fx strategy Near-term USD support likely following FOMC fx 16 June 2017 This reflects the views of the Wealth Management Group

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1 fx strategy fx 16 June 2017 This reflects the views of the Wealth Management Group Near-term USD support likely following FOMC We believe the Fed rate hike and signal of a gradual, but continued pace of rate hikes is likely to support US Treasury yields and the USD near term. In our view, long USD/JPY and short gold are the best ways to position for a near-term rebound in US bond yields. The GBP s failure to recover towards 1.30 points to further declines. In addition to this, we believe central banks are likely to limit currency appreciation, which suggests limited further upside to the SGD as a regional proxy. This week, speeches by key FOMC members further explaining their thinking will likely be key for currency markets. In addition, the RBNZ policy outlook will be followed closely for implications on the NZD. Pairs Outlook (2-4 wk) Summary comments Support 2 Support 1 Spot Resistance 1 Resistance 2 EUR/USD Pullback continues to develop, next support USD/JPY Bullish Strong technical rebound above 110 signals end to downturn AUD/USD Approaching upper end of medium-term trading range USD/SGD Bullish Increasing indications of a near-term bottom forming GBP/USD Bearish Uncertainty to continue to weigh on GBP near-term XAU/USD Bearish Double-Top formation; expect further downside NZD/USD Overbought correction likely from here EUR/GBP Strong technical break above key resistance in progress USD/CNH Likely to settle in a lower ( ) for now USD/CHF Possible indications of a near-term bottom USD/CAD Break below key DMAs highlight further downside risks AUD/NZD Possible bottom forming, follow-through key Darker shade indicates more important technical levels 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, cooperative 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 Near-term USD support likely following FOMC 1 12 month outlook week outlook 3 FX trade ideas 3 Week in Review 4 EUR/USD 5 USD/JPY 6 AUD/USD 7 USD/SGD 8 GBP/USD 9 XAU/USD 10 NZD/USD 11 Interest Rate Differentials 15 FX Implied Volatility 16 Consensus forecasts 17 Disclosure Appendix 19 Steve Brice Chief Investment Strategist Tariq Ali, CFA Investment Strategist Clive McDonnell Head, Equity Investment Strategy Abhilash Narayan Investment Strategist Manpreet Gill Head, FICC Investment Strategy Trang Nguyen Analyst, Asset Allocation & Portfolio Solutions Adi Monappa, CFA Head, Asset Allocation & Portfolio Solutions DJ Cheong Investment Strategist Audrey Goh, CFA Director, Asset Allocation & Portfolio Solutions Jeff Chen Analyst, Asset Allocation & Portfolio Solutions Arun Kelshiker, CFA Executive Director, Asset Allocation & Portfolio Solutions Audrey Tan Investment Strategist Rajat Bhattacharya Investment Strategist This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 2

3 12 month outlook 2-4 week outlook Currency EUR JPY GBP AUD NZD CAD CHF CNY KRW SGD MYR IDR INR THB PHP Bullish Bearish Please see the Global Market Outlook for more details 12 month Pairs EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD NZD/USD EUR/GBP USD/CNH USD/CHF USD/CAD AUD/NZD FX trade ideas Outlook (2-4 wk) Bullish Bullish Bearish Bearish Entry Current Initiation date Pairs Position price price Target Stop 12/06/2017 USD/JPY Long /06/2017 XAU/USD Short Please see the corresponding FX trade note for more details on each trade idea This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 3

4 Week in Review Weekly performance of core pairs 08 Jun 2017 to 15 June 2017 EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD NZD/USD Weekly performance of supplementary pairs 08 Jun 2017 to 15 June 2017 EUR/GBP USD/CNH USD/CHF USD/CAD AUD/NZD Pairs EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD NZD/USD Week in Review EUR/USD was down (-0.62). The EUR trade largely range-bound ahead of the FOMC meeting. However, it fell sharply after the Fed hiked interest rates and struck a hawkish tone in its comments. USD/JPY was up (0.83). The USD/JPY fell ahead of the FOMC meeting amid disappointing US retail sales and core inflation data. The USD/JPY, though, pared losses after the Fed hiked interest rates and remained constructive on prospects of long-run inflation. The BoJ maintained its current policy. AUD/USD was up (0.42). The AUD extended gains this week, amid better than expected Australian jobs data, despite a continued fall in iron-ore prices. USD/SGD was up (0.12). Earlier in the week, the SGD rose sharply following weak US inflation, but pared gains following the FOMC statement amid a stronger USD overall. GBP/USD was down (-1.53) The pair fell following the UK election results, but failed to sustainably breach 1.280, even as the BoE struck a more hawkish tone. UK wage growth disappointed consensus. XAU/USD was down (-1.88). Gold fell during the week as 10-year US yields gained modestly as the Fed maintained its policy guidance. NZD/USD was down (-0.10). The NZD fell as the USD recovered after the Fed rate decision and as data showed New Zealand GDP growth was below consensus expectations. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 4

5 EUR/USD We remain neutral, as negative technical signals and a resurgent USD could limit gains. Fundamental Overview The Fed maintaining its forward guidance is likely to be supportive for the broad USD. In addition, most near-term positive surprises for the EUR may be priced-in the short term. As a result, we may see a period of consolidation until a catalyst for the next leg up emerges. We believe an earlier withdrawal of ECB stimulus remains the main catalyst for a stronger EUR medium-term. Technical Analysis The pullback from the resistance levels continues to develop and confirms a near-term top. The next support level is likely to come in the region, which includes the 50DMA and the 38.2 Fibonacci retracement of the 2017 rally. As a result, either a fall below or a rally above is likely to set directional trends in the short-term. Pullback continues to develop, next support Key technical indicators* Technical Indicator Action RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Level Importance Resistance High Resistance High Spot Support Medium Support High EUR/USD EUR/USD 50DMA 100DMA 200DMA Key Signposts ECB current account 19-Jun Euro area consumer 22-Jun confidence Euro area PMI confidence 23-Jun * 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 remain bullish as the Fed maintains its inflation outlook while technical signals turn positive. Fundamental Overview The outlook for the JPY remains anchored to US 10-year yields (we expect them to rise) as well as the continuing divergence between US and Japan monetary policies. While the Fed acknowledged the recent slower-than-anticipated inflation data, it expects inflation to gradually rise towards its 2 target by Correspondingly, the BoJ maintained its excessive easing stance as inflation continues to decline, offsetting speculation about a potential BoJ taper. Technical Analysis The recent impulsive rebound above 110 and the 50 and 200DMAs now sets the stage for a deeper rally. The next major resistance is at 112, which lies close to the 100DMA; a breach of this could lead to a challenge of the May top. The positive setup remains intact above (upward slopping trend line from the 2017 low). Strong technical rebound above 110 signals end to downturn USD/JPY USD/JPY 50DMA 100DMA 200DMA Bullish Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance High Resistance Medium Spot Support Medium Support High Key Signposts Japan trade balance 18-Jun * 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, as we do not believe key fundamentals support a sustainable AUD rally. Fundamental Overview While data showed the Australian unemployment rate falling to a four year low, we do not believe the current AUD rally is sustainable. The pair is trading close to the top end of its medium term range and only a hawkish shift in RBA s policy outlook or a significant rebound in iron-ore prices is likely to lead to a sustained rally. We do not think either is likely short term. Technical Analysis The rebound from continues to develop further with the breach of key moving averages. However the downward trending resistance line from the 2016 low (currently falling around 0.770) will be a first indicator of whether a deeper rally can develop from here. A break of would confirm a medium term bullish trend, in our opinion. Approaching upper end of medium-term trading range AUD/USD AUD/USD 50DMA 100DMA 200DMA Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance High Resistance High Spot Support Medium Support High Key Signposts RBA June meeting minutes 20-Jun * 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 bullish, as we see further evidence of the formation of a near term bottom. Fundamental Overview The outlook for the SGD is tied to the performance of key trade partner currencies through its policy basket; we believe most regional central banks are likely to limit appreciation of their currencies. Although, the general environment remains supportive (low volatility, stable China) we believe most positives have been priced-in and would wait for further evidence of a rebound in regional exports before expecting meaningful gains in regional currencies. Technical Analysis Sideways price action continued to develop further last week. While the medium term downtrend remains intact, we see increasing signs of a near term bottom forming. A followthrough here above (50DMA) would be a bullish signal while a break below (recent low) would suggest a potentially deeper pullback. Increasing indications of a near-term bottom forming USD/SGD USD/SGD 50DMA 100DMA 200DMA Bullish Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance Medium Resistance High Spot Support High Support Medium Key Signposts Singapore CPI y/y Singapore industrial production 23-Jun 23-Jun * 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 bearish amid near term uncertainty and a continued bearish technical setup. Fundamental Overview We believe recent negative data surprises are likely to add pressure on the GBP amid increased political uncertainty as PM May starts Brexit negotiations without the support of a parliamentary majority. Although the latest BoE meeting suggests members are increasingly concerned about rising inflation, we do not believe they will change their stance for now. Technical Analysis The impulsive the breakdown below 1.280, following failure to breach the 1.300, now sets the stage for a deeper retracement lower. While there is some support around the 100 and 200DMA, the pullback could ultimately extend to (upward trending slope line from the Dec 2016 low). Only a convincing breach of is likely to negate the bearish bias. Uncertainty to continue to weigh on GBP near-term GBP/USD GBP/USD 50DMA 100DMA 200DMA Bearish Key technical indicators* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance High Resistance High Spot Support High Support Medium Key Signposts No major data releases * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 9

10 XAU/USD We remain bearish, amid expectations of higher US Treasury yields near term. Fundamental Overview While the Fed acknowledged the recent slower-than-expected inflation data, it sees inflation gradually rising towards its target and, thus, it maintained its median forecast for one more rate hike this year. Although US Treasury yields fell after the latest inflation data, we expect yields to rebound amid still-stretched long positioning and as a tighter job market lifts wage growth. Higher US rates are likely to continue weigh on non-yielding gold in the short term. Technical Analysis The retreat from the key 1300 resistance level now confirms a double-top. Gold is now challenging key moving averages (1250) and the move from here could determine if we are seeing a temporary setback or a much deeper retracement lower. Double-top formation; expect further downside XAU/USD 1,400 1,350 1,300 1,250 1,200 1,150 1,250 1,300 1,100 XAU/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) Action Key Levels Level Importance Resistance Medium Resistance High Spot 1254 Support High Support Medium Key Signposts FOMC member speeches Jun * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 10

11 NZD/USD We remain neutral amid supportive technicals and positive data surprises. Fundamental Overview Despite decent domestic growth, we do not expect the RBNZ to alter its policy stance or change its communication meaningfully. We believe the RBNZ continues to see a stronger NZD limiting the need for policy tightening even as growth remains strong. Q1 GDP data was, however, slightly below consensus estimates. Technical Analysis The recent modest decline highlights possibility of a corrective phase amid generally overbought technical setup. However, we would wait for more follow-through to determine if the downward trending price channel from the 2016 high is still intact or if the correction is likely to be short-lived. Overbought correction likely from here NZD/USD NZD/USD 50DMA 100DMA 200DMA Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Key Levels Level Importance Resistance High Resistance Medium Spot Support Medium Support Medium Key Signposts RBNZ policy rate 21-Jun * Please see Appendix for explanation on technical This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 11

12 SUPPLEMENTARY PAIRS Strong technical break above key resistance in progress View 0.92 EUR/GBP We turn neutral (from bullish) as the technical break-out failed to sustain. We believe a stronger USD near term could pressure the EUR against most major peers near term. EUR/GBP 50DMA 100DMA 200DMA Likely to settle in a lower ( ) for now View USD/CNH USD/CNH 50DMA 100DMA 200DMA We remain neutral. USD/CNY stabilised after falling below its 200DMA after a likely shift in the PBoC s policy remains key resistance near-term. We expect the USD/CNY to settle in a lower trading range short term. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 12

13 SUPPLEMENTARY PAIRS (cont d) Possible indications of a near-term bottom View 1.04 USD/CHF USD/CHF 50DMA 100DMA 200DMA We remain neutral. However, the rebound above support amid an overbought setup highlights risks of a deeper follow-through. Break below key DMAs highlight further downside risks View 1.42 USD/CAD USD/CAD 50DMA 100DMA 200DMA We turn neutral (from bullish), following break below key moving averages. However, we doubt the bear rally can extend meaningfully given weak sentiment in the oil markets and a resurgent USD. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 13

14 SUPPLEMENTARY PAIRS (cont d) Possible bottom forming, follow-through key View 1.15 AUD/NZD AUD/NZD 50DMA 100DMA 200DMA We remain neutral. The recent rebound is starting to display indications of a near-term bottom forming. We believe the AUD/NZD will continue to face downside risk until iron-ore prices show greater resilience. This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 14

15 Interest Rate Differentials EUR/USD USD/JPY AUD/USD Jun-14 Jun-15 Jun-16 Jun-17 EUR-USD 2 year interest rate differential EUR/USD (RHS) EUR/USD Jun-14 Jun-15 Jun-16 Jun-17 USD-JPY 2 year interest rate differential USD/JPY (RHS) USD/JPY Jun-14 Jun-15 Jun-16 Jun-17 AUD-USD 2 year interest rate differential AUD/USD (RHS) AUD/USD GBP/USD NZD/USD USD/CAD GBP/USD NZD/USD USD/CAD Jun-14 Jun-15 Jun-16 Jun-17 GBP-USD 2 year interest rate differential GBP/USD (RHS) Jun-14 Jun-15 Jun-16 Jun-17 NZD-USD 2 year interest rate differential NZD/USD (RHS) Jun-14 Jun-15 Jun-16 Jun-17 USD-CAD 2 year interest rate differential USD/CAD (RHS) This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 15

16 FX Implied Volatility EUR/USD USD/JPY AUD/USD Jun-14 Mar-15 Dec-15 Sep-16 Jun-17 EUR 1M implied vol Jun-14 Mar-15 Dec-15 Sep-16 Jun-17 JPY 1M implied vol Jun-14 Mar-15 Dec-15 Sep-16 Jun-17 AUD 1M implied vol GBP/USD NZD/USD USD/CAD Jun-14 Jun-15 Jun-16 Jun-17 GBP 1M implied vol Jun-14 Mar-15 Dec-15 Sep-16 Jun-17 NZD 1M implied vol Jun-14 Mar-15 Dec-15 Sep-16 Jun-17 CAD 1M implied vol This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 16

17 Consensus forecasts Consensus Forecasts Spot 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. 17

18 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. 18

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