Weekly FX Insight. Weekly FX Insight. Dec 30, 2013 with data as of Dec 27. Citibank Wealth Management. FX & Eco. Figures Forecast

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1 Citibank Wealth Management Weekly FX Insight Weekly FX Insight Dec 30, 2013 with data as of Dec 27 Market Review & Focus FX Analysis Weekly FX Recap 01 GBP/USD 03 USD/JPY 04 Weekly FX Focus 02 NZD/USD Citibank AUD/USD 06 Citibank and Arc Design is a registered service mark of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited USD/CNY 07 FX & Eco. Figures Interest Rate & FX 08 Economic Figures 09

2 Weekly FX Recap Market recap: JPY plunged last week amid Widening of U.S.-Japan yield spread U.S. durable goods orders rose 3.5% in November and initial jobless claims fell to 338K, both topped estimates. This sent the U.S. treasury yields higher and suppressed the AUD. AUD/USD dropped 0.6% to close at last week. AUD outlook: AUD/USD may test lower to The GBP surged as the U.K. government is considering rule changes that would make it easier for small and medium-sized companies to raise fund. GBP/USD rose 0.9% to close at last week. GBP outlook: GBP/USD may rise to The JPY plunged to the 5-year low as the BOJ officials expressed concern about the slowing pace of growth and U.S.-Japan yield spread widened. USD/JPY surged 1% to close at last week. JPY outlook: USD/JPY may rise to gradually. 1.00% 0.50% 0.56% 0.90% Weekly changes versus US dollar 0.52% 0.84% 0.00% -0.50% -1.00% -1.50% -0.67% -0.59% -0.61% -1.03% EUR GBP CHF CAD JPY AUD NZD Spot gold 1

3 Weekly FX Focus: GBP to outperform Manufacturing PMIs in major countries Australia Euro Zone Canada Japan New Zealand Source: Bloomberg L.P., as of Dec, 2013 The pound outperformed last week and GBP/USD once surged above 1.65, as the U.K. government is considering rule changes that would make it easier for small and medium-sized companies to raise fund. Upbeat U.K. economy is one of the major reasons for investors to maintain a bullish on GBP. Comparing major countries' manufacturing PMIs, the U.K. manufacturing PMI rose to 58.4, the highest among other major nations, reflecting a stronger economic prospect. Apart from strong growth of manufacturing activities, the U.K. job market recovery also accelerates. For instance, unemployment rate fell to 7.4% in Oct, the lowest for the past 4 ½ years. Thus, Citi analysts expect the BOE to start raising rates in 2015, which may underpin the GBP in the medium term. GBP/USD may rise to 1.75 for the coming 6-12 months. U.S. U.K. 2

4 GBP/USD GBP/USD may test higher to ( ) Last Price (12.79) High (12.86) Low (12.65) (12.30) (12.63) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference (12.90) (13.00) 0-3m 1.65 (12.80) 6-12m 1.75 (13.58) Upcoming Economic Data Jan 2: Manufacturing PMI Market Recap: The GBP surged as the U.K. government is considering rule changes that would make it easier for small and medium-sized companies to raise fund. GBP Outlook: U.K. retail sales in November topped last month's figure, reflecting continuous growth of the U.K. economy. This may support the pound in the medium and long term. Persistently high property prices in the U.K. may force the BOE to tighten monetary policies earlier, which may support the pound. However, the Fed tapering may support the USD and restrain the GBP. Technical Analysis: GBP/USD breaches the large downward channel and may climb to ( ) gradually, with support at (12.63)

5 USD/JPY USD/JPY may test higher to (72.46) and (71.23) Last Price (73.78) High (73.77) Low (74.78) Market Recap: The JPY fell as the BOJ's minutes showed the BOJ's officials worried large inventories and a fall of wages / economic growth may increase economic downside risk. JPY Outlook: Japan's CPI rose to 1.5% in November, reflecting accommodative monetary policies started to come into effect. The BOJ is likely to continue accommodative monetary policies to ensure an inflation target of 2%. 10-year U.S. treasury yield rose to nearly 3%. expanding U.S.-Japan yield spreads prompts institutional investors to invest in foreign assets instead of Japan s bonds. This may undermine the JPY in medium term. The BOJ may expand QE to offset the negative impacts of sales tax hikes, which may suppress the JPY. Technical Analysis: USD/JPY may test higher to (72.46) and (71.23), with support at (74.80). The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference, and 1,000 yen per unit for JPY/HKD (76.43) (74.80) (72.46) (71.23) m (76.08) 6-12m (73.90) Upcoming Economic Data No major economic data is released this week

6 NZD/USD NZD may consolidate between ( ) Last Price (6.32) High (6.38) Low (6.32) (6.16) (6.27) (6.47) (6.53) 0-3m 0.83 (6.44) 6-12m 0.82 (6.36) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference Upcoming Economic Data No major economic data is released this week Market Recap: The kiwi was supported as trade balance changed from deficit to surplus, and NZ economy remained strong in Q3, reflecting continuously strong economic growth. NZD Outlook: The kiwi was supported as the RBNZ revised up economic growth estimate to 3.6%, which prompted markets' confidence in NZ's economic prospect. The RBNZ may start to hike interest rates in March 2014 amid strong growth and high property prices, which may support the kiwi in the medium term. The Fed tapering may support the USD, which may restrain the NZD. Technical Analysis: NZD/USD may consolidate between ( )

7 AUD/USD AUD/USD may test lower to (6.66) after breaching (6.85) Last Price (6.88) High (6.95) Low (6.87) (6.66) (6.85) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.76 exchange rate for reference (6.98) (7.11) 0-3m 0.91 (7.06) 6-12m 0.88 (6.83) Upcoming Economic Data No major economic data is released this week Market Recap: Fund flowed into U.S., as a rise in U.S. treasury yields boosted the funding costs, after the Fed's announcement of tapering. This suppressed the AUD. AUD Outlook: The AUD may be undermined in the medium and long term as Australia s government revised down GDP target to 2.5%, showing they concerned about the economy. Markets are worried that the Australia's government may not be able to boost economy significantly as Australia treasury warned deficit could last for 10 years. This may suppress the AUD. The RBA reiterated it hoped AUD/USD to depreciate to 0.85 to support the economy, which may suppress the AUD. Technical Analysis: AUD/USD may test lower to (6.66) after breaching (6.85) with resistance at (6.98)

8 USD/CNY USD/CNY may test lower to 6.05 Last Price High Low 0-3m 6-12m Market Recap: The CNY rose to the record high of as the PBOC injected liquidity through Short-term Liquidity Operations to solve funding shortages. CNY Outlook: Reform policies released by China government after the third plenum strengthened investors confidence in China s economic outlook. Fund inflows into China may support the CNY The PBOC said qualified institutional investment limit will be cancelled, which fueled expectations more foreign investments will be made in China. This support the appreciation of CNY in the medium and long term. Citi analyst expect USD/CNY may test lower to 6.05 for the coming 6-12 months month forecast:

9 Appendix 1: Citi Interest Rate and FX for 2013 Citi FX Outlook Source: Citi, forecast as of Nov 21, 2013 Citi FX Interest Rate 0-3 month 6-12 month 12/27/13 4Q 13 1Q 14 Dollar Index EUR/USD GBP/USD USD/JPY USD/CHF AUD/USD NZD/USD USD/CAD USD/CNY downgraded upgraded EUR: Due to the improving economic data, receding risk of EU debt crisis and fund inflows into the eurozone, the EUR may be supported in the short to medium term. GBP: As U.K. economy improves, the BOE may hike rates earlier in 2015, which may send the GBP higher to 1.65 for the coming 0-3 months. AUD: Since the Fed may not start tapering in the short term, AUD/USD downside may be limited to 0.91 for the coming 0-3 months. NZD: 2014 NZ growth may accelerate to 3.2% and the RBNZ may hike rates in Q1 2014, which may underpin the kiwi. JPY: Since the BOJ may expand QE and the U.S.-Japan yield spread may widen, USD/JPY may rise to 105 level gradually in the medium term. 8

10 Appendix 2: Upcoming Economic Figures (Dec 30, 2013 Jan 3, 2014) Date Time Event Actual Prior 12/30/ :00 US Pending Home Sales MoM Nov % 12/31/ :00 US S&P/CS Composite-20 YoY Oct % 12/31/ :45 US Chicago Purchasing Manager Dec /31/ :00 US Consumer Confidence Index Dec /01/ :00 CH Manufacturing PMI Dec /02/ :45 CH HSBC/Markit Manufacturing PMI Dec /02/ :00 EC PMI Manufacturing Dec /02/ :30 UK PMI Manufacturing Dec /02/ :30 US Initial Jobless Claims Dec K 01/02/ :30 US Continuing Claims Dec K 01/02/ :00 US ISM Manufacturing Dec /02/ :00 US Construction Spending MoM Nov % 01/03/ :00 CH Non-manufacturing PMI Dec /03/ :30 UK PMI Construction Dec /03/ :30 UK Mortgage Approvals Nov K 01/03/ :30 UK M4 Money Supply YoY Nov % Source: Bloomberg L.P. 9

11 Important Disclosure For any enquiries, please call (852) This document is based on information provided by Citigroup Investment Research, Citigroup Global Markets, Citigroup Global Wealth Management and Citigroup Alternative Investments. It is provided for your information only. It is not intended as an offer or solicitation for the purchase or sale of any security. Information in this document has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the information, consider its appropriateness, having regard to their objectives, financial situation and needs. Any decision to purchase securities mentioned herein should be made based on a review of your particular circumstances with your financial adviser. Investments referred to in this document are not recommendations of Citibank (Hong Kong) Limited ( Citibank ) or its affiliates. Although information has been obtained from and is based upon sources that Citibank believes to be reliable, Citi analysts do not guarantee its accuracy and it may be incomplete and condensed. All opinions, projections and estimates constitute the judgment of the author as of the date of publication and are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. Past performance is no guarantee of future results. The document is not to be construed as a solicitation or recommendation of investment advice. Subject to the nature and contents of the document, the investments described herein are subject to fluctuations in price and/or value and investors may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal the amount invested. Certain investments contained in the document may have tax implications for private customers whereby levels and basis of taxation may be subject to change. Citibank does not provide tax advice and investors should seek advice from a tax adviser. Investment products: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Citi Foreign Exchange: s are a joint venture between Citi s foreign exchange, global macro and technical strategy groups and our developed and emerging markets economists. Under normal circumstances, we expect to present s on a monthly schedule although we may offer intra month updates if circumstances dictate. Technical Trend: All views, opinions and estimates derived from CitiFX Technicals (i) may change without notice and (ii) may differ from those views;, opinions and estimates held or expressed by Citi or other Citi personnel, including Citi Foreign Exchange:. Should CitiFX Technicals not cover any major currency pairs, the indication of short-term technical "bullish", "bearish", or "neutral" trends will be based on the result of analysis with various widely known short-term technical analysis tools, namely RSI, MACD, fibonacci, stochastics, bollinger bands, and simple moving averages. 10