0.82 EURGBP Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 EUR/GBP 50DMA 100DMA 200DMA We remain neutral on the pair. Last week s rebound has broken the bearish momentum in the pair. However, we look for a break above the 50DMA to turn more constructive. Tight consolidation continues, broad USD outlook key View USD/CNH Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 USD/CNH 50DMA 100DMA 200DMA The pair remains in a tight consolidation band. We expect this to continue until a decisive break is achieved on either side. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 12

13 SUPPLEMENTARY PAIRS (cont d) Breach of support at may confirm downtrend View 1.04 USD/CHF Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 USD/CHF 50DMA 100DMA 200DMA Trend looks bearish, but 0.95 support region. Prefer to remain on the sidelines for the time being. Firm downtrend remains in place View USD/CAD Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 USD/CAD 50DMA 100DMA 200DMA Bearish We turn bearish on USD/CAD (from neutral earlier) following a break below key support levels. Oil prices continue to support, weak USD main driver for now. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 13

14 SUPPLEMENTARY PAIRS (cont d) AUD weakness overdone, we expect a rebound View AUD/NZD Feb-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 AUD/NZD 50DMA 100DMA 200DMA Bullish We remain bullish. The pair has fallen back to the key support level from where we expect a rebound. We believe monetary divergence between Australia and New Zealand remains valid as the next cut is likely to come from the RBNZ. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 14

15 Interest Rate Differentials EUR/USD USD/JPY AUD/USD Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 EUR-USD 2 year interest rate differential EUR/USD (RHS) EUR/USD Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 USD-JPY 2 year interest rate differntial (RHS) USD/JPY USD/JPY Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 AUD-USD 2 year interest rate differntial (RHS) AUD/USD (RHS) AUD/USD GBP/USD NZD/USD USD/CAD GBP/USD NZD/USD USD/CAD Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 GBP-USD 2 year interest rate differntial (RHS) GBP/USD (RHS) Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 NZD-USD 2 year interest rate differntial (RHS) NZD/USD (RHS) Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 USD-CAD 2 year interest rate differntial (RHS) USD/CAD (RHS) This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 15

16 FX Implied Volatility EUR/USD USD/JPY AUD/USD Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 EUR 1M implied vol Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 JPY 1M implied vol Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 AUD 1M implied vol GBP/USD NZD/USD USD/CAD Apr-13 Apr-14 Apr-15 Apr-16 GBP 1M implied vol Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 NZD 1M implied vol Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 CAD 1M implied vol This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 16

17 Consensus forecasts Consensus Forecasts Spot Q Q Q Q EUR/USD USD/JPY AUD/USD NZD/USD USD/SGD GBP/USD USD/CAD USD/CHF This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 17

18 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 commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 18

19 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 Standard Chartered Bank, ( SCB ) 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. United Kingdom: Standard Chartered Bank (trading as Standard Chartered Private Bank) is an authorised financial services provider (licence number 45747) in terms of the South African Financial Advisory and Intermediary Services Act, 2002 In Dubai International Financial Centre ( DIFC ), the attached material is circulated by Standard Chartered Bank DIFC on behalf of the product and/or Issuer. Standard Chartered Bank DIFC is regulated by the Dubai Financial Services Authority (DFSA) and is authorised to provide financial products and services to persons who meet the qualifying criteria of a Professional Client under the DFSA rules. The protection and compensation rights that may generally be available to retail customers in the DIFC or other jurisdictions will not be afforded to Professional Clients in the DIFC. Banking activities may be carried out internationally by different Standard Chartered Bank branches, subsidiaries and affiliates (collectively SCB ) according to local regulatory requirements. With respect to any jurisdiction in which there is a SCB entity, this document is distributed in such jurisdiction by, and is attributable to, such local SCB entity. Recipients in any jurisdiction should contact the local SCB entity in relation to any matters arising from, or in connection with, this document. Not all products and services are provided by all SCB entities. This document is being distributed for general information only and it does not constitute an offer, recommendation or solicitation to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This document is for general evaluation only, it does not take into account the specific investment objectives, financial situation or particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons. Opinions, projections and estimates are solely those of SCB at the date of this document and subject to change without notice. Past performance is not indicative of future results and no representation or warranty is made regarding future performance. Any forecast contained herein as to likely future movements in rates or prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in rates or prices or actual future events or occurrences (as the case may be). This document has not and will not be registered as a prospectus in any jurisdiction and it is not authorised by any regulatory authority under any regulations. 19

20 SCB makes no representation or warranty of any kind, express, implied or statutory regarding, but not limited to, the accuracy of this document or the completeness of any information contained or referred to in this document. This document is distributed on the express understanding that, whilst the information in it is believed to be reliable, it has not been independently verified by us. SCB accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents. SCB, and/or a connected company, may at any time, to the extent permitted by applicable law and/or regulation, be long or short any securities, currencies or financial instruments referred to on this document or have a material interest in any such securities or related investment, or may be the only market maker in relation to such investments, or provide, or have provided advice, investment banking or other services, to issuers of such investments. Accordingly, SCB, its affiliates and/or subsidiaries may have a conflict of interest that could affect the objectivity of this document. This document must not be forwarded or otherwise made available to any other person without the express written consent of SCB. Copyright: Standard Chartered Bank Copyright in all materials, text, articles and information contained herein is the property of, and may only be reproduced with permission of an authorised signatory of, Standard Chartered Bank. Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of Standard Chartered Bank and should not be reproduced or used except for business purposes on behalf of Standard Chartered Bank or save with the express prior written consent of an authorised signatory of Standard Chartered Bank. All rights reserved. Standard Chartered Bank THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT. 20