fx strategy This reflects the views of the Wealth Management Group fx 10 April 2017

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1 For Malaysia circulation only fx strategy This reflects the views of the Wealth Management Group fx 10 April 2017 Geopolitical risks beginning to affect FX markets A pick-up in geopolitical risks following the US missile strike against Syria has raised speculation of a more interventionist US foreign policy, a departure from the previous stance. In our view, this could support safe haven currencies such as the JPY and gold in the short term. Correspondingly, we remain neutral on the AUD, NZD and turn neutral on the SGD. Despite this, we do not see catalysts for a major rebound in the USD as yet. We believe it is too early for the focus to return to the next rate hike, while the probability of a far-right victory in Europe still remains low. We remain bullish on the EUR. This week s focus is likely to be on Yellen s speech, inflation data in the US and the UK, the MAS policy announcement, Australia jobs and China exports. The US Treasury foreign exchange policy report (possible release this week) could also affect sentiment. Pairs Outlook (2-4 wk) Summary comments Support 2 Support 1 Spot Resistance 1 Resistance 2 EUR/USD Bullish back in focus; we expect the support to hold USD/JPY Bearish Sideways trading continues, but risk sentiment supportive AUD/USD Focus back on the support level USD/SGD Break above 50DMA to decide if a deeper rally can ensue GBP/USD Bullish Pullback likely to be limited, next support USD/MYR Largely range-bound for now, technical break needed XAU/USD Bullish Looking for a break here to confirm bullish bias NZD/USD Approaching key support level that could determine directional bias EUR/GBP Bullish Focus now on the resistance USD/CNH A break of tight sideways trading needed to determine direction USD/CHF Bearish Key resistance at to determine if downside intact USD/CAD Continuing to trade sideways, key support AUD/NZD Reversal from resistance highlights downside risks 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, co-operative 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 Geopolitical risks beginning to affect FX markets 1 12 month outlook 2-4 week outlook 3 3 FX trade ideas 3 Week in Review 4 EUR/USD 5 USD/JPY 6 AUD/USD 7 USD/SGD 8 GBP/USD 9 USD/MYR 10 XAU/USD 11 NZD/USD 12 Interest Rate Differentials 16 FX Implied Volatility 17 Consensus forecasts 18 Disclosure Appendix 20 Steve Brice Chief Investment Strategist Tariq Ali, CFA Investment Strategist Clive McDonnell Head, Equity Investment Strategy Abhilash Narayan Investment Strategist Manpreet Gill Head, FICC Investment Strategy Tu-Vi Nguyen Investment Strategist Adi Monappa, CFA Head, Asset Allocation & Portfolio Solutions Trang Nguyen Analyst, Asset Allocation & Portfolio Solutions Audrey Goh, CFA Director, Asset Allocation & Portfolio Solutions DJ Cheong Investment Strategist Arun Kelshiker, CFA Executive Director, Asset Allocation & Portfolio Solutions Jeff Chen Analyst, Asset Allocation & Portfolio Solutions Rajat Bhattacharya Investment Strategist Audrey Tan Investment Strategist 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 12 month Pairs EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD USD/MYR XAU/USD NZD/USD EUR/GBP USD/CNH USD/CHF USD/CAD AUD/NZD FX trade ideas Initiation date Pairs Position Entry price Outlook (2-4 wk) Bullish Bearish Bullish Bullish Bullish Bearish Current price Target Stop Please see the corresponding FX trade note for more details on each trade idea Please see the forthcoming Global Market Outlook for more details This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 3

4 Week in Review Weekly performance of core pairs 31 Mar 2017 to 07 Apr 2017 EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD NZD/USD Weekly performance of supplementary pairs 31 Mar 2017 to 07 Apr 2017 EUR/GBP USD/CNH USD/CHF USD/CAD AUD/NZD Pairs EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD USD/MYR XAU/USD NZD/USD Week in Review EUR/USD was down (-0.57). Last week, dovish comments from ECB President Mario Draghi likely dragged the EUR lower. On the other hand, FOMC member Dudley s comments were interpreted as hawkish while the US unemployment fell further despite weaker jobs increases. USD/JPY ended down (-0.27). The JPY remained resilient last week, despite a stronger USD, as geopolitical concerns came to the forefront following a US missile strike on Syria and ahead of the meeting between the presidents of US and China. AUD/USD was down (-1.69). The AUD fell last week amid a decline in iron-ore prices as well as cautious risk sentiment amid geopolitical risks. Further, the RBA also suggested it intends to keep its policy rate neutral for an extended period. USD/SGD was up (0.57). The SGD fell last week as cautious risk sentiment and a revival of geopolitical concerns in the Korean peninsula hurt Asia-ex-Japan currencies. GBP/USD was down (-1.43). The GBP fell as UK manufacturing and industrial production data was weaker than expected. USD/MYR ended up (0.21). The MYR fell in tandem with other emerging Asian currencies over concerns of the U.S.-China meeting outcome and a shift to safe haven currencies after the U.S. launched missile attacks on Syria. XAU/USD was up (0.43). Gold gained last week amid safe haven demand following a rise in geopolitical concerns and a decline in US Treasury yields. NZD/USD was down (-0.93). The NZD fell along with other pro-cyclical and commodity currencies. A decline in milk prices could have added to the negative sentiment. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 4

5 EUR/USD EUR/USD We remain bullish as the pair approaches key support amid a lack of downside catalysts. Fundamental Overview This week will bring the official start of the French presidential campaign. We believe the probability of Le Pen wining the second round remains low, but the risk of such an outcome seems to be accounted for in the still elevated France-Germany bond yield spreads. The recent EUR weakness appears to be driven by dovish ECB messaging, though we believe a reduction in political risk will support the EUR from here on. Technical Analysis The trough from last week s decline and breach below key moving averages now brings the 1.05 region back in focus. We believe this remains a critical support area as the pair has failed to sustain below this level consistently since Moreover, we see divergence in technical indicators as both momentum and oscillators are signalling a reversal back in focus; we expect the support to hold Bullish Key technical indicators* Technical Indicator Action RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Level Importance Resistance High Resistance Medium Spot Support High Support High EUR/USD 50DMA 100DMA 200DMA Key Signposts Euro area Industrial production 11-Apr * 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 USD/JPY We remain bearish, as geopolitical concerns could drive the pair lower in the short term. Fundamental Overview The JPY has remained resilient amid a rise in geopolitical concerns following the US missile strike on Syria and resulting speculation of a more interventionist US foreign policy. US 10- year Treasury yields, a key driver of the JPY recently, also remain depressed. Against this backdrop, we believe the JPY could strengthen further as risk sentiment could remain cautious. Technical Analysis The sideways consolidation continues to develop with the pair remaining above the key psychological 110 level but failing to breach (50 Fibonacci retracement). We believe a breach from this range is needed to signal a directional trend. Technical indicators have turned largely neutral suggesting lack of a directional bias. Sideways trading continues, but risk sentiment supportive 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 High Resistance Medium Spot Support Medium Support High Key Signposts Japan Machine orders 11-Apr * 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 AUD/USD We remain neutral, as we await follow-trough from current levels even as technicals are bearish. Fundamental Overview The AUD has fallen recently on the back of a sharp decline in iron-ore prices and a stronger USD amid a pick-up in risk sentiment. We believe the AUD could move lower as risk sentiment could remain cautious for the time being. However, any decline is likely to be limited in our opinion as most supportive factors including a stable China recovery remain in place. Technical Analysis The break below the support region (key moving averages) increases downside risks to the pair. We believe the focus has now shifted to the support region (Q3-Q4 15 tops). A break here would then imply a re-test of the critical support (post-us election low and Q2 16 low). A rebound above (200DMA) would, however, negate the downside. Focus back on the support level AUD/USD 50DMA 100DMA 200DMA 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 Medium Spot Support Medium Support High Key Signposts Australia jobs change and unemployment China exports 13-Apr 13-Apr * 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 USD/SGD We turn neutral (from bearish) amid technical resistance that would decide directional bias. Fundamental Overview The key focus this week for the SGD will be the semi-annual MAS policy review. Although we expect no change in policy, the critical messaging to look out for will be any adjustment to the commitment to a neutral policy stance for an extended period. We believe any change in this regard will send a hawkish message and support the SGD. Technical Analysis The rebound from the 200DMA has now brought into question the sustainability of the recent bear-rally. Still, we believe a follow-through above the 50DMA is critical for bullish sentiment to take hold. On the other hand, a retreat from here would re-affirm a bear-trend. Technical indicators now suggest an increasingly bearish outlook. Break above 50DMA to decide if a deeper rally can ensue USD/SGD 50DMA 100DMA 200DMA 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 Medium Key Signposts Singapore retail sales MAS policy review 12-Apr 13-Apr * 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 GBP/USD We remain bullish, amid largely neutral technicals and potentially bullish fundamental catalysts. Fundamental Overview With no immediate Brexit related catalysts, we believe the focus this week is likely to shift to important economic data. Inflation data this week could confirm rising inflationary pressure which is likely to increase speculation of an earlier BoE policy normalisation. In addition, the unemployment and wage data could provide further evidence of the UK economic resilience. Technical Analysis Although the pair managed to break below the key DMAs, price action has been quite timid suggesting lack of strong selling pressure from here. Moreover, we believe the chart setup is likely to retain a slight positive bias as long as the pair remains above (the upward trending support line from the January 2017 low. Pullback likely to be limited, next support 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 High Resistance High Spot Support Medium Support High Key Signposts UK CPI (core) UK unemployment rate and jobs change 11-Apr 12-Apr * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 9

10 USD/MYR USD/MYR We remain neutral, awaiting a breakout from the YTD range Fundamental Overview Malaysia trade balanced surprisingly increased to MYR 8.71bn in February, further reinforcing the country s strong trade growth momentum, which is positive for the ringgit. However, geopolitical risk surrounding the Syria missile strikes coupled with the Fed commitment to interest rate hikes may limit gains. Technical Analysis Technicals, on balance, are neutral. The uptrend momentum last week may be limited as the pair looks temporarily capped at the 50 and 100 DMA at From here, a break out of the and range will determine the next direction. Largely range-bound for now, technical break needed Key technical indicators Technical Indicator Action RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Level Importance Resistance High Resistance Medium Spot Support High Support Medium Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 USD/MYR 50 dma 100 dma 200 dma Key Signposts Industrial Output 11 Apr This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 10

11 XAU/USD XAU/USD We remain bullish as USD consolidation suggests room for gold to gain further. Fundamental Overview We believe gold is likely to remain resilient near term as US Treasury yields are likely to remain contained amid uncertainty regarding the next Fed rate and as geopolitical concerns rise following US missile strikes on Syria. This has increased speculation of a more US interventionist foreign policy, which could increase demand for safe havens such as gold. Technical Analysis Gold failed to convincingly breach above the 200DMA, coinciding with the recent swing high (1,264). Still we believe the overall setup remains positive. A breach here on the topside could open room to 1,300. We believe upside is likely to remain intact as long as the pair remains above 1,235 (50DMA). Looking for a break here to confirm bullish bias 1,400 1,350 1,300 1,250 1,200 1,150 1,225 1,264 1,100 XAU/USD 50DMA 100DMA 200DMA Bullish 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 High Resistance High Spot 1253 Support High Support Medium Key Signposts Janet Yellen s speech US CPI and core CPI 10-Apr 14-Apr * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 11

12 NZD/USD NZD/USD We remain neutral, amid important support levels and limited catalyst for significant downside. Fundamental Overview The NZD has come under pressure recently amid a fall in risk sentiment following a pick-up in geopolitical concerns. However, we do not see significant downside as most medium-term drivers remain supportive. In our view, China growth is likely to remains stable as global inflation continues to grind higher. We also do not see the RBNZ reducing interest rates further. Technical Analysis The follow through from last week s decline has increased the bearish bias in the pair. Nevertheless, we believe a key support region (the December 2016 and March 2017 low) could limit downside, especially against the backdrop of slightly oversold technical indicators. Approaching key support level that could determine directional bias 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 Medium Resistance Medium Spot Support High Support Medium Key Signposts China exports 13-Apr * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 12

13 USD/CNH EUR/GBP SUPPLEMENTARY PAIRS Focus now on the support region 0.92 View Bullish We remain bullish. Modest uptrend remains intact. However, a breach of the is needed for a bullish trend to take hold. EUR/GBP 50DMA 100DMA 200DMA A break of tight sideways trading needed to determine direction USD/CNH 50DMA 100DMA 200DMA View We remain neutral as the pair continues to trade in a tight range. At present, the pair is testing the upper end of the range, which could determine if a deeper rally can ensue. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 13

14 USD/CAD USD/CHF SUPPLEMENTARY PAIRS (cont d) Downside prevails, follow-through needed to negate negative bias 1.04 View Bearish USD/CHF 50DMA 100DMA 200DMA We remain bearish. The pair is testing an important resistance level and we look for a break to determine if a broader rally is likely. Increased safe-haven demand amid geopolitical uneasiness and French elections could be CHF supportive. Continuing to trade sideways, key support 1.42 View USD/CAD 50DMA 100DMA 200DMA We remain neutral as the pair continues to trade sideways. WTI crude oil prices continue have been supportive, but we remain unconvinced a strong rebound is likely to ensue. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 14

15 AUD/NZD SUPPLEMENTARY PAIRS (cont d) Reversal from resistance highlights downside risks View AUD/NZD 50DMA 100DMA 200DMA We remain neutral as the impulsive reversal from the resistance highlights downside risks. The sharp pullback in iron ore and negative Australia economic surprises are could weigh on the pair in the near term. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 15

16 GBP/USD NZD/USD USD/CAD EUR/USD USD/JPY AUD/USD Interest Rate Differentials EUR/USD USD/JPY AUD/USD Apr-14 Apr-15 Apr-16 Apr-17 EUR-USD 2 year interest rate differential EUR/USD (RHS) Apr-14 Apr-15 Apr-16 Apr-17 USD-JPY 2 year interest rate differential USD/JPY (RHS) Apr-14 Apr-15 Apr-16 Apr-17 AUD-USD 2 year interest rate differential AUD/USD (RHS) GBP/USD NZD/USD USD/CAD Apr-14 Apr-15 Apr-16 Apr-17 GBP-USD 2 year interest rate differential GBP/USD (RHS) Apr-14 Apr-15 Apr-16 Apr-17 NZD-USD 2 year interest rate differential NZD/USD (RHS) Apr-14 Apr-15 Apr-16 Apr-17 USD-CAD 2 year interest rate differential USD/CAD (RHS) This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 16

17 FX Implied Volatility EUR/USD USD/JPY AUD/USD Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 EUR 1M implied vol Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 JPY 1M implied vol Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 AUD 1M implied vol GBP/USD NZD/USD USD/CAD Apr-14 Apr-15 Apr-16 Apr-17 GBP 1M implied vol Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 NZD 1M implied vol Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 CAD 1M implied vol This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 17

18 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. 18

19 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. 19

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