This reflects the views of the Wealth Management Group

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1 For Malaysia circulation only This reflects the views of the Wealth Management Group fx strategy fx 26 January 2016 Central banks in the limelight again A rebound in investor sentiment supported heavily oversold currencies, especially the GBP and CAD. However, focus is now likely to turn to upcoming US and Japan central bank policy meetings. A dovish Fed or the BOJ hinting towards more policy action is likely be positive for markets. Given weaker than expected New Zealand inflation, we see an increased probability for the RBNZ to signal further easing. Upcoming RBNZ policy meeting likely to set the tone. In the upcoming week, the FOMC, BOJ and the RBNZ policy meeting, Euro area inflation estimates and US consumer confidence data is likely to be key. Pairs Outlook (2-4 wk) Summary comments Support 2 Support 1 Spot Resistance 1 Resistance 2 EUR/USD Directional indicators weak USD/JPY Bullish Likely to continue rebound AUD/USD Limited upside ahead of key resistance cluster USD/SGD Near-term resistance to limit short-term upside GBP/USD Bullish Likely to continue oversold rebound USD/MYR Bearish Limited upside as it is skewed towards a downward trend XAU/USD Likely to trade between 1,080 and 1,150 near term , ,110 1,150 NZD/USD Bearish Rebound likely to be temporary and limited EUR/GBP Some consolidation likely following overbought correction USD/CNH Weak short term directional indicators USD/CHF Bullish Likely to continue firm uptrend USD/CAD Bearish Correction likely to continue towards key 1.40 support AUD/NZD Rebound running into a strong resistance region *Darker shade indicates more important technical level 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 Central banks in the limelight again 1 3 and 12 month outlook week outlook 3 FX trade notes 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 and forwards 18 Disclosure Appendix 20 Steve Brice Clive McDonnell Manpreet Gill Adi Monappa, CFA Audrey Goh, CFA Rajat Bhattacharya Victor Teo, CFA Tariq Ali, CFA Abhilash Narayan Chief Investment Strategist Head, Equity Investment Strategy Head, FICC Investment Strategy Head, Asset Allocation & Portfolio construction Director, Asset Allocation & Portfolio construction Investment Strategist Investment Strategist Investment Strategist Investment Strategist This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 2

3 3 and 12 month outlook 2-4 week outlook Currency 3 month 12 month EUR JPY GBP AUD NZD CAD CHF CNY TWD KRW SGD MYR IDR INR THB PHP 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 notes Initiation date Pairs Position Entry price Outlook (2-4 wk) Bullish Bullish Bearish Bearish Bullish Bearish Current price Target Stop 15/01/2016 USD/JPY Long /01/2016 GBP/USD Long Bullish Bearish This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 3

4 Week in Review Weekly performance of core pairs 15 January 2016 to 22 January 2016 EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD NZD/USD Weekly performance of supplementary pairs 15 January 2016 to 22 January 2016 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 ended lower (-1.10) over the previous week. The EUR gained initially on continued weakness in global equities and risk sentiment. However, the EUR pared gains after ECB President Mario Draghi said all options for further stimulus remained open. USD/JPY ended up (1.54) over the previous week. An improvement in market sentiment near the end of the week saw USD/JPY bounce from technically oversold levels. In addition, BoJ market speculation of possible BOJ action amid deflationary threats, also weighed-in. AUD/USD ended up (2.01) over the previous week. The AUD bounced during the week, along with equities and commodities, supported by an improvement in investor sentiment. USD/SGD was down (-0.67) over the previous week. Singapore data was mixed November retail sales were in line with expectations while December exports disappointed. GBP/USD ended flat over the previous week. The GBP fell to multi-year lows during the week before recovering. The GBP continued to closely follow sentiment in financial markets. UK core inflation and employment data exceeded expectations, while retail sales disappointed. USD/MYR ended lower (-2.36) over the previous week. The MYR reversed earlier losses and strengthened end of last week with a rebound in oil prices. Malaysia data were in line with market consensus. XAU/USD was up (0.83) over the previous week. Improved sentiment on risk assets was negative for gold. NZD/USD ended up (0.46 ) over the previous week. Weaker-thanexpected Q4 inflation and a deceleration in December housing prices likely contributed to NZD s negative sentiment. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 4

5 EUR/USD We turn neutral on the EUR/USD (from bearish earlier) amid weakening directional indicators Fundamental Overview Communication from the Fed in the upcoming week will be key following Draghi s comments that suggested the ECB could act again given increasing risks to the outlook for Euro area inflation. A more dovish Fed outlook, however, may dampen sentiment toward the USD and support the EUR to some extent. Euro area and German CPI inflation estimates are also key. Technical Analysis The technical outlook for the EUR remains negative from a slightly longer term perspective on weekly charts. However, in the short term, weak momentum and directional indicators suggest the pair may remain constrained in a range. On the top side, remains the key resistance region. On the lower side, the region is likely to offer some interim support, a breach of which may pave the way to EUR/USD finding some interim support EUR/USD Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 EUR/USD 50DMA 100DMA 200DMA Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Action Level Importance Resistance Medium Resistance High Spot Support Medium Support Medium Key Signposts FOMC meeting Euro area inflation estimate 28 Jan 29 Jan * 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 We expect the pair to continue to rebound from a key support region amid improving momentum. Fundamental Overview The strong rebound in global equity markets along with oil seems likely to continue in the week ahead. On the same note, we believe the USD/JPY rally is likely to pick up steam. Moreover, markets are now likely to be more vigilant to the possibility of further BoJ action given the sharp appreciation in JPY s trade-weighted exchange rate. Technical Analysis The pair seems to be forming a bottom around the support cluster region. The breach of the key resistance at suggests the upside is likely to continue for the pair. Shortterm technical indicators are also signalling renewed buying interest. Next key resistance is likely around the 120 mark. USD/JPY likely to rebound from support USD/JPY Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 USD/JPY 50DMA 100DMA 200DMA Bullish Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Action Buy Buy Sell Level Importance Resistance High Resistance Medium Spot Support High Support Medium Key Signposts BOJ policy meeting FOMC meeting 18 Jan 20 Jan * 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 We remain neutral on AUD/USD amid expectations of a consolidation following the sell-off. Fundamental Overview The bounce in the AUD seems to have been more of a knee-jerk reaction following buoyant market sentiment near the end of the week. However, we see limited upside from current levels as broad commodity price weakness and USD strength remain key headwinds. The upcoming inflation data and a more hawkish Fed are the main risks in the near term. Technical Analysis The bounce in the AUD above the key resistance of suggests the pair may have limited downside for now. However, we also see a number of key resistance points between and 0.720, which may limit upside for the time being. From a longer-term perspective, the bearish trend channel remains intact. AUD/USD more resilient following recovery in market sentiment AUD/USD Feb AUD/USD 50DMA 100DMA 200DMA Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Action Buy Level Importance Resistance High Resistance Medium Spot Support Medium Support Low Key Signposts Australia CPI y/y 27 January * 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 We remain neutral on USD/SGD and would wait for better levels to re-initiate directional views. Fundamental Overview SGD has largely followed Asia-ex-Japan currencies in recent weeks. Recent data too has been largely mixed. However, we expect domestic inflationary pressures to have increased following the sharp fall in oil prices. Further action by the MAS remains a possibility at the April policy meeting. Technical Analysis While the broader medium-term uptrend remains intact, there is a possibility of some consolidation in the immediate term. However, we expect downside to be limited to 1.425, a key support region and convergence of the DMA. On the topside, a breach of 1.45 is required as a convincing bullish indicator. USD/SGD likely to consolidate short term USD/SGD Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 USD/SGD 50DMA 100DMA 200DMA Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Action Sell Sell Buy Level Importance Resistance High Resistance Medium Spot Support High Support High Key Signposts Singapore industrial production 26 January * 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 We remain bullish on the GBP amid continuation of the oversold rebound Fundamental Overview In the week ahead, the GBP is likely to continue to track the performance of global financial markets. UK s Q4 GDP report will be key. Overall, we continue to believe that recovery in the UK broadly remains on track while the GBP weakened excessively. The trade-weighted GBP now trades at the lowest level since early Technical Analysis The pair rebounded last week from a key support region amid oversold levels. The pair has managed to close positive on three consecutive days since then, suggesting sufficient buying interest in the pair. The RSI line crossing the 30 mark from the bottom first time this year is also re-enforce bullish momentum. The next major resistance hurdle also lies higher at GBP/USD likely to continue rebound from oversold levels GBP/USD Mar-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 GBP/USD 50DMA 100DMA 200DMA Bullish Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Action Buy Buy Sell Level Importance Resistance Low Resistance High Spot Support Medium Support High Key Signposts UK GDP y/y 19 Jan * 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 We turn bearish on the USD/MYR (from neutral earlier) as current momentum is skewed towards the downside. Fundamental Overview We see limited upside on the pair given the weak momentum and heavy sell-off last week. Bank Negara Malaysia maintained the overnight policy rate at 3.25 with the stance of monetary policy remaining accommodative and supportive of economic activity. However, the central bank unexpectedly cut the statutory reserve requirement by 50bps to Malaysia's inflation increased marginally to 2.7 y/y in December 2015 (vs. 2.6 y/y in November 2015). Technical Analysis The pair sold off sharply over the previous week after breaking a few key support levels. A breach of key support would likely trigger further downside whereas the topside for the pair is likely capped at key resistance We are bearish on the pair given the negative bias in technical indicators. USD/MYR is skewed towards a downward trend USD/MYR Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan Bearish Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Action Sell Sell Sell Level Importance Resistance High Resistance Medium Spot Support Medium Support High Key Signposts No key signposts this week * Please see Appendix for explanation on technical USD/MYR 50 dma 100 dma 200 dma This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 10

11 XAU/USD We remain neutral on gold and expect it to trade rangebound between 1,080 and 1,150. Fundamental Overview The pick up in financial market volatility saw some support for gold, although the stronger US jobs report limited gains. In the absence of a major pickup in inflation, we believe gold is likely to continue to trade sideways. Technical Analysis Gold s uptrend from mid-december lows has continued, though strong resistance ahead of the 100DMA is likely to limit further upside in the short term. Directional and momentum indicators have also weakened. We continue to expect gold to trade between 1,080 and 1,150 in the short term. XAU/USD upside facing resistance XAU/USD 1,300 1,250 1,200 1,150 1,100 1,050 1,110 1,080 1,000 Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 XAU/USD 50DMA 100DMA 200DMA Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Action Level Importance Resistance High Resistance High Spot 1101 Support High Support High Key Signposts FOMC meeting Euro area inflation estimate 28 Jan 29 Jan * 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 We turn bearish on the NZD (from neutral earlier), expecting the pair to test the next key support. Fundamental Overview Given weaker inflation figures from Q4, we believe deflation risks in New Zealand have increased, especially with the latest decline in oil prices. The RBNZ meeting later this week may provide more clarity on this front. In this context, we believe the probability of further policy easing has increased. Technical Analysis The break below the key support of (near the November low) has further accelerated downside momentum. This opens up the possibility of a further downmove towards the September low of On the upside, (near convergence of DMA) is likely to limit upside. NZD/USD likely to test the next key support NZD/USD Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 NZD/USD 50DMA 100DMA 200DMA Bearish Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Action Buy Sell Level Importance Resistance Low Resistance High Spot Support High Support Medium Key Signposts RBNZ policy meeting 28 January * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 12

13 SUPPLEMENTARY PAIRS We turn neutral on EUR/GBP (from bearish earlier) View EUR/GBP Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 EUR/GBP 50DMA 100DMA 200DMA Overbought technical indicators have corrected Longer term trend indicators suggest a bullish bias Prefer to wait as GBP likely to recover ground against most peers We remain neutral on USD/CNH View USD/CNH Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 USD/CNH 50DMA 100DMA 200DMA The pair maintains uptrend, though momentum indicators seem to be slowing Prefer to wait for more convincing upside indicators This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 13

14 SUPPLEMENTARY PAIRS (cont d) We turn bullish on USD/CHF (from neutral earlier) View USD/CHF Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 USD/CHF 50DMA 100DMA 200DMA Bullish Upward trend has firmed recently Lower demand for safe haven should support USD/CHF We remain bearish on USD/CAD View USD/CAD Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 USD/CAD 50DMA 100DMA 200DMA Bearish USD/CAD corrected sharply, following the rebound in oil prices CAD likely to extend its rally along with global stocks and commodities This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 14

15 SUPPLEMENTARY PAIRS (cont d) We turn neutral on AUD/NZD (from bullish earlier) View 1.20 AUD/NZD Jan-15 Mar-15 May-15 Jun-15 Aug-15 Oct-15 Dec-15 Jan-16 AUD/NZD 50DMA 100DMA 200DMA Likely to see strong resistance between the 1.08 and 1.10 region Converging DMAs suggest medium term drection more uncertain. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 15

16 Interest Rate Differentials EUR/USD USD/JPY AUD/USD EUR/USD 2-year interest rate differential EUR/USD (RHS) EUR/USD USD/JPY 2-year interest rate differntial USD/JPY (RHS) USD/JPY AUD/USD 2-year interest rate differntial AUD/USD (RHS) AUD/USD GBP/USD NZD/USD USD/CAD GBP/USD 2-year interest rate differntial GBP/USD (RHS) GBP/USD NZD/USD 2-year interest rate differntial NZD/USD (RHS) NZD/USD USD/CAD 2-year interest rate differntial USD/CAD (RHS) USD/CAD 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 EUR 1M implied vol JPY 1M implied vol AUD 1M implied vol GBP/USD NZD/USD USD/CAD GBP 1M implied vol NZD 1M implied vol CAD 1M implied vol This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 17

18 Consensus forecasts and forwards Consensus Forecasts Spot Q Q Q Q Forward 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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