MTFX ANALYTICS OCTOBER 2012 CURRENCY FORECAST

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1 MTFX ANALYTICS OCTOBER 2012 CURRENCY FORECAST Foreign Exchange & Global Payments

2 MONTHLY CURRENCY FORECAST CHART GBP/USD EXCHANGE RATES SEP Avg OCT f 2012 Q4 f USD/CAD EUR/USD GBP/USD

3 USD / CAD Central bank action from the United States and Europe in September has forced analysts to re-think the valuation on different currency pairs in the near term. A new round of open-ended stimulus was announced by the US Federal Reserve (dubbed QE3) and the European Central Bank announced a bond buying program to boost the ailing EU economies. These monetary policy actions created a risk-on environment which weakened the US Dollar to record lows of However, come October, the US Dollar is entering bullish territory once again on renewed concerns from Europe, weak economic reports from China and disappointing Canadian data. The US Dollar In A Post QE3 World On September 13th, the US Federal Reserve said it will expand its holdings of longterm securities with open-ended purchases of USD 40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment. The US Fed also said it would probably hold the federal funds rate near 0% at least through mid Since January, the Fed had said the rate was likely to stay low at least through late The Fed said a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. The impact of injecting USD 40 billion into the economy each month is a US Dollar negative on a long-term basis. However, the USD is also regarded as a popular safehaven currency which investors flock to during times of uncertainty. In October, we expect the US Dollar to gain ground during such periods of risk-aversion but to trade with an underlying weak theme. Bank of Canada & Monetary Policy On the Canadian side, the fundamental story is mixed. The Bank of Canada (BOC) stands out as the most hawkish of the G20 central banks even as the domestic economy has recently softened as it relies heavily on the US and commodity prices. While the market is in consensus that the BOC will not hike interest rates in October, the rhetoric in its policy statement will be scrutinized for signs of future rate hikes. Analysts are of the opinion that the BOC may soften the language from its August policy statement due to weak global growth, which means the statement an eventual interest rate hike may be watered down. We therefore expect CAD dollar weakness from BOC s monetary policy announcement.

4 USD / CAD Euro Zone Crisis Please refer the EUR/USD section below for a detailed analysis on the ongoing Euro zone debt crisis. In summary, uncertainty from Europe is expected to be a major driver of US Dollar strength in October since it will create a flight to the safe-haven status of the USD. It is these periods of risk aversion that will prevent the USD/CAD from falling beyond and keep the USD/CAD trading on both sides of parity (1 USD = 1 CAD) with an expected high rate of USD/CAD TREND SINCE SEP 1, SEP 1, 2012 Sep 8, 2012 Sep 16, 2012

5 EUR/USD The European economic landscape remains in a constant state of convulsion. Despite a temporary relief in the EUR selloff spree, the underlying structural weakness of the peripheral economies, coupled with the governance challenges facing German and French leaders, should keep the euro (EUR) on the defensive for a prolonged period. ECB s Most Ambitious Plan To Date: The Bond Buying Program] In September, the European Central Bank (ECB) unveiled its most ambitious plan yet to halt Europe's financial crisis with a pledge to buy unlimited amounts of government bonds of countries struggling to manage their debts. Large-scale purchases of short-term government bonds would drive up their price and push down their interest rate, or yield, making it less expensive for countries to borrow money. The new plan goes well beyond the ECB's earlier, limited bond-purchase program, which was not big enough to decisively lower borrowing costs. After the ECB plan dubbed Outright Monetary Transactions or OMT was announced, the yields on government bonds across Europe fell and stock markets rallied. Implications of the ECB Plan for the EUR The EUR has gained more than 5% vs. the US Dollar since the ECB announced its bond buying program. However, cracks are beginning to appear once again in crisis riddled Europe. Analysts are of the opinion that the bond buying program only provides short-term relief to European countries and financial markets but it does not address underlying economic weakness across the region, which could persist for years. EU Economic Problems In October The EUR will face key hurdles in October which will contribute to its devaluation. For example, it is uncertain whether Spain will seek an additional bailout, which it is required to do so under the provisions of the ECB s bond buying program. A confrontation is brewing among Greece's international creditors over who will provide the financing needed to keep the country afloat. A report by international inspectors, due in October, will state how big the funding shortfall is in Greece's bailout program, but European officials say the deficit is far too big for Greece to close on its own. In summary, the EUR is poised to erase the gains seen in September vs. the USD. We expect the EUR/USD to trade between and in October.

6 EUR/USD EUR/USD TREND SINCE SEP 1, SEP 1, 2012 Sep 8, 2012 Sep 16, 2012

7 GBP/USD Despite nagging concerns on the fiscal, economic, and inflation fronts, the pound sterling strengthened through August and September as markets were buoyed by monetary policy action by global central banks. The bullish outlook for the British pound (GBP) has been temporarily damped as the UK struggles to meet its austerity plan and to address the economic contraction. The Bank of England maintains aggressive policy as the UK finds itself highly exposed to the European crisis. To date, GBP has been supported by its triple-a rating, which could come under threat in the coming months. Technical analysis suggests that the GBP is ranging and currently trading above its fair valuation price of against the USD. Despite a weak fundamental back drop, we expect the GBP to fare better than the EUR in October but the British Pound seems to have gotten ahead of itself in the rallies seen recently. GBP/USD upside is expected to be limited at The GBP/USD will find support at GBP/USD TREND SINCE SEP 1, SEP 1, 2012 Sep 8, 2012 Sep 16, 2012

8 MTFX: FOREIGN EXHANGE & GLOBAL PAYMENTS Founded in 1996, MTFX specializes in foreign exchange and global payment solutions for companies. In 2011, MTFX traded over 9 billion dollars in foreign exchange transactions for over 4,000 corporations worldwide th Avenue,Suite 306 Markham, Ontario,L3R 0B6 Quote Line (Tel) (Fax) ( ) info@mtfx.ca This Report is prepared by MTFX Inc. as a resource for the clients of MTFX Inc. and MTFX Global. While the information is from sources believed reliable, neither the information nor the forecast shall be taken as a representation for which MTFX or any of its employees incur any responsibility.

August September 2012 CURRENCY FORECAST

August September 2012 CURRENCY FORECAST Foreign Exchange & Global Payments MONTHLY CURRENCY FORECAST CHART GBP/USD EXCHANGE RATES JUL Avg Aug, Sep f 2012 Q4 f USD/CAD 1.0149 0.9800 1.0300 0.9900 EUR/USD