FX Market Update EUR/CHF spot looks attractive

Transcription

1 Investment Research 8 August 20 FX Market Update EUR/CHF spot looks attractive Short-term financial models: spot deviations from model estimate EUR/CHF Daily Low 200 Day Moving Average (Close) /01/20 01/02/20 01/03/20 01/04/20 01/05/20 01/06/20 01/07/20 01/08/20 Source: Bloomberg, Danske Bank Markets calculations What stands out Looking at the signals from our short-term financial models, we currently observe the biggest misalignment in USD/JPY and EUR/JPY, which trade 3.0 and 1.7 standard deviations respectively below our model s estimate. We are already positioned for an increase in USD/JPY through a risk reversal (see FX Trends: GBP and JPY to be left behind with worst policy mix, 22 March) and still look for USD/JPY to trade higher over the medium term. However, note the relatively high correlation between USD/JPY spot and Japanese equities (page 9), which underlines that near-term risks might be skewed for further near-term downside as the recent equity rally seems to lose momentum. Alongside the fall in EUR/JPY, EUR/CHF has also declined and the cross now looks oversold according to our models. Moreover, we observe that EUR/CHF currently trades near the lower Bollinger band, which is 2 standard deviations below the 30-day moving average (page 2) and is nearing the 200-day moving average, where we have previously seen support in EUR/CHF (see chart above). All in all, we think a long spot position looks attractive and would consider buying at current levels. EUR/SEK also trades with significant deviations from our short-term model estimates. We still expect SEK to appreciate medium term and on 5 August we recommended positioning for a correction lower in EUR/SEK via a seagull strategy (see SEK weakness overdone - Enter a EUR/SEK seagull for the downside, 31 July). Alternatively, we think risk reversal is an ideal strategy to position for corrections lower in EUR/SEK and EUR/NOK. First, a risk reversal utilises the positive carry in SEK (see Carry monitor, page ). Moreover, the strategy benefits from a positive option skew where EUR/SEK call options are expensive relative to similar put options. However, we note that when adjusted for volatility level, skew valuations actually trade in neutral territory (page 7). Implied FX volatility has, in general, traded lower over the past month, as investors risk appetite has improved and equity markets have rallied. According to our volatility monitor (page 7), the 3M tenor in particular looks cheap evaluated by historical differences between implied and realised volatility but, as shown above, the biggest differences between the realised range and break-even range comes when buying 3M. Contents Spot overview... 2 Short-term financial models... 3 Volatility summary... 7 Range-trading monitor...10 Option market positioning...11 Carry monitor... Correlation monitor...14 Forecasts and market pricing...16 Central bank overview...18 FX trade overview...19 FX Market Update provides a quantitative overview of the currency market. Senior Analyst Morten Helt mohel@danskebank.com Assistant Analyst Kristoffer Lomholt klom@danskebank.com Bloomberg: DRFX <GO> Important disclosures and certifications are contained from page 21 of this report.

2 Spot overview Spot overview Spot change Trend Bollinger-bands 20-day MA 50-day MA Low-High RSI Direction Strength Sup./Res. -/+ 2 std dev EUR/USD % / EUR/JPY % 8.25 / / EUR/GBP / EUR/CHF % / / EUR/SEK % / / EUR/NOK % / / EUR/AUD % / EUR/CAD % / (Overbought) EUR/NZD % / / EUR/PLN % / / EUR/RUB % / (Overbought) EUR/TRY % / EUR/CZK % / / USD/JPY % / / GBP/USD % / / USD/CHF % / / USD/SEK % / / USD/NOK % / AUD/USD / / USD/CAD % / / NZD/USD % / / USD/RUB % / / NOK/SEK / / AUD/NZD % / Top 10 overbought range-trading currency pairs Currency pair RSI 1 GBP/CAD GBP/USD NZD/CAD USD/CAD EUR/NOK GBP/NOK NZD/USD GBP/NZD CHF/SEK EUR/NZD 53.4 Top 10 oversold range-trading currency pairs Currency pair RSI 1 CAD/JPY USD/JPY USD/CHF NZD/JPY EUR/PLN SEK/JPY NOK/JPY EUR/JPY USD/SEK GBP/JPY 42.4 Note: Trend direction and strength computed using DMI analysis (range-trade defined as ADX line <25), trend support/resistance computed using Trender algorithm, Bollinger bands computed on 30-period window, RSI computed on 14-period window (oversold defined as <30, overbought defined as >70) Source: Bloomberg 2 8 August 20

3 Deviation (stdev) eur FX Market Update Short-term financial models Spot deviations from model estimate Today 1W ago 2W ago Spot above model Spot below model Spot deviations from model estimate Spot Model Signal Deviation (%) Deviation (stdev) EUR/USD % 0.5 EUR/JPY Oversold -2.9% -1.7 USD/JPY Very oversold -7.6% -3.0 EUR/GBP % -0.6 EUR/CHF Oversold -0.9% -1.2 EUR/SEK Overbought 1.2% 1.1 EUR/NOK % 0.9 AUD/USD % 0.5 USD/CAD NZD/USD Oversold -3.0% -1.6 NOK/SEK % 0.3 EUR/PLN % -1.0 EUR/CZK % -0.8 AUD/NZD Overbought 1.1 USD/SEK % 0.0 USD/NOK % 0.0 GBP/USD % 0.2 AUD/CAD % 0.8 Note: Linear regression models using a 200-day rolling estimation window. 2Y swap spread is included only when spot beta is positive. Short-term financial models are partial models, implying that there is no built-in consistency between, e.g., EUR/NOK, EUR/SEK and NOK/SEK models Source: Bloomberg, Danske Bank Markets calculations 3 8 August 20

4 EUR/USD (Model estimate: 1.324) EUR/USD model contributions EUR/USD EUR/USD % Nov Dec Jan Feb Mar Apr May Jun Jul Aug +/- 2 stdev Model estimate Spot - 2Y swap spread 10Y swap spread Vix Oil European sovereign spread EUR/JPY (Model estimate: 2.50) 115 USD/JPY USD/JPY Jul Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug +/- 2 stdev Model estimate Spot USD/JPY model contributions 4.0% 3.0% 2.0% % 2Y swap spread 10Y swap spread Vix Oil European sovereign spread EUR/GBP (Model estimate: 0.869) EUR/GBP EUR/GBP Feb Mar Apr May Jun Jul Aug Nov Dec Jan +/- 2 stdev Model estimate Spot EUR/GBP model contributions 2.0% - 2Y swap spread 10Y swap spread Vix European sovereign spread EUR/CHF (Model estimate: ) EUR/CHF model contributions EUR/CHF EUR/CHF Nov Dec Jan Feb Mar Apr May Jun Jul Aug +/- 2 stdev Model estimate Spot - 2Y swap spread 10Y swap spread Vix European sovereign spread Note: Linear regression models using a 200-day rolling estimation window. 2Y swap spread is included only when spot beta is positive. Short-term financial models are partial models, implying that there is no built-in consistency between, e.g., EUR/NOK, EUR/SEK and NOK/SEK models Source: Bloomberg, Danske Bank Markets calculations 4 8 August 20

5 EUR/SEK (Model estimate: 8.576) 9.2 EUR/SEK EUR/SEK Nov Dec Jan +/- 2 stdev Model estimate Spot Feb Mar Apr May Jun Jul Aug EUR/SEK model contributions - 2Y swap spread 10Y swap spread Vix European sovereign spread EUR/NOK (Model estimate: 7.831) 8.1 EUR/NOK Jun Jul Aug Sep Oct Nov Dec Jan +/- 2 stdev Model estimate Spot 8.1 EUR/NOK Feb Mar Apr May Jun Jul Aug EUR/NOK model contributions % 2Y swap spread 10Y swap spread Vix Oil European sovereign spread EUR/JPY (Model estimate: 2.50) EUR/JPY model contributions 150 EUR/JPY 140 EUR/JPY % 3.0% % % 90 Jun Jul Aug Sep Oct Nov Dec Jan +/- 2 stdev Model estimate Spot Feb Mar Apr May Jun Jul Aug % 2Y swap spread 10Y swap spread Vix European sovereign spread GBP/USD (Model estimate: 1.544) GBP/USD model contributions GBP/USD GBP/USD Nov Dec Jan Feb Mar Apr May Jun Jul Aug +/- 2 stdev Model estimate GBP/USD 2.0% % 2Y swap spread 10Y swap spread Vix European sovereign spread Note: Linear regression models using a 200-day rolling estimation window. 2Y swap spread is included only when spot beta is positive. Short-term financial models are partial models, implying that there is no built-in consistency between, e.g., EUR/NOK, EUR/SEK and NOK/SEK models Source: Bloomberg, Danske Bank Markets calculations 5 8 August 20

6 USD/CAD (Model estimate: 1.031) USD/CAD model contributions USD/CAD USD/CAD Feb Mar Apr May Jun Jul Aug Nov Dec Jan +/- 2 stdev Model estimate Spot Y swap spread 10Y swap spread Vix Oil AUD/USD (Model estimate: 0.899) AUD/USD model contributions AUD/USD AUD/USD Nov Dec Jan Feb Mar Apr May Jun Jul Aug +/- 2 stdev Model estimate Spot 2.0% % -3.0% -4.0% 2Y swap spread 10Y swap spread Vix Oil NZD/USD (Model estimate: 0.822) NZD/USD model contributions NZD/USD NZD/USD Feb Mar Apr May Jun Jul Aug Nov Dec Jan +/- 2 stdev Model estimate Spot % % -3.0% -4.0% 2Y swap spread 10Y swap spread Vix Oil EUR/PLN (Model estimate: 4.281) 4.7 EUR/PLN EUR/PLN Feb May Aug Nov Feb May Aug Nov 11 +/- 2 stdev Model estimate Spot Feb May Aug EUR/PLN model contributions 2.0% - 2Y swap spread 10Y swap spread Vix European sovereign spread Note: Linear regression models using a 200-day rolling estimation window. 2Y swap spread is included only when spot beta is positive. Short term financial models are partial models, implying that there is no built-in consistency between, e.g. EUR/NOK, EUR/SEK and NOK/SEK models Source: Bloomberg, Danske Bank Markets calculations 6 8 August 20

7 Volatility overview Current implied volatilities, one-week changes and actual volatilities 1W imp./chg. Act. / Spr. Z-scr. imp./chg. Act. / Spr. Z-scr. 3M imp./chg. Act. / Spr. Z-scr. 1Y imp./chg. Act. / Spr. Z-scr. -1Y slope/z-scr. EUR/USD 7.2% 7.1% % 9.1% % 8.6% % 8.2% EUR/JPY % % 10.9% %.5% %.6% USD/JPY.6%.6% % % 14.6% % 11.3% GBP/USD 8.0% % 9.5% % 8.8% % 7.2% EUR/GBP 7.2% 8.3% % 6.9% % 7.0% % 7.4% EUR/CHF 4.3% 4.5% % 4.4% % 6.6% % 5.3% EUR/SEK 7.6% 6.7% % % 9.1% % 7.8% EUR/NOK 7.7% 6.7% % 8.1% % 9.4% % EUR/AUD % % 11.7% %.6% % 9.6% EUR/NZD 10.8% %.7% %.6% % 10.8% EUR/CAD 7.3% 6.6% % 7.2% % 8.5% % 8.1% EUR/PLN 6.8% 5.2% % 7.1% % 9.2% % 7.9% EUR/CZK 6.2% 4.6% % 5.2% % 6.5% % 6.3% EUR/TRY 6.8% 6.6% % 8.7% % 10.5% % 7.9% EUR/RUB 7.6% 6.3% % 8.2% % 8.8% % USD/CHF 8.6% 9.1% % 10.5% % 11.5% % 8.8% USD/SEK 9.6% 10.4% %.7% %.6% % 10.7% USD/NOK 9.6% 9.7% %.6% %.8% % 10.3% AUD/USD 11.5%.4% % % 14.7% % 9.8% NZD/USD 11.2% 15.2% % % 15.5% % 11.1% USD/CAD 7.3% 6.3% % 7.4% % 8.4% % NOK/SEK 6.9% % 8.1% % 8.9% % USD/ZAR.4% 14.6% % % 18.7% % 14.7% EUR/HUF 7.7% 5.7% % 6.9% % 10.2% % 9.8% USD/TRY 7.8% 7.9% % 9.9% % % 7.2% USD/RUB 7.9% 8.3% % 7.6% % 8.4% % volatilities (pct.'ile) EUR/USD 7.4% EUR/JPY 10.9% USD/JPY.2% GBP/USD 7.6% EUR/GBP 6.5% EUR/CHF 4.3% EUR/SEK EUR/NOK 7.3% EUR/AUD 10.5% EUR/NZD 10.6% EUR/CAD 7.3% EUR/PLN 6.8% EUR/CZK 6.0% EUR/TRY 8.1% EUR/RUB 7.9% USD/CHF 8.8% USD/SEK 10.1% USD/NOK 10.1% AUD/USD 1 NZD/USD 1 USD/CAD 7.2% NOK/SEK 6.8% USD/ZAR.9% EUR/HUF 7.9% USD/TRY 8.8% USD/RUB 8.0% 0% 5% 20% 25% 3M volatilities 7.9% 11.6%.4% 7.8% 6.7% 4.7% 7.4% 7.4% 10.5% 10.9% 7.6% 7.4% 6.0% 9.1% 8.4% 9.2% 10.4% 10.5% 11.2% 11.5% 7.3% 6.5% 14.8% 8.9% 9.8% 8.6% 0% 5% 20% 1Y interval Now Average 1W ago 1Y volatilities 8.6%.6%.1% 8.1% 7.1% 5.2% 7.2% 7.2% 10.1% 10.6% 8.0% 8.8% 6.3% 11.1% 9.6% 9.5% 10.8% 10.6% 10.9% 11.5% 6.3% 16.0% 10.2% 11.6% 0% 5% 20% Note: The table shows current levels of ATM implied volatilities, historical volatilities and the Z-score on the spread calculated using one year of observations. The last column shows the slope of the implied volatility term structure and a Z-score calculated using one year of observations. The chart shows current levels of, 3M and 1Y ATM implied volatilities, the level one week ago, the average level of the past year and the 1Y interval. Source: Bloomberg, Danske Bank Markets calculations 7 8 August 20

8 G10 and EM implied volatility cones EUR/USD 1W 3M M 22.5% USD/JPY W 3M M 2 EUR/JPY 1 1 1W 3M M EUR/GBP GBP/USD EUR/CHF 2.5% 1W 3M M 2.5% 1W 3M M 1W 3M M EUR/SEK 1W 3M M EUR/NOK 2.5% 1W 3M M 2 AUD/USD % 1W 3M M 2 NZD/USD 1 1 1W 3M M USD/CAD 2.5% 1W 3M M 1 EUR/PLN 1W 3M M EUR/CZK 2.5% 1W 3M M 1 EUR/RUB 2.5% 1W 3M M 2 USD/ZAR 22.5% W 3M M 1 EUR/HUF 1W 3M M 1 USD/TRY 1 2.5% 1W 3M M 1 USD/RUB 1W 3M M Note: The volatility cones show ATM implied volatilities for G10 and EM currency pairs Source: Bloomberg, Danske Bank Markets 8 8 August 20

9 G10 and EM implied volatility surfaces EUR/USD 1 USD/JPY 20% EUR/JPY 1 5% EUR/GBP GBP/USD EUR/CHF 5% 5% 0% EUR/SEK EUR/NOK 20% AUD/USD 5% 20% NZD/USD USD/CAD EUR/PLN 5% 5% EUR/CZK EUR/RUB 30% USD/ZAR 25% 20% 5% 5% 20% EUR/HUF 25% USD/TRY 20% USD/RUB 20% 5% 5% 5% Note: The chart shows the implied volatility surface for G10 and EM currency pairs. Data is based on midprices and is indicative only. The data is shown for maturities of one and six months for various moneyness. Put deltas are denoted xp, while call deltas are denoted xc Source: Danske Bank Markets 9 8 August 20

10 Range trading monitor Ranking of range trade candidates # FX 1 week strategies Actual range Delta-neutral straddle Ratio* ADX** # FX Actual range 1 month strategies 3 month strategies Delta-neutral Ratio* ADX** # FX Actual straddle range Delta-neutral straddle Ratio* ADX** 1 USD/RUB 36 pips 2880 pips EUR/JPY 472 pips 336 pips CHF/JPY 536 pips 434 pips EUR/RUB 4724 pips 3687 pips EUR/GBP 195 pips 5 pips GBP/JPY 966 pips 667 pips EUR/NOK 849 pips 657 pips EUR/CHF 198 pips 7 pips EUR/JPY 883 pips 598 pips W range trade no. 1- USD/RUB /07 09/07 14/07 19/07 24/07 29/07 03/08 08/08 /08 1W range trade no. 2 EUR/RUB /07 09/07 14/07 19/07 24/07 29/07 03/08 08/08 /08 range trade no. 1 EUR/JPY /04 18/05 18/06 18/07 18/08 range trade no. 2 EUR/GBP /04 18/05 18/06 18/07 18/08 3M range trade no. 1 CHF/JPY /11 28/02 31/05 31/08 3M range trade no. 2 GBP/JPY /11 29/01 29/03 29/05 29/07 29/09 Notes: Range trades are ranked by the realised range relative to the pay-off received by selling a straddle, with the strike set at-the-money (DNS convention).*a ratio below 1 implies that the historically realised range is smaller than the break-even range.**adx provides a measure of the strength of the trend in a given currency pair. Generally, a value above 25 characterises a pair that is trending. The bands in the charts show breakeven levels. Indicative prices and levels Source: Bloomberg, Danske Bank Markets calculations 10 8 August 20

11 Option market positioning and skew valuation 25-delta risk reversals (z-scores, vol adjusted) 1W chg 0.15 EUR/PLN 0.02 EUR/USD 0.25 AUD/USD EUR/TRY EUR/NOK EUR/SEK 0.37 NZD/USD EUR/GBP USD/JPY USD/CAD 0.01 EUR/CHF Cheap Rich 25-delta risk reversals (z-scores, vol adjusted) Cheap Rich # Currency Z-score RR 1W chg # Currency Z-score RR 1W chg 1 TRY/JPY USD/CHF AUD/NZD CAD/CHF CHF/SEK EUR/CHF CAD/JPY GBP/CHF NOK/CHF NZD/CHF AUD/JPY NZD/CAD CHF/TRY USD/CAD EUR/PLN EUR/JPY EUR/USD GBP/JPY PLN/CHF EUR/CAD Risk reversals explained by currency spot betas to equities Valuation signals from simple comparison with equity betas 'RR sign' = 'Risk beta sign' Residuals (simple model) # Currency Risk beta RR (adj) RR # Currency Residual RR (adj) RR 1 TRYNOK cheap 1 USDTRY rich 2 AUDNOK cheap 2 TRYNOK cheap 3 TRYSEK cheap 3 EURTRY rich 4 CADCHF rich 4 GBPTRY rich 5 AUDSEK cheap 5 AUDJPY cheap 6 AUDCAD cheap 6 AUDNOK cheap 7 GBPCAD cheap 7 AUDCAD cheap 8 EURTRY rich 8 TRYJPY cheap 9 EURCHF rich 9 TRYSEK cheap 10 EURGBP rich 10 EURAUD rich EUR/USD 25-delta risk reversal USD/JPY 25-delta risk reversal 2 1 Calls more expensive than puts = +/- 2 std dev Calls more expensive than puts Puts more expensive than calls -3 Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- -2 = +/- 2 std dev Puts more expensive than calls Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Note: Z-scores are computed using maximum available data and on risk reversals divided by ATM volatility. Spot beta to equities ( risk beta ) is the beta coefficient from a linear regression of weekly spot returns on weekly returns on the S&P500 equity index using a 1Y estimation window. Red broken lines in RR charts indicate the +/- 2 std dev band (computed on a volatility adjusted basis) Source: Bloomberg (synthetic risk reversal quotes are used for non-standard currency pairs), Danske Bank Markets calculations 11 8 August 20

12 EUR/GBP 25-delta risk reversal EUR/CHF 25-delta risk reversal 1.5 Calls more expensive than puts 3 Calls more expensive than puts = +/- 2 std dev 1.0 = +/- 2 std dev Puts more expensive than calls Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- -2 Puts more expensive than calls Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- EUR/SEK 25-delta risk reversal EUR/NOK 25-delta risk reversal 2 Calls more expensive than puts 2 Calls more expensive than puts = +/- 2 std dev 1 = +/- 2 std dev Puts more expensive than calls Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- -1 Puts more expensive than calls Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- USD/CAD 25-delta risk reversal AUD/USD 25-delta risk reversal 2 Calls more expensive than puts = +/- 2 std dev 1 Calls more expensive than puts 0 = +/- 2 std dev Puts more expensive than calls Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- -4 Puts more expensive than calls Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- NZD/USD 25-delta risk reversal EM 25-delta risk reversal 1 Calls more expensive than puts 3 Calls more expensive than puts 0 2 EUR/PLN -1-2 = +/- 2 std dev 1 0 EUR/TRY Puts more expensive than calls -3 Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- -1 Puts more expensive than calls Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Source: Bloomberg (synthetic risk reversal quotes are used for non-standard currency pairs), Danske Bank Markets calculations 8 August 20

13 Carry monitor Carry overview (against EUR) Carry in forward market (annualized) Carry-to-risk (carry / ATM volatility) 1W 3M 1Y 1W 3M 1Y EUR USD 0.1% 0.1% 0.1% 0.2% USD JPY JPY GBP 0.4% 0.4% 0.4% 0.4% GBP CHF -0.2% -0.2% -0.2% -0.3% CHF SEK 0.9% 0.9% 0.9% SEK NOK 1.4% 1.5% 1.5% 1.4% NOK AUD 2.4% 2.6% 2.5% 2.4% AUD NZD 2.6% 2.7% 2.7% 3.0% NZD CAD 0.9% 1.1% CAD DKK -0.2% -0.3% -0.3% -0.2% DKK n/a n/a n/a n/a PLN 2.3% 2.4% 2.3% 2.3% PLN TRY 6.7% 7.0% 7.1% 7.6% TRY MXN 3.4% 3.5% 3.4% 3.4% MXN ZAR 5.2% 5.4% 5.4% 5.7% ZAR Top 10 carry currency pairs () Currency pair Carry-to-risk Carry 1 TRY/EUR % 2 TRY/USD % 3 PLN/EUR % 4 NZD/EUR % 5 NZD/CHF % 6 AUD/CHF % 7 AUD/EUR % 8 NZD/USD % 9 AUD/USD % 10 NZD/GBP % Top 10 carry currency pairs (3M) Currency pair Carry-to-risk Carry 1 TRY/EUR % 2 TRY/USD % 3 PLN/EUR % 4 NZD/CHF % 5 NZD/EUR % 6 AUD/CHF % 7 AUD/EUR % 8 NZD/USD % 9 AUD/USD % 10 NZD/GBP % G10 carry index (total return) G10 carry index (average deviation from PPP) Source: Bloomberg, Danske Bank Markets calculations 8 August 20

14 Correlation monitor Correlation monitor current levels (52-week window) and 10-week changes (arrows) Highest correlation with MSCI wld. Highest correlation with 2Y swap spr. Highest correlation with crude oil # FX Corr. (10w chg.) Beta 1 USDRUB -66% -0.53* 2 JPYRUB -55% -0.62* 3 CHFPLN -54% -0.35* 4 USDCAD -50% -0.28* 5 USDPLN -49% -0.52* 6 USDNOK -49% -0.45* 7 GBPRUB -46% -0.36* 8 USDSEK -46% -0.39* 9 JPYPLN -45% -0.6* 10 CHFRUB -45% -0.37* # FX Corr. (10w chg.) Beta 1 EURNOK 48% 0.11* 2 USDNOK 47% 0.17* 3 EURZAR -43% -0.08* 4 CHFZAR -37% -0.06* 5 GBPZAR -37% -0.06* 6 SEKHUF 35% 0.04* 7 CADZAR -35% -0.06* 8 USDCAD 35% 0.07* 9 GBPCAD -33% -0.08* 10 EURSEK 32% 0.08* # FX Corr. (10w chg.) Beta 1 USDCAD -38% -0.14* 2 USDRUB -37% -0.19* 3 EURRUB -31% -0.15* 4 CHFRUB -30% -0.16* 5 AUDRUB -30% -0.15* 6 NZDRUB -29% -0.15* 7 CHFCZK -28% -0.11* 8 EURCZK -27% -0.08* 9 CADCHF 27% 0.* 10 CHFHUF -26% EUR/USD correlations USD/JPY correlations EUR/GBP correlations 1 Aluminium 55% 0.23* 2 EURGBP 54% 0.64* 3 USDCAD -51% -0.64* 4 NZDUSD 47% 0.37* 5 USDTRY -47% -0.53* 6 Copper 46% 0.25* 7 Zinc 46% 0.2* 8 Gold 42% 0.19* 9 Global equit. 39% 0.28* 10 Itraxx -38% -0.07* 1 Jap. equit. 65% 0.33* 2 Rel. equit. -63% -0.37* 3 Gold -49% -0.3* 4 US10YGOV 42% 0.06* 5 US10YSWP 42% 0.06* 6 USDCAD 36% 0.62* 7 US2YSWP 36% 0.17* 8 US2YGOV 35% 0.2* 9 G10 Carry 33% 0.54* 10 2Y swp. spr. 31% 0.14* 1 EURUSD 54% 0.46* 2 US10YGOV 30% 0.03* 3 USDJPY 30% 0.19* 4 Aluminium 28% 0.1* 5 Itraxx -28% -0.04* 6 US10YSWP 26% Zinc 24% Y swp. spr. -21% EURPLN -21% Copper 20% 0.09 Notes: Correlations and betas are calculated using a rolling window of 52 weeks. Arrows denote the change in correlation over the past 10 weeks. Significant betas (at 95% confidence level) are denoted by an asterisk Source: Bloomberg, Danske Bank Markets calculations 14 8 August 20

15 EUR/CHF correlations EUR/SEK correlations EUR/NOK correlations 1 G10 Carry -40% -0.44* 2 AUDUSD -30% -0.25* 3 USDTRY 30% 0.31* 4 Aluminium 23% Zinc 23% NZDUSD -22% Y swp. spr -21% EURUSD 20% US equit. -20% US10YGOV 19% EURNOK 66% 0.54* 2 10Y swp. spr 33% 0.07* 3 2Y swp. spr. 32% 0.08* 4 FX volatility -25% Aluminium 18% Zinc 17% EURGBP 17% GR10YGOV NZDUSD EURCHF EURSEK 66% 0.8* 2 2Y swp. spr. 48% 0.11* 3 2Y10Y spr. -40% -0.11* 4 Aluminium 35% 0.09* 5 Zinc 24% Copper 22% Y swp. spr 16% IT10YGOV -16% IT10YGOV -16% Crude oil 16% 0.05 USD/SEK correlations USD/NOK correlations NOK/SEK correlations 1 EURUSD -67% -0.82* 2 USDTRY 62% 0.84* 3 EURCHF 59% 0.78* 4 NZDUSD -56% -0.54* 5 AUDUSD -54% -0.6* 6 USDCAD 52% 0.79* 7 Global equit. -46% -0.39* 8 Gold -41% -0.22* 9 Ger. equit. -41% -0.25* 10 Itraxx 38% 0.08* 1 EURUSD -73% -0.95* 2 USDTRY 71% 1.05* 3 USDCAD 64% 1.04* 4 US2YSWP 51% 0.23* 5 Gold -51% -0.3* 6 Global equit. -49% -0.45* 7 Ger. equit. -49% -0.32* 8 NZDUSD -47% -0.49* 9 Itraxx 47% 0.11* 10 2Y swp. spr. 47% 0.17* 1 EURCHF 46% 0.39* 2 US2YSWP -39% -0.1* 3 US2YGOV -35% -0.11* 4 US10YSWP -33% -0.03* 5 EURPLN -27% USDCAD -26% US10YGOV -25% Aluminium 24% USDTRY -23% GR10YGOV -23% 0 AUD/USD correlations NZD/USD correlations USD/CAD correlations 1 NZDUSD 86% 0.75* 2 G10 Carry 67% 0.89* 3 USDTRY -57% -0.7* 4 USDCAD -55% -0.76* 5 Gold 47% 0.23* 6 FX volatility -40% -0.* 7 US2YSWP -40% -0.15* 8 EURUSD 38% 0.41* 9 EURCHF -30% -0.37* 10 Global equit. 29% 0.23* 1 AUDUSD 86% 0.98* 2 G10 Carry 65% 0.98* 3 USDTRY -64% -0.91* 4 USDCAD -60% -0.95* 5 EURUSD 47% 0.59* 6 FX volatility -46% -0.15* 7 US2YSWP -46% -0.2* 8 Gold 43% 0.24* 9 EURPLN -34% -0.54* 10 US2YGOV -34% -0.18* 1 Gold -61% -0.22* 2 NZDUSD -60% -0.38* 3 USDTRY 56% 0.5* 4 AUDUSD -55% -0.4* 5 Copper -55% -0.23* 6 EURUSD -51% -0.4* 7 Global equit. -50% -0.28* 8 US2YSWP 45% 0.* 9 US equit. -44% -0.26* 10 FX volatility 43% 0.09* EUR/CZK correlations EUR/RUB correlations EUR/PLN correlations 1 Aluminium -36% -0.09* 2 Itraxx 35% 0.04* 3 Copper -33% -0.11* 4 EURUSD -31% -0.19* 5 Global equit. -28% -0.* 6 EURPLN 28% 0.22* 7 US10YGOV -28% -0.02* 8 Crude oil -27% -0.08* 9 Ger. equit. -27% -0.09* 10 Zinc -26% G10 Carry -42% -0.52* 2 Global equit. -38% -0.27* 3 Ger. equit. -37% -0.19* 4 Jap. equit. -35% -0.* 5 US equit. -35% -0.27* 6 EURUSD 35% 0.35* 7 EURCHF 34% 0.38* 8 Crude oil -31% -0.15* 9 Copper -28% -0.15* 10 VIX 26% 0 1 Itraxx 50% 0.07* 2 USDTRY 45% 0.4* 3 Global equit. -44% -0.25* 4 FX volatility 38% 0.08* 5 EURUSD -38% -0.3* 6 US equit. -36% -0.21* 7 USDCAD 35% 0.35* 8 US2YSWP 34% 0.1* 9 NZDUSD -34% -0.22* 10 G10 Carry -33% -0.32* EUR/HUF correlations USD/TRY correlations USD/ZAR correlations 1 EURPLN 44% 0.58* 2 USDTRY 43% 0.52* 3 US2YSWP 40% 0.15* 4 Copper -35% -0.2* 5 USDCAD 33% 0.44* 6 NZDUSD -31% -0.26* 7 Global equit. -29% -0.22* 8 US equit. -28% -0.22* 9 G10 Carry -27% -0.34* 10 GR10YGOV 25% 0 1 NZDUSD -64% -0.45* 2 US2YSWP 64% 0.2* 3 AUDUSD -57% -0.46* 4 USDCAD 56% 0.63* 5 US2YGOV 53% 0.2* 6 US10YSWP 52% 0.05* 7 G10 Carry -50% -0.53* 8 EURUSD -47% -0.41* 9 US10YGOV 46% 0.04* 10 EURPLN 45% 0.5* Notes: Correlations and betas are calculated using a rolling window of 52 weeks. Arrows denote the change in correlation over the past 10 weeks. Significant betas (at 95% confidence level) are denoted by an asterisk. Source: Bloomberg, Danske Bank Markets calculations 1 USDTRY 51% 0.96* 2 NZDUSD -50% -0.67* 3 AUDUSD -48% -0.73* 4 US2YSWP 47% 0.27* 5 USDCAD 39% 0.82* 6 G10 Carry -37% -0.75* 7 US2YGOV 37% 0.26* 8 EURCHF 34% 0.62* 9 FX volatility 33% 0.14* 10 GR10YGOV 32% 0.01* 15 8 August 20

16 Danske 3M forecast vs. consensus FX Market Update Forecasts and market pricing Danske Bank Markets FX forecasts Forecast Forecast vs spot, % change Forecast vs forward outright, % Spot +1m +3m +6m +m +1m +3m +6m +m +1m +3m +6m +m Exchange rates vs EUR USD % -4.1% -4.9% -6.4% -3.4% -4.2% % JPY % 4.9% 7.2% 2.6% 4.9% 7.2% GBP % 2.1% 2.1% 0.9% 0.9% 2.0% 1.9% 0.6% CHF % 0.9% 0.9% 0.9% 0.9% 1.2% DKK % 0.1% 0.2% 0.2% NOK % -2.2% -4.1% -4.8% 0.2% -2.6% -4.9% -6.1% SEK % -3.2% -4.4% -5.5% -2.2% -3.5% -4.8% -6.5% Exchange rates vs USD CAD % 7.0% 4.9% 4.8% 9.8% 10.3% AUD % -2.8% -6.1% -11.7% -0.4% -2.3% -5.6% -9.7% NZD % -4.6% -5.8% -9.6% -3.1% -4.0% -5.2% -7.1% Note: AUD and NZD are denominated in local currency rather than USD Danske Bank forecasts vs forwards and consensus 6% EUR/USD 1.50 EUR/USD 4% 2% USDTRY EURGBPEURPLN 0% EURUSD EURNOK EURJPY EURCHF EURSEK USDCAD -2% NZDUSD AUDUSD -4% -4% -2% 0% 2% 4% Danske 3M forecast vs. forward EUR/USD 3M M Forecast (pct'ile) 1.29 (7%) 1.28 (14%) 1.27 (17%) 1.25 (20%) Fwd. / Consensus 1.34 / / / / % confidence int / / / / % confidence int / / / / 1.46 USD/JPY USD/JPY EUR/GBP 0.95 EUR/GBP USD/JPY 3M M Forecast (pct'ile) (91%) (88%) (89%) (89%) Fwd. / Consensus / / / / % confidence int / / / / % confidence int / / / / EUR/GBP 3M M Forecast (pct'ile) 0.87 (70%) 0.88 (75%) 0.88 (69%) 0.87 (57%) Fwd. / Consensus 0.86 / / / / % confidence int / / / / % confidence int / / / / 0.93 EUR/CHF EUR/SEK 1.30 EUR/CHF 9.50 EUR/SEK EUR/CHF 3M M Forecast (pct'ile) 1.24 (82%) 1.24 (75%) 1.24 (71%) 1.24 (67%) Fwd. / Consensus 1.23 / / / / % confidence int / / / / % confidence int / / / / 1.29 Note: The cone charts show confidence regions derived from option market prices. Source: Bloomberg and Danske Bank Markets calculations EUR/SEK 3M M Forecast (pct'ile) 8.50 (16%) 8.40 (16%) 8.30 (16%) 8.20 (17%) Fwd. / Consensus 8.69 / / / / % confidence int / / / / % confidence int / / / / August 20

17 EUR/NOK 8.75 EUR/NOK AUD/USD 1.10 AUD/USD EUR/NOK 3M M Forecast (pct'ile) 7.90 (57%) 7.70 (24%) 7.55 (17%) 7.50 (19%) Fwd. / Consensus 7.89 / / / / % confidence int / / / / % confidence int / / / / 8.61 AUD/USD 3M M Forecast (pct'ile) 0.90 (40%) 0.88 (29%) 0.85 (22%) 0.80 (17%) Fwd. / Consensus 0.90 / / / / % confidence int / / / / % confidence int / / / / 0.98 NZD/USD USD/CAD 0.90 NZD/USD 1.15 USD/CAD NZD/USD 3M M Forecast (pct'ile) 0.77 (16%) 0.76 (22%) 0.75 (24%) 0.72 (23%) Fwd. / Consensus 0.79 / / / / % confidence int / / / / % confidence int / / / / 0.87 USD/CAD 3M M Forecast (pct'ile) 1.05 (69%) 1.05 (63%) 1.06 (68%) 1.07 (68%) Fwd. / Consensus 1.04 / / / / % confidence int / / / / % confidence int / / / / 1. EUR/JPY 150 EUR/JPY GBP/USD 1.70 GBP/USD EUR/JPY 3M M Forecast (pct'ile) 0.00 (63%) 2.00 (68%) 5.00 (73%) 8.00 (73%) Fwd. / Consensus 8.43 / / / / % confidence int / / / / % confidence int / / / / GBP/USD 3M M Forecast (pct'ile) 1.48 (4%) 1.45 (7%) 1.44 (11%) 1.44 (18%) Fwd. / Consensus 1.55 / / / / % confidence int / / / / % confidence int / / / / 1.68 EUR/PLN 4.80 EUR/PLN USD/TRY 2.30 USD/TRY EUR/PLN 3M M Forecast (pct'ile) 4.32 (89%) 4.35 (82%) 4.38 (78%) 4.40 (71%) Fwd. / Consensus 4.21 / / / / % confidence int / / / / % confidence int. 4. / / / / 4.65 Note: The cone charts show confidence regions derived from option market prices. Source: Bloomberg, Danske Bank Markets calculations USD/TRY 3M M Forecast (pct'ile) 1.96 (74%) 1.96 (62%) 2.00 (65%) 2.04 (61%) Fwd. / Consensus 1.94 / / / / % confidence int / / / / 2. 75% confidence int / / / / August 20

18 Central bank overview ECB market pricing 1.00% 0.80% 0.60% 0.40% 0.50% 0.20% EUR/OIS forward market % Aug Dec Apr 14 Aug 14 Dec 14 Apr 15 Aug 15 Dec 15 ECB dates EONIA, current Refi rate Fed market pricing 1.40% 1.20% 1.00% 0.80% 0.60% USD/OIS forward market 0.40% 0.09% % 0.20% % Jul Nov Mar 14 Jul 14 Nov 14 Mar 15 Jul 15 Nov 15 Fed dates USD OIS Fed funds target BoE market pricing % 0.90% 0.80% 0.70% 0.60% 0.50% 0.50% 0.43% % 0.30% 0.20% Sep 20 Jan 2014 May 2014 Sep 2014 BoE dates SONIA Jan 2015 Bank rate May 2015 Sep Jan 2016 Riksbank market pricing 2.00% 1.80% 1.60% 1.40% 1.20% 1.04% % 0.80% Jul 1.00% Dec May Oct 2014 Riksbank dates STINA Mar Aug 2015 Repo rate Jan 2016 Note: The charts show the cumulated market pricing of rate changes on meeting dates Source: Danske Bank Markets 18 8 August 20

19 FX trade overview FX trade recommendations Open FX Trades Type Trade Idea Target & P/L* Option Option Option Enter USD/JPY risk reversal Sell 1Y EUR/USD call spread Short EUR/SEK via Seagull Open FX Trades We expect further JPY weakness to materialize and recommend entering a new USD/JPY risk reversal at zero costs (sell putand buy call). The strategy utilizes the significant correction lower in the option skew into negative territory. and Danske extends Bank: maturity Sell 1Y EUR/USD on our long call spread 91) We recommend selling a 1Y EUR/USD call spread for an indicative premium of USD 590 pips (spot ref ) to position for medium-term downside. Danske Bank: Enter short EUR/SEK position through costneutral seagull We recommend entering a EUR/SEK seagull to position for short/medium-term downside. Opened 22/03/20 Start Target/Stop n/a Now P/L 0.58% Opened 08/07/20 Start 4.59% Target/Stop n/a Now -5.90% P/L -1.31% Opened 31/07/20 Start 0.00% Target/Stop n/a Now -0.19% P/L -0.19% Closed FX Trades Closed FX Trades # Type Trade Opened Level Closed Level P/L 1 Option USD/JPY Seagull 15/08/ /02/ % 2 Option -3M EUR/SEK call calendar spread 02/10/ /01/ % 3 Spot Buy RUB, AUD, NOK versus USD 19/09/ /04/ % 4 Spot Buy EUR/CZK 05/11/ /04/ % 5 Spot Buy MXN/JPY spot 04/04/ /04/ % 6 Spot Sell CHF/NOK 22/03/ /04/ % 7 Option Sell 3M EUR/CHF put spread 28/02/ /04/ % 8 Option Enter AUD/USD seagull 16/05/ /06/ % 9 Option Sell GBP/SEK spot 22/04/ /06/ % 10 Option Sell 2W CHF/JPY straddle 28/05/ /06/ % 11 Option Enter 3M GBP/CAD call spread 22/03/ /06/ % Spot Long USD vs. Short EUR, JPY, GBP, CHF 02/08/ /08/ % FX Trades 20 Overview FX Trade Performance 20 # Cum Return Avg Return Avg Days Open Profitable % 1.7% 167 days Loss-Making % -1.8% 52 days All Trades % 0.3% 1 days Source: Danske Bank Markets FX Top Trades 20 Open FX Top Trades Open FX Top Trades Type Trade Idea Target & P/L* Spot Long TRY, MXN, HUF vs. Short USD Buy equally weighted carry basket (Long TRY, MXN, HUF vs. Short USD) spot at index 100 for a 110 target; stop at 95.This basket yields an indicative carry of close to 4%. Opened 05//20 Start Target/Stop 110 / 95 Now P/L -0.64% Closed FX Top Trades Closed FX Top Trades # Type Trade Opened Level Closed Level P/L 1 Option Bearish JPY/SEK risk reversal 05// /01/ % 2 Spot Sell GBP/NOK 05// /01/ % 3 Spot Buy EUR/CHF 05// /01/ % 4 Spot Sell USD/CAD 05// /01/ % 5 Spot Sell USD/SGD 05// /03/ % 6 Option USD/JPY option strategy 05// /03/ % 7 Spot Buy RUB/CZK 05// /04/ % 8 Option EUR/USD butterfly 05// /06/ % 9 Forward Sell USD/CNH Forward 05// /07/ % FX Top Trades 20 Overview FX Top Trades 20 # Cum Return Avg Return Avg Days Open Profitable % 4.6% 100 days Loss-Making 4-6.2% -1.6% 141 days All Trades % 2.1% 117 days Source: Danske Bank Markets 19 8 August 20

20 FX and Commodities Research Arne Lohmann Rasmussen Head of FX Research NOK, SEK, DKK Kasper Kirkegaard Senior Analyst G Stefan Mellin Senior Analyst SEK mell@danskebank.se Morten Helt Senior Analyst G mohel@danskebank.dk Christin Kyrme Tuxen Senior Analyst Commodities tux@danskebank.dk 20 8 August 20

21 Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). The authors of this research report are Morten Helt, Senior Analyst, and Kristoffer Lomholt, Assistant Analyst. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors on request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Date of first publication See the front page of this research report for the date of first publication. General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) ( Relevant Financial Instruments ). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report. This research report is not intended for retail customers in the United Kingdom or the United States August 20

22 This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank s prior written consent. Disclaimer related to distribution in the United States This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for distribution in the United States solely to U.S. institutional investors as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely to U.S. institutional investors. Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not registered or qualified as research analysts with the NYSE or FINRA but satisfy the applicable requirements of a non-u.s. jurisdiction. Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non- U.S. financial instruments may entail certain risks. Financial instruments of non-u.s. issuers may not be registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S. Securities and Exchange Commission August 20