FX Market Update Long GBP/USD and short USD/NOK

Transcription

1 Deviation (stdev) Investment Research 7 March FX Market Update Long GBP/USD and short USD/NOK Spot deviations from model estimate Today s Contents key points Today 1W ago 2W ago Spot above model Spot [Text] overview... 2 Forecasts and market pricing... 3 Short-term financial models Spot below model Correlation monitor... 9 Carry monitor Volatility summary... Range-trading monitor Source: Bloomberg, Danske Bank Markets calculations What stands out Looking at the signals from our short-term financial models, the biggest misalignments are still observed in GBP and JPY which continue to look significantly oversold versus both USD and EUR. The commodity currencies (AUD, CAD, NZD and NOK) also trade with considerable misalignments versus USD relative to model estimates and thus look oversold at the moment. Option market positioning Central bank overview FX Market Update provides a quantitative overview of the currency market. According to the technical monitor (page 2), the relative strength index indicators (RSI) suggest that USD/GBP is oversold while USD/CHF and USD/CAD have reached overbought territory with RSI levels at 75.5 and 72.4, respectively. EUR/SEK has also reached oversold territory according to RSI (currently at 25.4). On the other hand, however, our short-term model is fully able to explain the recent move lower in EUR/SEK and, according to the model, EUR/SEK actually still trades above model, despite a relatively large decline in spot. Trade idea #1: USD/NOK risk reversal utilizing skew and positive carry We suggest entering USD/NOK risk reversal to position for a move lower in USD/NOK. Correlation between USD/NOK and EUR/USD is high (negative) and a short USD/NOK position could also be considered as an alternative to a long EUR/USD position. The strategy benefits from positive carry and a positive skew and USD/NOK risk reversal can be entered at zero costs by selling call and buying put option (indicative, spot ref.: ). Trade idea #2: 2W GBP/USD 1:2 ratio call spread GBP/USD looks oversold by all measures discussed in FX Market Update, which suggests that a near-term correction could be imminent. However, we doubt that we will see a trend reversal and do not see much near-term potential for GBP/USD above Thus, we suggest entering a two-week GBP/USD 1:2 ratio call spread to position for a near-term correction higher. The strategy can be entered at zero costs by buying call and selling call option with a double notional (indicative, spot ref.: ). The strategy is profitable as long as GBP/USD trades above and below at maturity. Senior Analyst Morten Helt mohel@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 % / (Oversold) EUR/NOK % / / EUR/AUD % / / EUR/CAD % / / EUR/NZD % / / EUR/PLN % 4.07 / / EUR/RUB % / / EUR/TRY % / / EUR/CZK % / / USD/JPY % / / GBP/USD % / (Oversold) USD/CHF / / (Overbought) USD/SEK % / / USD/NOK % / / AUD/USD / / USD/CAD % / (Overbought) NZD/USD % / / USD/RUB % / / NOK/SEK % / (Oversold) AUD/NZD % / / Top 10 overbought range-trading currency pairs Top 10 oversold range-trading currency pairs Currency pair RSI Currency pair RSI 1 USD/CHF USD/NOK USD/PLN USD/JPY AUD/CHF AUD/CAD NZD/CHF AUD/NOK SEK/JPY AUD/JPY EUR/USD GBP/AUD EUR/TRY EUR/AUD GBP/CAD GBP/NOK EUR/NZD NZD/USD AUD/USD AUD/SEK 45.4 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 March

3 Danske 3M forecast vs. consensus FX Market Update Forecasts and market pricing Danske Bank Markets FX forecasts Forecast Forecast vs forward outright, % Spot +1m +3m +6m +m +1m +3m +6m +m Exchange rates vs EUR USD JPY GBP CHF DKK NOK SEK Exchange rates vs USD CAD AUD NZD Danske Bank forecasts vs forwards and consensus 6% EUR/USD 1.50 EUR/USD 4% 2% EURGBP AUDUSD USDJPY EURPLNEURCHF EURJPY NZDUSD EURUSD % -2% USDCAD EURNOK USDTRY EURSEK GBPUSD % -6% -4% -2% 0% 2% 4% 6% 8% Danske 3M forecast vs. forward EUR/USD 3M M Forecast (pct'ile) 1.35 (93%) 1.36 (8) 1.38 (84%) 1.34 (59%) Fwd. / Consensus 1.30 / / / / % confidence int / / / / confidence int / / / / 1.43 USD/JPY USD/JPY EUR/GBP 0.95 EUR/GBP USD/JPY 3M M Forecast (pct'ile) 93.0 (4) 95.0 (6) 96.0 (68%) (78%) Fwd. / Consensus 93.4 / / / / % confidence int / / / / confidence int / / / / EUR/GBP 3M M Forecast (pct'ile) 0.87 (60%) 0.88 (68%) 0.90 (76%) 0.88 (60%) Fwd. / Consensus 0.86 / / / / % confidence int / / / / confidence int / / / / 0.95 EUR/CHF 1.30 EUR/CHF EUR/SEK 9.25 EUR/SEK EUR/CHF 3M M Forecast (pct'ile) 1.24 (7) 1.26 (87%) 1.26 (83%) 1.23 (53%) Fwd. / Consensus 1.23 / / / / % confidence int / / / / confidence int / / / / 1.29 EUR/SEK 3M M Forecast (pct'ile) 8.40 (71%) 8.30 (4) 8.30 (4) 8.20 (34%) Fwd. / Consensus 8.32 / / / / % confidence int / / / / confidence int / / / / 8.98 Note: The cone charts show confidence regions derived from option market prices. Source: Bloomberg and Danske Bank Markets calculations 3 7 March

4 EUR/NOK 8.25 EUR/NOK AUD/USD 1.10 AUD/USD EUR/NOK 3M M Forecast (pct'ile) 7.35 (23%) 7.25 (16%) 7.20 (17%) 7.15 (19%) Fwd. / Consensus 7.44 / / / / % confidence int / / / / confidence int / / / / 8.05 AUD/USD 3M M Forecast (pct'ile) 1.04 (74%) 1.05 (77%) 1.06 (79%) 1.02 (52%) Fwd. / Consensus 1.02 / / / / % confidence int / / / / confidence int / / / / 1.09 NZD/USD USD/CAD 0.90 NZD/USD 1.15 USD/CAD NZD/USD 3M M Forecast (pct'ile) 0.86 (92%) 0.87 (88%) 0.88 (86%) 0.86 (71%) Fwd. / Consensus 0.83 / / / / % confidence int / / / / confidence int / / / / 0.90 USD/CAD 3M M Forecast (pct'ile) 0.99 (2%) 0.98 (6%) 0.97 () 0.99 (28%) Fwd. / Consensus 1.03 / / / / % confidence int / / / / confidence int / / / / 1.11 EUR/JPY 140 EUR/JPY GBP/USD 1.65 GBP/USD EUR/JPY 3M M Forecast (pct'ile) 6 (79%) 9 (80%) 2 (82%) 4 (79%) Fwd. / Consensus 2 / 4 2 / 3 2 / 4 2 / 3 50% confidence int. 118 / / / 9 1 / 2 7 confidence int. 115 / / / / 9 GBP/USD 3M M Forecast (pct'ile) 1.55 (87%) 1.55 (7) 1.53 (57%) 1.52 (51%) Fwd. / Consensus 1.51 / / / / % confidence int / / / / confidence int / / / / 1.65 EUR/PLN 4.60 EUR/PLN USD/TRY 2.00 USD/TRY EUR/PLN 3M M Forecast (pct'ile) 4.20 (80%) 4.25 (78%) 4.25 (70%) 4.20 (53%) Fwd. / Consensus 4.14 / / / / % confidence int / / / / confidence int / / / / 4.57 USD/TRY 3M M Forecast (pct'ile) 1.76 (6%) 1.75 (11%) 1.82 (52%) 1.90 (72%) Fwd. / Consensus 1.80 / / / / % confidence int / / / / confidence int / / / / 1.99 Note: The cone charts show confidence regions derived from option market prices. Source: Bloomberg, Danske Bank Markets calculations 4 7 March

5 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 Spot Model Signal Deviation (%) Deviation (stdev) EUR/USD Oversold -1.3% -1.0 EUR/JPY Very Overbought 7.6% 2.2 USD/JPY Overbought 4.6% 1.7 EUR/GBP Very Overbought 2.4% 2.3 EUR/CHF EUR/SEK % 1.0 EUR/NOK % 0.7 AUD/USD Oversold -1.9% -1.4 USD/CAD Overbought 1.3% 1.0 NZD/USD Oversold -1.9% -1.6 NOK/SEK % -0.4 EUR/PLN EUR/CZK % 1.0 AUD/NZD % -0.6 USD/SEK % -0.4 USD/NOK Overbought 1.6% 1.5 GBP/USD Very oversold -4.3% -2.5 AUD/CAD % 0.1 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 March

6 EUR/USD (Model estimate:1.317) EUR/USD Jul Aug Sep Oct Nov Dec Jan EUR/USD Feb Mar EUR/USD model contributions 2.0% % 2Y swap spread 10Y swap spread Vix Oil European sovereign spread USD/JPY (Model estimate:89.81) USD/JPY model contributions 95.0 USD/JPY USD/JPY Jan Feb Mar Apr Jun Jul Aug Sep Oct Nov Dec Jan Feb % 3.0% 2.0% % 2Y swap spread 10Y swap spread Vix Oil European sovereign spread EUR/GBP (Model estimate:0.846) EUR/GBP model contributions EUR/GBP EUR/GBP Jul Aug Sep Oct Nov Dec Jan Feb Mar 2.0% % -3.0% 2Y swap spread 10Y swap spread Vix European sovereign spread EUR/CHF (Model estimate:1.226) EUR/CHF EUR/CHF Jul Aug Sep Oct Nov Dec Jan Feb Mar 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 6 7 March

7 EUR/SEK (Model estimate:8.300) 9.3 EUR/SEK EUR/SEK Jul Aug Sep Oct Nov Dec Jan Feb Mar EUR/SEK model contributions 2.0% % -3.0% 2Y swap spread 10Y swap spread Vix European sovereign spread EUR/NOK (Model estimate:7.404) EUR/NOK model contributions 7.9 EUR/NOK 7.8 EUR/NOK Jan Feb Mar Apr Jun Jul Aug Sep Oct Nov Dec Jan Feb Y swap spread 10Y swap spread Vix Oil European sovereign spread EUR/JPY (Model estimate:1.40) 0 EUR/JPY Jan Feb Mar Apr Jun Jul Aug Sep Oct Nov Dec Jan EUR/JPY Feb EUR/JPY model contributions 4.0% 3.0% 2.0% % -3.0% -4.0% % 2Y swap spread 10Y swap spread Vix European sovereign spread GBP/USD (Model estimate:1.568) GBP/USD model contributions GBP/USD GBP/USD Jul Aug Sep Oct Nov Dec Jan +/- 2 stdev Model estimate GBP/USD Feb Mar - 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 7 7 March

8 USD/CAD (Model estimate:1.018) USD/CAD model contributions USD/CAD USD/CAD Jul Aug Sep Oct Nov Dec Jan Feb Mar 2.0% - 2Y swap spread 10Y swap spread Vix Oil AUD/USD (Model estimate:1.044) AUD/USD model contributions AUD/USD AUD/USD Jul Aug Sep Oct Nov Dec Jan Feb Mar 2.0% % 2Y swap spread 10Y swap spread Vix Oil NZD/USD (Model estimate:0.844) NZD/USD model contributions NZD/USD NZD/USD Jul Aug Sep Oct Nov Dec Jan Feb Mar - 2Y swap spread 10Y swap spread Vix Oil EUR/PLN (Model estimate:4.167) 4.7 EUR/PLN EUR/PLN Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 11 Feb 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 8 7 March

9 Correlation monitor Correlation monitor current levels (52-week window) and 10-week changes (arrows) USD JPY GBP CHF AUD NZD CAD SEK NOK PLN CZK HUF RUB TRY ZAR USD JPY 80% GBP 66% 59% CHF 32% 28% 44% AUD 63% 54% 57% 19% NZD 49% 34% 44% % 84% CAD 77% 58% 74% 31% 73% 66% SEK 32% 14% 28% 24% 44% 42% 36% NOK 39% 26% 46% 31% 39% 32% 48% 69% PLN -40% -37% -11% 2% 1% 7% -8% 6% 3% CZK -3-23% -3% -7% - -19% -11% -23% - 51% HUF -24% -28% 1% 2% 20% 24% 14% % 6% 53% 32% RUB 24% % 40% 2% 53% 40% 46% 31% 33% 41% 37% 3 TRY 71% 53% 5 70% 67% 74% 56% 53% -2% -34% 22% 44% ZAR 44% 36% 51% 30% 68% 56% 52% 50% 37% -1% 43% 57% BRL 62% 41% 48% 23% 62% 56% 63% 50% 48% - 0% 0% 46% 58% 61% Notes: Correlations based on weekly changes using 52-week rolling window using EUR as numeraire. Arrows denote 10-week change in correlation. Source: Bloomberg. Highest correlation with MSCI wld. Highest correlation with 2Y swap spr. Highest correlation with crude oil # FX Corr. (10w chg.) Beta 1 JPYRUB -73% -0.85* 2 JPYHUF -72% -1* 3 JPYPLN -71% -0.94* 4 USDRUB -70% -0.62* 5 JPYCZK -69% -0.82* 6 SEKJPY 67% 0.75* 7 CADJPY 66% 0.55* 8 USDHUF -66% -0.72* 9 AUDJPY 66% 0.58* 10 USDCAD * # FX Corr. (10w chg.) Beta 1 NZDJPY 80% 0.17* 2 USDCAD 77% 0.08* 3 AUDJPY 77% 0.1* 4 NZDUSD 74% 0.1* 5 AUDUSD 70% 0.06* 6 NOKSEK 66% 0.07* 7 CADJPY 6 0.* 8 EURJPY * 9 CHFHUF -62% -0.05* 10 EURNZD 62% 0.09* # FX Corr. (10w chg.) Beta 1 USDRUB -61% -0.33* 2 EURRUB -56% -0.23* 3 GBPRUB * 4 CHFRUB * 5 EURCZK -52% -0.15* 6 NOKRUB -51% -0.22* 7 SEKRUB -48% -0.22* 8 JPYRUB -48% -0.34* 9 USDCAD -48% -0.* 10 CADRUB -48% -0.21* EUR/USD correlations USD/JPY correlations EUR/GBP correlations 1 EURGBP 66% 0.79* 2 Copper * 3 2Y swp. spr. 5 0.* 4 Global equit. 53% 0.35* 5 Aluminium 53% 0.23* 6 Zinc 50% 0.21* 7 Itraxx -47% -0.09* 8 NZDUSD * 9 US10YGOV 44% 0.05* 10 USDCAD -43% -0.66* 1 US10YSWP 68% 0.08* 2 US10YGOV * 3 Jap. equit. 63% 0.3* 4 10Y swp. spr 57% 0.09* 5 2Y10Y spr. 51% 0.08* 6 VIX -51% 0* 7 G10 Carry 48% 0.6* 8 Global equit. 42% 0.26* 9 Gold -42% -0.25* 10 US equit. 41% 0.26* 1 EURUSD 66% 0.55* 2 EURNOK 46% 0.58* 3 EURCHF 44% 1.08* 4 10Y swp. spr 29% 0.06* 5 IT10YGOV -28% -0.02* 6 EURSEK 28% 0.26* 7 Aluminium 26% USDJPY Itraxx -23% Jap. equit. 22% 0.1 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 9 7 March

10 EUR/CHF correlations EUR/SEK correlations EUR/NOK correlations 1 EURGBP 44% 0.18* 2 IT10YGOV -32% -0.01* 3 EURUSD 32% 0.11* 4 EURNOK 31% 0.16* 5 Itraxx -26% EURSEK 24% USDTRY -23% Y swp. spr 22% Global equit. 20% Aluminium 19% EURNOK 69% 0.92* 2 2Y swp. spr. 58% 0.08* 3 10Y swp. spr 39% 0.07* 4 G10 Carry -38% -0.45* 5 2Y10Y spr. -33% -0.06* 6 EURUSD 32% 0.28* 7 USDTRY 28% 0.33* 8 EURGBP 28% 0.29* 9 Gold 27% EURCHF 24% EURSEK 69% 0.52* 2 EURGBP 46% 0.37* 3 EURUSD 39% 0.26* 4 FX volatility 32% 0.05* 5 EURCHF 31% 0.6* 6 2Y swp. spr. 30% 0.04* 7 G10 Carry -29% -0.26* 8 10Y swp. spr 23% VIX 21% 0 10 US2YSWP 21% 0.06 USD/SEK correlations USD/NOK correlations NOK/SEK correlations 1 EURUSD * 2 Global equit * 3 USDTRY 61% 0.91* 4 2Y swp. spr. 60% 0.1* 5 G10 Carry -57% -0.86* 6 Ger. equit. -54% -0.33* 7 US equit. -54% -0.42* 8 EURSEK 52% 0.65* 9 NZDUSD -50% -0.53* 10 Itraxx 50% 0.11* 1 EURUSD -77% -0.74* 2 Global equit. -60% -0.39* 3 USDTRY * 4 Ger. equit. -52% -0.27* 5 G10 Carry -51% -0.67* 6 USDCAD 51% 0.74* 7 Copper -49% -0.24* 8 Itraxx 49% 0.1* 9 US equit. -48% -0.32* 10 Zinc -44% -0.18* 1 2Y swp. spr. 66% 0.07* 2 EURSEK * 3 2Y10Y spr. -44% -0.06* 4 Jap. equit. -36% -0.* 5 10Y swp. spr * 6 GR10YGOV USDTRY 23% G10 Carry -21% Global equit. -20% US equit. -20% AUD/USD correlations NZD/USD correlations USD/CAD correlations 1 NZDUSD 82% 0.69* 2 G10 Carry 74% 0.89* 3 2Y swp. spr. 70% 0.06* 4 USDCAD -57% -0.77* 5 USDTRY * 6 10Y swp. spr 54% 0.08* 7 2Y10Y spr. -54% -0.06* 8 Global equit. 53% 0.31* 9 EURPLN -47% -0.51* 10 Itraxx -46% -0.08* 1 AUDUSD 82% 0.97* 2 G10 Carry 76% 1.07* 3 2Y swp. spr. 74% 0.1* 4 USDCAD -62% -0.98* 5 USDTRY -61% -0.85* 6 Global equit. 57% 0.4* 7 Rel. equit. -53% -0.31* 8 US equit. 52% 0.38* 9 2Y10Y spr. -51% -0.07* 10 FX volatility -49% -0.* 1 2Y swp. spr. 77% 0.08* 2 Copper -68% -0.23* 3 Global equit * 4 US equit. -64% -0.29* 5 NZDUSD -62% -0.39* 6 AUDUSD -57% -0.43* 7 VIX 56% 0* 8 G10 Carry * 9 USDTRY 53% 0.47* 10 2Y10Y spr. -53% -0.06* EUR/CZK correlations EUR/RUB correlations EUR/PLN correlations 1 Crude oil -52% -0.15* 2 EURPLN 51% 0.44* 3 Global equit. -46% -0.22* 4 US equit * 5 Copper -43% -0.15* 6 US10YGOV -42% -0.03* 7 Ger. equit. -41% -0.16* 8 Itraxx 40% 0.06* 9 US10YSWP -39% -0.03* 10 Aluminium -38% -0.* 1 Crude oil -56% -0.23* 2 G10 Carry -42% -0.57* 3 EURPLN 41% 0.5* 4 EURGBP 40% 0.48* 5 AUDUSD -37% -0.42* 6 FX volatility 36% 0.09* 7 US equit * 8 VIX 34% 0* 9 EURNOK 33% 0.5* 10 Global equit. -32% -0.22* 1 Global equit. -58% -0.32* 2 US equit. -51% -0.29* 3 Itraxx 51% 0.08* 4 USDTRY 51% 0.56* 5 USDCAD 50% 0.63* 6 Ger. equit. -50% -0.22* 7 FX volatility 48% 0.09* 8 AUDUSD -47% -0.44* 9 NZDUSD * 10 G10 Carry -44% -0.48* EUR/HUF correlations USD/TRY correlations USD/ZAR correlations 1 10Y swp. spr -66% -0.05* 2 USDTRY 62% 0.87* 3 2Y swp. spr. -59% -0.05* 4 USDCAD 56% 0.89* 5 FX volatility 54% 0.* 6 EURPLN 53% 0.69* 7 Global equit. -52% -0.37* 8 AUDUSD -52% -0.62* 9 G10 Carry -51% -0.73* 1 NZDUSD -61% -0.43* 2 G10 Carry -60% -0.61* 3 FX volatility 58% 0.1* 4 AUDUSD * 5 USDCAD 53% 0.6* 6 EURPLN 51% 0.46* 7 Global equit. -50% -0.25* 8 Copper -46% -0.17* 9 Itraxx 43% 0.06* 1 AUDUSD -61% -0.94* 2 2Y10Y spr. -56% -0.07* 3 G10 Carry -52% -0.96* 4 10Y swp. spr -52% -0.07* 5 NZDUSD -48% -0.62* 6 USDTRY 47% 0.85* 7 USDCAD 38% 0.79* 8 Global equit. -36% -0.33* 9 Copper -36% -0.25* 10 US equit. -50% -0.37* 10 US equit. -43% -0.22* 10 EURPLN 34% 0.57* 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 10 7 March

11 Carry monitor Carry overview (against EUR) Carry in forward market (annualized) Carry-to-risk (carry / ATM volatility) 1W 3M 1Y 1W 3M 1Y USD 0.2% 0.2% 0.3% 0.3% USD JPY JPY GBP % GBP CHF -0.1% -0.1% -0.1% -0.2% CHF SEK 1.1% 1.1% 1.1% 1.2% SEK NOK 1.6% 1.7% 1.7% 1.7% NOK AUD 2.9% 3.1% 3.2% 3.0% AUD NZD 2.6% 2.7% 2.8% 2.9% NZD CAD 1.1% 1.1% 1.1% CAD DKK -0.2% -0.2% -0.2% -0.2% DKK n/a n/a n/a n/a PLN 3.6% 3.7% 3.7% 3.3% PLN TRY 4.9% 4.9% TRY MXN 4.0% 4.0% 3.8% 3.7% MXN ZAR 5.1% 5.3% 5.4% 5.3% ZAR Top 10 carry currency pairs () Currency pair Carry-to-risk Carry 1 TRY/USD % 2 TRY/EUR PLN/EUR % 4 AUD/CHF % 5 AUD/USD % 6 AUD/EUR % 7 AUD/CAD % 8 AUD/GBP % 9 PLN/USD % 10 NZD/CHF % Top 10 carry currency pairs (3M) Currency pair Carry-to-risk Carry 1 TRY/USD TRY/EUR % 3 PLN/EUR % 4 AUD/CHF % 5 AUD/USD % 6 AUD/EUR % 7 AUD/GBP % 8 AUD/CAD % 9 NZD/CHF % 10 NOK/EUR % G10 carry index (total return) G10 carry index (average deviation from PPP) G10 Carry index Interest rate gain 40% 30% Avg PPP missalignment % % % Source: Bloomberg, Danske Bank Markets calculations 11 7 March

12 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 9.8% % 9.1% % 8.2% % 8.4% EUR/JPY 14..4% % 18.6% % 15.7% USD/JPY 11.1% 9.9% %.6% % 11.4% % 8.7% GBP/USD 9.0% 8.4% % 8.8% % % 6.7% EUR/GBP 9.9% % 10.8% % 9.1% % 7.1% EUR/CHF 4.2% % 6.1% % 6.4% % 3.8% EUR/SEK 6.7% 7.6% % 6.9% % 7.4% % EUR/NOK 6.0% 6.7% % 7.0% % 7.2% % 6.6% EUR/AUD 8.7% 8.1% % % 8.1% EUR/NZD 9.8% 9.6% % 11.2% % 10.7% % 9.1% EUR/CAD 8.7% % 9.3% % % EUR/PLN 6.8% 5.4% % 6.6% % 7.8% % 8.6% EUR/CZK 4.9% 3.9% % 5.9% % 6.0% % 7.6% EUR/TRY 6.7% 6.0% % 7.4% % 7.1% % 7.3% EUR/RUB 6.6% 5.1% % 6.3% % 6.9% % 7.6% USD/CHF 8.2% 6.7% % 7.4% % 7.8% % 8.2% USD/SEK 9.9% % 10.6% % % USD/NOK 9.3% 8.8% % % 9.2% % 9.9% AUD/USD 7.3% 7.8% % 7.7% % 7.0% % 8.8% NZD/USD 9.0% 9.9% % 9.9% % % USD/CAD 7.3% 6.1% % 6.0% % % 6.6% NOK/SEK 5.9% 7.3% % 7.2% % % 6.9% USD/ZAR 14.4% %.1% % 11.6% % 14.2% EUR/HUF 9.1% 8.6% % 8.9% % 9.7% % 10.6% USD/TRY 5.3% 5.4% % 5.3% % 5.1% % 6.9% USD/RUB 6.7% 5.3% % 5.8% % 6.8% % 9.4% volatilities (pct.'ile) 3M volatilities 1Y volatilities EUR/USD 8.3% 8.2% 8.8% EUR/JPY 14.6% 14.2%. USD/JPY 11.6% 11.4% 11.2% GBP/USD 8.2% 8.1% 8.6% EUR/GBP 8.7% 8.4% 8.4% EUR/CHF 4.9% 4.7% 4.9% EUR/SEK 6.3% 6.4% 6. EUR/NOK 5.7% 5.8% 6.1% EUR/AUD % EUR/NZD 9.7% 9.7% 10.2% EUR/CAD 8.2% 8.1% 8. EUR/PLN 6.9% 7.1% 8.1% EUR/CZK 5.1% 5.4% 5.8% EUR/TRY 6.6% 6.8% 8.0% EUR/RUB 6.8% 7.2% 9.0% USD/CHF 7.8% 7.9% 8.7% USD/SEK 9.2% USD/NOK 8.6% 8.8% 9.9% AUD/USD 7.4% 7.8% 9.1% NZD/USD 9.1% % USD/CAD 6.7% 6.8% 7.4% NOK/SEK 5.6% % USD/ZAR.2%.8% 15.1% EUR/HUF 9.0% 9.2% 9.6% USD/TRY 5.7% 6.2% 7.9% USD/RUB 7.3% 7.8% 9.8% 0% 20% 2 0% 20% 2 1Y interval Now Average 1W ago 0% 20% 2 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 March

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

14 G10 and EM implied volatility surfaces EUR/USD 1 USD/JPY 20% EUR/JPY EUR/GBP GBP/USD EUR/CHF 0% EUR/SEK EUR/NOK 20% AUD/USD 20% NZD/USD USD/CAD EUR/PLN EUR/CZK EUR/RUB 2 USD/ZAR 20% 20% EUR/HUF 20% USD/TRY 20% USD/RUB 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 14 7 March

15 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/RUB 2547 pips 2915 pips EUR/PLN 767 pips 639 pips USD/PLN 1674 pips 1437 pips EUR/GBP 96 pips 94 pips EUR/CAD 296 pips 246 pips NZD/USD 378 pips 3 pips USD/PLN 419 pips 405 pips CAD/CHF 206 pips 161 pips USD/RUB 0 pips 9431 pips W range trade no. 1 EUR/RUB /01 04/02 09/02 14/02 19/02 24/02 01/03 06/03 11/03 1W range trade no. 2 EUR/GBP /01 04/02 09/02 14/02 19/02 24/02 01/03 06/03 11/03 range trade no. 1 EUR/PLN 4.30 range trade no. 2 EUR/CAD /11 14/ 14/01 14/02 14/ /11 14/ 14/01 14/02 14/03 3M range trade no. 1 USD/PLN /06 27/09 27/ 27/03 3M range trade no. 2 NZD/USD /06 27/08 27/10 27/ 27/02 27/04 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 15 7 March

16 Option market positioning and skew valuation 25-delta risk reversals (z-scores, vol adjusted) 1W chg 0.64 EUR/TRY 0.02 EUR/SEK 0.15 EUR/USD EUR/PLN EUR/NOK 0.39 AUD/USD 0.45 NZD/USD EUR/GBP USD/JPY USD/CAD 0.00 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 AUD/CAD EUR/CHF NZD/CAD USD/CHF GBP/NZD PLN/JPY EUR/TRY AUD/CHF EUR/SEK TRY/JPY EUR/USD SEK/JPY EUR/PLN NOK/JPY EUR/NOK USD/CAD AUD/USD USD/JPY GBP/TRY EUR/JPY Risk reversals explained by currency spot betas to equities Valuation signals from simple comparison with equity betas delta RR (vol adj) RR cheap USDTRY EURCHF R² = RR rich USDCAD USDPLN EURPLN USDCHF USDSEK USDNOK CHFTRY SEKPLN GBPAUD GBPTRY EURNZD EURAUD EURTRY CHFSEK EURSEK GBPNZD NOKSEK EURNOK EURGBP GBPSEK AUDNZD USDJPY GBPNOK GBPCAD EURCAD NOKCAD AUDCHF CADCHF GBPCHF TRYSEK NOKJPYSEKJPY AUDSEK AUDNOK NZDCHF GBPJPY CADJPY NOKCHF TRYJPY GBPUSD EURJPY CHFJPY NZDJPY TRYNOK EURUSD PLNCHF NZDUSD AUDJPY NZDCAD AUDUSD AUDCAD PLNJPY Spot beta to equities 'RR sign' = 'Risk beta sign' Residuals (simple model) # Currency Risk beta RR (adj) RR # Currency Residual RR (adj) RR 1 EURCHF rich 1 EURCHF rich 2 USDJPY rich 2 AUDCAD cheap 3 TRYNOK cheap 3 USDTRY rich 4 TRYSEK cheap 4 TRYNOK cheap 5 AUDCAD cheap 5 NZDCAD cheap 6 AUDSEK cheap 6 AUDUSD cheap 7 GBPSEK cheap 7 CHFTRY rich 8 CHFTRY rich 8 AUDSEK cheap 9 AUDNOK cheap 9 AUDNOK cheap 10 AUDNZD cheap 10 USDCAD rich EUR/USD 25-delta risk reversal USD/JPY 25-delta risk reversal Calls more expensive than puts +/- 2 std dev Calls more expensive than puts -1-2 Puts more expensive than calls -3 Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- -2 +/- 2 std dev Puts more expensive than calls Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- 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 16 7 March

17 EUR/GBP 25-delta risk reversal 2.0 Calls more expensive than puts /- 2 std dev Puts more expensive than calls Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- EUR/CHF 25-delta risk reversal 3 Calls more expensive than puts 2 1 +/- 2 std dev Puts more expensive than calls Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- EUR/SEK 25-delta risk reversal EUR/NOK 25-delta risk reversal 2 Calls more expensive than puts 2 Calls more expensive than puts 1 +/- 2 std dev 1 +/- 2 std dev Puts more expensive than calls Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- -1 Puts more expensive than calls Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- USD/CAD 25-delta risk reversal AUD/USD 25-delta risk reversal 2 Calls more expensive than puts 1 Calls more expensive than puts 1 0 +/- 2 std dev 0 +/- 2 std dev Puts more expensive than calls Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- -3 Puts more expensive than calls Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- 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 std dev 1 EUR/TRY -2 0 Puts more expensive than calls -3 Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- -1 Puts more expensive than calls Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Source: Bloomberg (synthetic risk reversal quotes are used for non-standard currency pairs), Danske Bank Markets calculations 17 7 March

18 Central bank overview Main G10 central banks outlook Official policy rate Current Next decision DB forecasts (3M--M) Official policy rate Current Next decision DB forecasts (3M--M) EUR Minimum bid rate Mar SEK Repo rate 1.00% 17 Apr USD Federal funds rate Mar NOK Sight deposit rate 1.50% 14 Mar JPY Overnight call rate Mar CAD Overnight rate 1.00% 17 Apr GBP Base rate 0.50% 07 Mar AUD Cash rate 3.00% 02 Apr CHF 3-month Libor 0.00% 14 Mar NZD Cash rate 2.50% Mar ECB market pricing 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% % Mar 0.07% Jul ECB dates EONIA Sep Refi rate Nov Jan 2014 Fed market pricing 0.30% % 0.14% % Feb Aug Fed dates USD OIS Nov Feb 2014 Fed funds target BoE market pricing Riksbank market pricing 0.50% 0.50% % % % % Mar Jul BoE dates SONIA Sep Base rate Nov Jan % 1.50% 1.08% % % 1.00% 0.70% 0.50% Feb Aug Nov Riksbank dates STINA Feb Repo rate Aug Nov 2014 Note: The charts show the cumulated market pricing of rate changes on meeting dates Source: Danske Bank Markets 18 7 March

19 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 19 7 March

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