FX Market Update AUD/USD oversold sell 1M put

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1 Investment Research 7 November 2013 FX Market Update AUD/USD oversold sell put Divergent paths in AUD/USD spot and Australian interest rates Today s Contents key points Spot [Text] overview... 2 Short-term financial models... 3 Volatility summary... 7 Range-trading monitor Option market positioning Carry monitor Source: Bloomberg, Danske Bank Markets calculations What stands out Looking at the signals from our short-term financial models (page 3), we currently observe significant misalignments in AUD/USD and AUD/CAD, which trade 1.9 and 1.5 standard deviations respectively below our model s estimate. While AUD has been sold off recently, Australian interest rates have increased, especially in the front-end of the yield curve where money market currently price in almost a full 25bp rate hike from the RBA on a 12-month horizon (page 18). Hence, as illustrated in the chart above, interest rates and FX spot seem to have decoupled recently. In our view, pricing in the Australian money market curve appears a bit aggressive. On the other hand, part of the divergence in FX spot and interest rates might also reflect that the market prices in a higher probability that the RBA might use FX interventions rather than interest rate cuts to deal with the overvalued AUD. We remain bearish on AUD on a six- to 12-month horizon but do not expect the RBA to intervene any time soon. Thus, taking the bullish signals from our short-term fair value models into account, we would consider to take advantage of the past week s increase in implied volatility (page 7), the negative skew (page 11) and the positive carry (page 13) by selling AUD/USD put option. The strategy pays an initial upfront premium of 60 USD pips, corresponding to 0.62% of AUD notional (indicative price, spot ref.: ) and the strategy is profitable as long as AUD/USD trades above (breakeven) at maturity (on 7 December). Note that according to Danske Technical Update (07 November) a strong support level in AUD/USD is seen at EUR/NOK also trades with a significant 1.2 standard deviation above our short-term model estimate. The positive carry and option smile (page 11) also make risk reversal an attractive strategy to position for corrections lower in EUR/NOK. We are already short EUR/NOK via a bearish risk reversal that expires in 4 days (see FX Trade Recommendation, 10 August). Short term, we could see the liquidity premium (high volatility and skewed option smile) normalise even further and thus prefer to keep this trade on for now. However, an a one- to two-month horizon, we would be careful entering new short EUR/NOK positions as the NOK liquidity situation could worsen again in December. Correlation monitor Forecasts and market pricing Central bank overview FX trade overview 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 / / EUR/GBP % / / EUR/CHF / / EUR/SEK % / / EUR/NOK / / EUR/AUD % / / EUR/CAD % / EUR/NZD % / / EUR/PLN / EUR/RUB % / / 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 USD/TRY EUR/TRY NZD/CAD GBP/CHF NZD/CHF NZD/JPY GBP/JPY GBP/SEK NZD/USD USD/JPY 56.1 Top 10 oversold range-trading currency pairs Currency pair RSI 1 EUR/GBP EUR/NZD AUD/NZD EUR/AUD GBP/NZD EUR/NOK SEK/JPY CHF/JPY AUD/USD EUR/JPY 50.4 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 7 November 2013

3 Deviation (stdev) 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 eur Spot Model Signal Deviation (%) Deviation (stdev) EUR/USD % 0.5 EUR/JPY % -0.3 USD/JPY % -0.7 EUR/GBP % 0.1 EUR/CHF % -0.5 EUR/SEK % 0.9 EUR/NOK Overbought AUD/USD Oversold -3.4% -1.9 USD/CAD Overbought 1.3% 1.5 NZD/USD % -1.0 NOK/SEK % -1.0 EUR/PLN % -0.9 EUR/CZK % -0.3 AUD/NZD % -0.5 USD/SEK % 0.4 USD/NOK % 1.0 GBP/USD % -0.3 AUD/CAD Oversold -2.4% -1.5 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 7 November 2013

4 EUR/USD(Model estimate:1.343) EUR/USD model contributions % 2Y swap spread 10Y swap spread Vix Oil European sovereign spread USD/JPY(Model estimate:100.32) USD/JPY model contributions 3.0% 2.0% % 2Y swap spread 10Y swap spread Vix Oil European sovereign spread EUR/GBP(Model estimate:0.842) EUR/GBP model contributions % 2Y swap spread 10Y swap spread Vix European sovereign spread EUR/CHF(Model estimate:1.2373) EUR/CHF model contributions - 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 7 November 2013

5 EUR/SEK(Model estimate:8.682) EUR/SEK model contributions % 2Y swap spread 10Y swap spread Vix European sovereign spread EUR/NOK(Model estimate:7.871) EUR/NOK model contributions % 2Y swap spread 10Y swap spread Vix Oil European sovereign spread EUR/JPY(Model estimate:132.56) EUR/JPY model contributions % 2Y swap spread 10Y swap spread Vix European sovereign spread GBP/USD(Model estimate:1.614) GBP/USD 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 5 7 November 2013

6 USD/CAD(Model estimate:1.028) USD/CAD model contributions 2.0% % 2Y swap spread 10Y swap spread Vix Oil AUD/USD(Model estimate:0.982) AUD/USD model contributions 3.0% 2.0% - 2Y swap spread 10Y swap spread Vix Oil NZD/USD(Model estimate:0.856) NZD/USD model contributions 3.0% 2.0% - 2Y swap spread 10Y swap spread Vix Oil EUR/PLN(Model estimate:4.231) 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 7 November 2013

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 % % 6.0% % % 7.9% EUR/JPY 9.9% 8.2% % 7.4% % 8.9% % 13.4% USD/JPY 8.7% 6.1% % 7.0% % 9.0% % 11.7% GBP/USD 8.4% 6.0% % 6.3% % 6.2% % 7.4% EUR/GBP 8.1% 5.9% % 5.1% % % 7.4% EUR/CHF % % % 3.9% % 5.4% EUR/SEK 7.1% 6.9% % 6.7% % % 7.7% EUR/NOK 8.0% % 7.7% % 9.1% % 8.1% EUR/AUD 9.6% 8.0% % 8.3% % 9.3% % 10.1% EUR/NZD 11.1% 10.2% % 10.1% % 10.8% % 11.3% EUR/CAD 9.0% 6.4% % 6.4% % 6.6% % 8.0% EUR/PLN 6.7% 4.8% % 4.8% % 6.2% % EUR/CZK 9.8% 4.3% % 4.3% % 4.7% % 5.8% EUR/TRY 10.7% 8.9% % 8.1% % % 9.0% EUR/RUB 8.4% 5.8% % 5.7% % 7.0% % USD/CHF 9.6% 6.6% % 7.7% % 8.9% USD/SEK 11.7% 9.2% % 8.8% % % 10.6% USD/NOK 11.6% 8.6% % 9.3% % 10.9% % AUD/USD 9.2% 8.4% % 8.8% % % NZD/USD 10.6% 10.3% % 10.9% % % USD/CAD 6.0% 4.7% % 4.9% % 5.4% % 6.4% NOK/SEK 7.0% 7.3% % % 8.8% % 8.0% USD/ZAR 13.9% 12.9% % 11.9% % % 14.3% EUR/HUF 7.6% 6.4% % 6.0% % % 9.1% USD/TRY 1 8.6% % 7.8% % 11.2% % 8.6% USD/RUB 8.9% 5.7% % 5.4% % 7.6% % volatilities (pct.'ile) EUR/USD 7.8% EUR/JPY 9.2% USD/JPY 8.4% GBP/USD 7.1% EUR/GBP 6.6% EUR/CHF 3.4% EUR/SEK 6.7% EUR/NOK 7.6% EUR/AUD 8.8% EUR/NZD 10.2% EUR/CAD 7.6% EUR/PLN 6.3% EUR/CZK 6.3% EUR/TRY 9.8% EUR/RUB 7.8% USD/CHF 8. USD/SEK 10.1% USD/NOK 10.1% AUD/USD 8.8% NZD/USD 10.4% USD/CAD 5.9% NOK/SEK 6.7% USD/ZAR 13.3% EUR/HUF 7.1% USD/TRY 10.4% USD/RUB 8.3% 0% 1 20% 2 3M volatilities 9.9% 9.1% 7.0% 6.4% 3.7% % 8.7% 10.1% 7.4% 6.7% 5.8% 7.8% 8.4% 9.9% 9.0% % 6.4% 13.7% 10.7% 8.3% 0% 1 20% 1Y interval Now Average 1W ago 1Y volatilities 8.2% 11.7% 10.6% 7.8% 7.2% 4.9% 6.7% 7.4% 9.4% 10.7% 7.9% 8.1% 6.1% 11.2% 9.3% 9.3% 10.6% % 6.6% 15.6% 9.2% 11.9% 9.8% 0% 1 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 7 November 2013

8 G10 and EM implied volatility cones EUR/USD 1W 3M 12M 22. USD/JPY W 3M 12M 2 EUR/JPY 1 1 1W 3M 12M EUR/GBP GBP/USD EUR/CHF 2. 1W 3M 12M 2. 1W 3M 12M 1W 3M 12M EUR/SEK 1W 3M 12M EUR/NOK 2. 1W 3M 12M 2 AUD/USD W 3M 12M 2 NZD/USD 1 1 1W 3M 12M USD/CAD 2. 1W 3M 12M 1 EUR/PLN 1W 3M 12M EUR/CZK 2. 1W 3M 12M 1 EUR/RUB 2. 1W 3M 12M 2 USD/ZAR W 3M 12M 1 EUR/HUF 1W 3M 12M 2 USD/TRY W 3M 12M 1 USD/RUB 1W 3M 12M Note: The volatility cones show ATM implied volatilities for G10 and EM currency pairs Source: Bloomberg, Danske Bank Markets 8 7 November 2013

9 G10 and EM implied volatility surfaces 1 EUR/USD 1 USD/JPY 20% EUR/JPY 1 EUR/GBP GBP/USD EUR/CHF 0% EUR/SEK EUR/NOK 20% AUD/USD 1 20% NZD/USD 1 USD/CAD 1 EUR/PLN 1 1 EUR/CZK 1 EUR/RUB 30% USD/ZAR 2 20% 1 20% EUR/HUF 2 USD/TRY 20% USD/RUB 1 20% 1 1 Note: The chart shows the implied volatility surface for G10 and EM currency pairs. Data is based on mid-prices 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 7 November 2013

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 EUR/SEK 703 pips 736 pips EUR/PLN 536 pips 628 pips CHF/SEK 2429 pips 2073 pips USD/JPY 104 pips 101 pips CHF/SEK 1149 pips 1221 pips EUR/CHF 219 pips 184 pips CHF/SEK 737 pips 633 pips EUR/SEK 1474 pips 1405 pips EUR/SEK 2884 pips 2309 pips W range trade no. 1- EUR/SEK /10 08/10 13/10 18/10 23/10 28/10 02/11 07/11 12/11 1W range trade no. 2 USD/JPY /10 08/10 13/10 18/10 23/10 28/10 02/11 07/11 12/11 range trade no. 1 EUR/PLN /07 18/08 18/09 18/10 18/11 range trade no. 2 CHF/SEK /07 18/08 18/09 18/10 18/11 3M range trade no. 1 CHF/SEK /02 31/05 31/08 30/11 3M range trade no. 2 EUR/CHF /02 30/04 30/06 31/08 31/10 31/12 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 break-even levels. Indicative prices and levels Source: Bloomberg, Danske Bank Markets calculations 10 7 November 2013

11 Option market positioning and skew valuation 25-delta risk reversals (z-scores, vol adjusted) 1W chg 0.72 EUR/NOK EUR/GBP 0.00 EUR/PLN 0.15 EUR/USD 0.02 AUD/USD 0.75 EUR/TRY 0.06 EUR/SEK 0.08 NZD/USD EUR/CHF USD/CAD 0.24 USD/JPY 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 AUD/NZD GBP/CAD CHF/SEK GBP/TRY AUD/CAD PLN/JPY GBP/CHF USD/JPY EUR/CAD NOK/JPY EUR/NOK SEK/JPY EUR/NZD GBP/JPY EUR/GBP EUR/JPY GBP/NZD NZD/CAD NOK/CHF NZD/JPY 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 CHFSEK cheap 1 AUDCAD cheap 2 EURNOK cheap 2 AUDNZD cheap 3 AUDCAD cheap 3 CHFSEK cheap 4 TRYNOK cheap 4 USDTRY rich 5 AUDNZD cheap 5 GBPTRY rich 6 AUDNOK cheap 6 GBPCHF cheap 7 EURCAD cheap 7 TRYNOK cheap 8 TRYSEK cheap 8 EURTRY rich 9 USDJPY rich 9 SEKPLN rich 10 AUDSEK cheap 10 EURPLN 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 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13-2 = +/- 2 std dev Puts more expensive than calls Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 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 7 November 2013

12 EUR/GBP 25-delta risk reversal EUR/CHF 25-delta risk reversal 1.5 Calls more expensive than puts 2 Calls more expensive than puts = +/- 2 std dev 1.0 = +/- 2 std dev Puts more expensive than calls Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13-2 Puts more expensive than calls Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 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 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13-1 Puts more expensive than calls Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 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 = +/- 2 std dev Puts more expensive than calls Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13-3 Puts more expensive than calls Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 NZD/USD 25-delta risk reversal EM 25-delta risk reversal 1 Calls more expensive than puts 4 Calls more expensive than puts EUR/PLN -1 = +/- 2 std dev 1 EUR/TRY -2 0 Puts more expensive than calls -3 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13-1 Puts more expensive than calls Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Source: Bloomberg (synthetic risk reversal quotes are used for non-standard currency pairs), Danske Bank Markets calculations 12 7 November 2013

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% 0.1% USD JPY JPY GBP 0.4% 0.3% 0.3% 0.4% GBP CHF -0.2% -0.2% -0.3% -0.3% CHF SEK 0.9% 0.9% SEK NOK 1.4% 1.4% 1.4% 1. NOK AUD % % AUD NZD 2.6% % 3.0% NZD CAD 1.1% CAD DKK -0.3% -0.2% -0.3% -0.2% DKK n/a n/a n/a n/a PLN 2.4% 2.3% 2.3% 2.3% PLN TRY 6.9% 6.7% 6.9% 7.4% TRY MXN 3.2% 3.2% 3.0% 3.0% MXN ZAR 5.1% 5.2% 5.7% 5.8% ZAR Top 10 carry currency pairs () Currency pair Carry-to-risk Carry 1 TRY/EUR % 2 TRY/USD % 3 PLN/EUR % 4 AUD/EUR % 5 AUD/CHF % 6 AUD/USD % 7 NZD/CHF % 8 NZD/EUR AUD/GBP % 10 NZD/USD Top 10 carry currency pairs (3M) Currency pair Carry-to-risk Carry 1 TRY/EUR % 2 TRY/USD % 3 PLN/EUR % 4 AUD/CHF % 5 AUD/EUR AUD/USD % 7 NZD/CHF % 8 NZD/EUR % 9 NZD/USD % 10 AUD/GBP % G10 carry index (total return) G10 carry index (average deviation from PPP) Source: Bloomberg, Danske Bank Markets calculations 13 7 November 2013

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% -0.51* 2 USDNOK -52% -0.51* 3 JPYRUB -50% -0.58* 4 CHFPLN -49% -0.3* 5 USDCAD -48% -0.29* 6 USDSEK -48% -0.47* 7 CHFSEK -47% -0.31* 8 CHFNOK -46% -0.35* 9 NOKJPY * 10 USDPLN -44% -0.45* # FX Corr. (10w chg.) Beta 1 EURNOK 57% 0.12* 2 USDNOK 49% 0.16* 3 EURSEK 47% 0.09* 4 JPYRUB -43% -0.22* 5 USDCAD 37% 0.08* 6 NZDUSD 33% 0.1* 7 GBPPLN -32% -0.14* 8 USDCHF 31% 0.09* 9 USDZAR 31% 0.08* 10 SEKJPY -30% -0.22* # FX Corr. (10w chg.) Beta 1 CADCHF 30% 0.15* 2 USDCAD -26% EURRUB -26% CHFRUB -26% EURCAD CHFCZK CHFHUF -24% GBPCAD -23% CHFNOK -23% EURNOK 22% 0.05 EUR/USD correlations USD/JPY correlations EUR/GBP correlations 1 USDTRY * 2 EURGBP 44% 0.5* 3 USDCAD -44% -0.51* 4 NZDUSD 42% 0.26* 5 AUDUSD 40% 0.3* 6 Aluminium 39% 0.18* 7 EURPLN -37% -0.48* 8 Global equit. 36% 0.25* 9 Gold 36% 0.14* 10 Zinc 34% 0.18* 1 Jap. equit. 67% 0.33* 2 Rel. equit. -66% -0.38* 3 US10YGOV 44% 0.06* 4 US10YSWP 42% 0.06* 5 Gold -41% -0.24* 6 USDCAD 38% 0.66* 7 AUDUSD -33% -0.36* 8 US2YSWP 32% 0.15* 9 US2YGOV 32% 0.17* 10 EURGBP 29% 0.49* 1 EURUSD 44% 0.39* 2 USDJPY 29% 0.17* 3 10Y swp. spr -26% USDCAD 24% USDTRY -21% Rel. equit. -20% Y10Y spr. -20% FX volatility IT10YGOV IT10YGOV 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 9 confidence level) are denoted by an asterisk Source: Bloomberg, Danske Bank Markets calculations 14 7 November 2013

15 EUR/CHF correlations EUR/SEK correlations EUR/NOK correlations 1 AUDUSD -43% -0.27* 2 USDTRY 40% 0.29* 3 G10 Carry -39% -0.31* 4 Global equit. -38% -0.22* 5 US equit. -33% -0.2* 6 NZDUSD -33% -0.18* 7 FX volatility 32% 0.07* 8 Ger. equit. -31% -0.13* 9 USDCAD 27% 0.27* 10 Copper -26% Y swp. spr. 47% 0.09* 2 EURNOK 43% 0.31* 3 10Y swp. spr * 4 EURPLN USDCAD AUDUSD EURCHF -24% EURUSD 24% GR10YGOV -23% 0 10 NZDUSD 22% Y swp. spr. 57% 0.12* 2 EURSEK 43% 0.6* 3 2Y10Y spr. -36% -0.09* 4 10Y swp. spr 29% 0.07* 5 Crude oil 22% EURCHF -21% US10YSWP 13% US2YSWP 13% Gold 12% US10YGOV 11% 0.01 USD/SEK correlations USD/NOK correlations NOK/SEK correlations 1 EURUSD -80% -1.14* 2 EURCHF 72% 1.19* 3 USDTRY 63% 0.77* 4 AUDUSD -54% -0.56* 5 NZDUSD -50% -0.44* 6 Global equit. -48% -0.47* 7 USDCAD 47% 0.78* 8 FX volatility 41% 0.14* 9 Ger. equit. -41% -0.29* 10 Gold -40% -0.22* 1 EURUSD -74% -1.04* 2 USDTRY 70% 0.85* 3 USDCAD 66% 1.08* 4 EURPLN 54% 1* 5 NZDUSD -54% -0.48* 6 Global equit. -52% -0.51* 7 AUDUSD -51% -0.53* 8 Ger. equit. -49% -0.35* 9 2Y swp. spr. 49% 0.16* 10 Itraxx 48% 0.12* 1 EURCHF 47% 0.54* 2 EURGBP -32% -0.35* 3 USDCAD -27% -0.31* 4 EURPLN -24% GR10YGOV -24% 0 6 Itraxx -24% G10 Carry 18% Rel. equit Crude oil 14% US2YSWP -14% AUD/USD correlations NZD/USD correlations USD/CAD correlations 1 NZDUSD 87% 0.74* 2 G10 Carry 69% 0.89* 3 USDCAD -66% -1.05* 4 FX volatility -59% -0.2* 5 USDTRY -57% -0.66* 6 EURCHF -43% -0.69* 7 EURUSD 40% 0.55* 8 EURPLN -38% -0.67* 9 Global equit. 36% 0.35* 10 Gold 36% 0.19* 1 AUDUSD 87% 1.02* 2 G10 Carry 74% 1.11* 3 USDCAD -73% -1.36* 4 USDTRY -62% -0.85* 5 FX volatility -56% -0.22* 6 EURUSD 42% 0.67* 7 Global equit. 39% 0.43* 8 Copper 38% 0.33* 9 US2YSWP -38% -0.18* 10 US2YGOV -36% -0.2* 1 NZDUSD -73% -0.4* 2 AUDUSD -66% -0.42* 3 USDTRY 57% 0.42* 4 Copper -53% -0.24* 5 G10 Carry -48% -0.39* 6 FX volatility 48% 0.1* 7 Global equit. -48% -0.29* 8 EURUSD -44% -0.37* 9 US2YSWP 42% 0.11* 10 Gold -41% -0.14* EUR/CZK correlations EUR/RUB correlations EUR/PLN correlations 1 Aluminium -24% G10 Carry 24% Zinc -23% Jap. equit. 22% Y swp. spr -21% EURGBP 18% VIX -18% 0 8 EURNOK -18% Crude oil -18% NZDUSD 17% G10 Carry -40% -0.39* 2 Ger. equit. -38% -0.2* 3 EURUSD 38% 0.4* 4 Global equit. -37% -0.27* 5 US equit. -36% -0.26* 6 EURCHF 34% 0.42* 7 Jap. equit. -33% -0.11* 8 US2YGOV 30% 0.11* 9 EURGBP 29% 0.34* 10 VIX 27% 0* 1 USDTRY 47% 0.31* 2 Itraxx * 3 US2YSWP 44% 0.1* 4 Global equit. -40% -0.22* 5 USDCAD 38% 0.34* 6 AUDUSD -38% -0.21* 7 US2YGOV 38% 0.1* 8 EURUSD -37% -0.28* 9 FX volatility 36% 0.07* 10 US10YSWP * EUR/HUF correlations USD/TRY correlations USD/ZAR correlations 1 US2YSWP 46% 0.15* 2 EURPLN 44% 0.63* 3 USDTRY 42% 0.39* 4 US2YGOV 37% 0.14* 5 US10YSWP 36% 0.04* 6 US10YGOV * 7 Copper -33% -0.2* 8 EURSEK -30% -0.98* 9 USDCAD 30% 0.38* 10 US equit. -29% -0.22* 1 US2YGOV 67% 0.28* 2 US2YSWP 64% 0.23* 3 NZDUSD -62% -0.45* 4 USDCAD 57% 0.77* 5 AUDUSD -57% -0.48* 6 EURUSD * 7 EURPLN 47% 0.72* 8 G10 Carry -47% -0.51* 9 US10YGOV 46% 0.05* 10 US10YSWP 46% 0.05* 1 USDTRY 54% 0.79* 2 NZDUSD -51% -0.54* 3 AUDUSD -50% -0.62* 4 USDCAD 49% 0.97* 5 FX volatility 49% 0.2* 6 US2YSWP 43% 0.22* 7 EURPLN 42% 0.91* 8 G10 Carry -40% -0.63* 9 Itraxx 39% 0.12* 10 Global equit. -38% -0.45* 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 9 confidence level) are denoted by an asterisk. Source: Bloomberg, Danske Bank Markets calculations 15 7 November 2013

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 +12m +1m +3m +6m +12m +1m +3m +6m +12m Exchange rates vs EUR USD % -1.7% -3.9% -6.1% 1.3% -1.7% -3.9% -6.2% JPY % 0.4% 2.6% 4.9% 1.9% 0.4% 2.6% 4.9% GBP % -0.1% 1.1% 2.3% 1.1% -0.2% 0.9% 1.9% CHF % 0.6% 0.6% 0.6% 0.6% 0.6% 0.7% 0.9% DKK % 0.1% 0.2% NOK % -0.9% -2.1% -3.4% -0.4% -1.2% -2.8% -4.8% SEK % -2.0% -3.1% -4.3% 0.8% -2.2% -3.6% -5.2% Exchange rates vs USD CAD % 6.0% 7.0% 3.9% 4.7% 9.9% 10.3% AUD % -2.0% -5.2% -8.3% 1.4% -1.4% -4.6% -6.0% NZD % -3.3% -5.7% 1.7% -0.3% -2.7% -2.9% 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% % USDTRY EURGBPEURPLN % EURUSD EURNOK EURJPY EURCHF EURSEK USDCAD -2% NZDUSD AUDUSD -4% -4% -2% 0% 2% 4% Danske 3M forecast vs. forward 1.20 EUR/USD 3M 12M Forecast (pct'ile) 1.37 (71%) 1.33 (30%) 1.30 (21%) 1.27 (20%) Fwd. / Consensus 1.35 / / / / % confidence int / / / / confidence int / / / / 1.47 USD/JPY USD/JPY EUR/GBP 0.95 EUR/GBP USD/JPY 3M 12M Forecast (pct'ile) (57%) (72%) (84%) (87%) Fwd. / Consensus / / / / % confidence int / / / / confidence int / / / / EUR/GBP 3M 12M Forecast (pct'ile) 0.85 (72%) 0.84 (47%) 0.85 (58%) 0.86 (62%) Fwd. / Consensus 0.84 / / / / % confidence int / / / / confidence int / / / / 0.91 EUR/CHF EUR/SEK 1.30 EUR/CHF 9.50 EUR/SEK EUR/CHF 3M 12M Forecast (pct'ile) 1.24 (81%) 1.24 (7) 1.24 (70%) 1.24 (64%) Fwd. / Consensus 1.23 / / / / % confidence int / / / / confidence int / / / / 1.29 EUR/SEK 3M 12M Forecast (pct'ile) 8.85 (66%) 8.60 (22%) 8.50 (20%) 8.40 (20%) Fwd. / Consensus 8.79 / / / / % confidence int / / / / confidence int / / / / 9.47 Note: The cone charts show confidence regions derived from option market prices. Source: Bloomberg, Danske Bank Markets calculations 16 7 November 2013

17 EUR/NOK 9.00 EUR/NOK AUD/USD 1.10 AUD/USD EUR/NOK 3M 12M Forecast (pct'ile) 8.05 (50%) 8.00 (41%) 7.90 (32%) 7.80 (28%) Fwd. / Consensus 8.07 / / / / % confidence int / / / / confidence int / / / / 8.82 AUD/USD 3M 12M Forecast (pct'ile) 0.96 (69%) 0.93 (32%) 0.90 (22%) 0.87 (22%) Fwd. / Consensus 0.95 / / / / % confidence int / / / / confidence int / / / / 1.02 NZD/USD USD/CAD 0.95 NZD/USD 1.15 USD/CAD NZD/USD 3M 12M Forecast (pct'ile) 0.85 (69%) 0.83 (42%) 0.81 (33%) 0.79 (33%) Fwd. / Consensus 0.84 / / / / % confidence int / / / / confidence int / / / / 0.91 USD/CAD 3M 12M Forecast (pct'ile) 1.04 (49%) 1.05 (64%) 1.06 (69%) 1.07 (69%) Fwd. / Consensus 1.04 / / / / % confidence int / / / / confidence int / / / / 1.13 EUR/JPY 150 EUR/JPY GBP/USD 1.75 GBP/USD EUR/JPY 3M 12M Forecast (pct'ile) (77%) (51%) (63%) (67%) Fwd. / Consensus / / / / % confidence int / / / / confidence int / / / / GBP/USD 3M 12M Forecast (pct'ile) 1.61 (51%) 1.58 (29%) 1.53 (16%) 1.48 (1) Fwd. / Consensus 1.61 / / / / % confidence int / / / / confidence int / / / / 1.74 EUR/PLN 4.60 EUR/PLN USD/TRY 2.40 USD/TRY EUR/PLN 3M 12M USD/TRY 3M 12M Forecast (pct'ile) 4.15 (36%) 4.10 (23%) 4.15 (42%) 4.25 (58%) Forecast (pct'ile) 1.98 (11%) 1.97 (17%) 1.99 (2) 2.04 (3) Fwd. / Consensus 4.18 / / / / 4.07 Fwd. / Consensus 2.05 / / / / % confidence int / / / / % confidence int / / / / confidence int / / / / confidence int / / / / 2.39 Note: The cone charts show confidence regions derived from option market prices. Source: Bloomberg, Danske Bank Markets calculations 17 7 November 2013

18 Central bank overview ECB market pricing 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% EUR/OIS forward market % Nov13 May14 Nov14 May15 Nov15 May16 Current Live +68 Fed market pricing 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% USD/OIS forward market % Nov13 May14 Nov14 May15 Nov15 May16 Current Live BoE market pricing Riksbank market pricing 2.50% GBP/OIS forward market 3.00% SEK/OIS forward market 2.00% 1.50% 1.00% 0.50% % 2.00% 1.50% 1.00% 0.50% % Nov13 May14 Nov14 May15 Nov15 May16 Current Live 0.00% Nov13 May14 Nov14 May15 Nov15 May16 Current Live RBA market pricing 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% AUD/OIS forward market Nov13 May14 Nov14 May15 Nov15 May16 Current Live Cita vs Eonia market pricing 1.00% CITA & EONIA forward market 25bp 0.80% 20bp 15bp 0.60% 10bp 0.40% 5bp 0bp 0.20% -5bp -10bp 0.00% Oct13 Apr14 Oct14 Apr15-15bp -0.20% -20bp Spread (rhs) DKK, 31OCT2013, EOD EUR, 31OCT2013, EOD Note: The charts show the cumulated market pricing of rate changes on meeting dates Source: Danske Bank Markets 18 7 November 2013

19 FX trade overview FX trade recommendations Open FX Trades Type Trade Idea Target & P/L* Option Option Option Forward Sell 1Y EUR/USD call spread Short EUR/NOK via 3M risk reversal Long EUR/CHF via options Buy EUR/DKK 3M forward Open FX Trades Danske Bank: Sell 1Y EUR/USD 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. We recommend selling a 3M EUR/NOK risk reversal at zero cost. We prefer the risk reversal to a spot position due to the very attractive pricing (skew) in the option market. We recommend positioning for a move higher in EUR/CHF via a 1:2 ratio 3M/ calendar risk reversal. The strategy can be entered at zero cost by selling 3M put option (double notional) and buying call option. we recommend buying EUR/DKK 3M forward at for an indicative 25bp annualised carry. Opened 08/07/2013 Start 4.59% Target/Stop n/a Now -6.41% P/L -1.82% Opened 09/08/2013 Start Target/Stop n/a Now P/L -0.88% Opened 20/08/2013 Start Target/Stop n/a Now P/L 0.29% Opened 20/08/2013 Start Target/Stop n/a Now 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/ 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/ % 12 Spot Long USD vs. Short EUR, JPY, GBP, CHF 02/08/ /08/ % 13 Option Short EUR/SEK via Seagull 31/07/ /08/ % 14 Option 6m USD/JPY Risk reversal 22/03/ /09/ % 15 Option EUR/GBP via 3M seagull 20/08/ /10/ % P/L 0.07% FX Trades 2013 Overview FX Trade Performance 2013 # Cum Return Avg Return Avg Days Open Profitable % 1.3% 196 days Loss-Making % -2.0% 111 days All Trades % 0.2% 148 days Source: Danske Bank Markets FX Top Trades 2013 Open FX Top Trades Open FX Top Trades Type Trade Idea Target & P/L* Closed FX Top Trades Closed FX Top Trades # Type Trade Opened Level Closed Level P/L 1 Option Bearish JPY/SEK risk reversal 05/12/ /01/ % 2 Spot Sell GBP/NOK 05/12/ /01/ % 3 Spot Buy EUR/CHF 05/12/ /01/ % 4 Spot Sell USD/CAD 05/12/ /01/ % 5 Spot Sell USD/SGD 05/12/ /03/ % 6 Option USD/JPY option strategy 05/12/ /03/ Spot Buy RUB/CZK 05/12/ /04/ % 8 Option EUR/USD butterfly 05/12/ /06/ % 9 Forward Sell USD/CNH 12 Forward 05/12/ /07/ % 10 Spot Long TRY, MXN, HUF vs. Short USD 05/12/ /08/ % FX Top Trades 2013 Overview FX Top Trades 2013 # Cum Return Avg Return Avg Days Open Profitable % 4.6% 110 days Loss-Making % 156 days All Trades % 1.9% 129 days Source: Danske Bank Markets 19 7 November 2013

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 Kristoffer Kjær Lomholt Assistant Analyst G klom@danskebank.dk 20 7 November 2013

21 Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). The author of the research report is Morten Helt. 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. 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