fx strategy Key levels hold despite volatility EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD

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Basil Edwards
5 years ago
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1 fx strategy fx 24 August 2015 The views expressed in this publication are made on the basis of a 2-4 week outlook and may differ from our longer term views and forecasts from the Global Research function Key levels hold despite volatility The USD pulled back sharply against the EUR, JPY and Gold as recent market volatility scaled back market expectations of an imminent Fed rate hike. Gold remains posed just below its 100 day moving average despite the significant jump due to safe haven demand. This represents an opportunity to sell, in our view. The EUR remains similarly-poised near key resistance, though risk/reward favours awaiting a close before taking a directional view. We remain neutral on, albeit with a negative bias, as it is now at the upper end of its consolidation range. We remain bullish on the pair as the broader bullish undertone is expected to gradually help it recover. Contents Key levels hold despite volatility XAU/USD (Gold) 7 SUPPLEMENTARY PAIRS 8 Interest Rate Differentials 10 FX Implied Volatility 10 Disclosure Appendix 12 Weekly performance of pairs 14 August 2015 to 21 August We remain bearish on the pair as trend and momentum both look weak We remain neutral on the pair as upward momentum in the pair appears to have slowed is a key resistance. XAU/USD We turn bullish on the pair (from neutral earlier) as technical signals have begun to turn positive. XAU/USD We remain bearish on gold and believe the price is unlikely to rise above USD 1,166, the 100-day moving average % Steve Brice Chief Investment Strategist Clive McDonnell Head, Equity Investment Strategy Manpreet Gill Head, FICC Investment Strategy Adi Monappa, CFA Head, Asset Allocation Audrey Goh, CFA Senior Investment Strategist Victor Teo, CFA Investment Strategist Tariq Ali, CFA Investment Strategist Abhilash Narayan Investment Strategist Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res Bullish Bearish Bullish XAU/USD Bearish USD/CNH* USD/ZAR* Bullish NZD/USD* Bearish USD/CHF* USD/SEK* USD/CAD* Bullish *SUPPLEMENTARY PAIRS - Going forward, we will maintain the EUR, JPY, AUD, SGD, GBP and XAU outlook while adding just key technical levels for the supplementary pairs 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 any such person(s). 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 We remain neutral on, albeit with a negative bias, as it is now at the upper end of its consolidation range. Performance ended up (2.49%) over the previous week. Consumer confidence rose slightly in August. Manufacturing PMI was stronger than expected. In the US, flash manufacturing PMI for August disappointed relative to expectations. Existing home sales rose to an eight-year high. Jobless claims were up slightly but the labour market continued to show improvement. Consumer prices rose slightly, marking it the sixth straight month of increases. Technical Analysis Major technical indicators are largely divergent. We remain neutral on. The pair appears to be consolidating within a broad range. We hold a negative bias given the pair is now at the upper end of this range. Earlier overcrowded positioning has also adjusted. However, we believe it is prudent to see a turn lower in the pair first before considering turning bearish given the pair is currently slightly above the consolidation band. We would review our outlook if the pair moves above Key Signposts Euro area Manufacturing and services PMI (24 August), business and consumer confidence, inflation expectations and industrial and services sentiment (28 August). US Services PMI and new home sales (25 August), core durable goods orders (26 August), Q2 GDP, pending home sales and jobless claims (27 August), Michigan consumer sentiment and business expectations, and personal income and expenditure (28 August). Key technical indicators and forecast* Technical Indicator Action RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Level Importance Secondary Resistance High Primary Resistance High Spot Primary Support High Secondary Support Medium Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical short positioning has reduced Technical Analysis Chart: (Daily) This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 2

3 We remain bullish on the pair as the broader bullish undertone is expected to gradually help it recover. Performance ended down (-1.83%) over the previous week. The economy shrank at an annualised pace of 1.6% in the April-June period, contracting for the first time in three quarters owing to weak exports and consumer spending. However, July exports rose 7.6% y/y compared with expectations of a 5.5% increase. The trade deficit widened. The Tankan survey, a gauge of business sentiment, hit a oneyear high in August. August flash manufacturing rose to 51.9 compared with 51.2 the previous month. Technical Analysis Major technical indicators, on balance, are bullish to neutral. We remain bullish on. The pair saw a minor setback last week as it failed to clear its previous all-time high and subsequently fell back on safe haven demand. However, given that the rebound of July 2015 lows has still not been violated, we still expect the pair to regain upside momentum. We believe the broader undertone remains bullish and the recent correction offers an attractive entry point to go long. Key Signposts Household spending, national CPI, unemployment rate and retail sales (28 August). Key technical indicators and forecast* Technical Indicator Action RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Level Importance Secondary Resistance Medium Primary Resistance High Spot Primary Support Medium Secondary Support High Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical still in a structural bullish up-cycle Technical Analysis Chart: (Daily) This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 3

4 We remain bearish on the pair as trend and momentum both look weak. Performance ended down (-0.85%) over the previous week. The RBA, in its policy meeting, felt interest rates and accommodative monetary policy were appropriate, while the weaker currency helped support exports in adjusting to the post-mining boom. New vehicle sales dropped 1.3% in July, having risen in the previous month. In China, a private sector survey showed factory activity shrank to a 6.5-year low, as domestic and exports orders dwindled. Technical Analysis Major technical indicators, on balance, are neutral to bearish. We remain bearish on. The trend looks bearish for the pair since it broke a key multi-month trend-line support below Any pullback is unlikely to sustain for long, in our view, and should be used as an opportunity to sell. We would review our outlook if it moves above Key Signposts Australia Construction work (25 August), building capital expenditure, plant/machinery capital expenditure and private new capital expenditure (27 August). China No events scheduled. Key technical indicators and forecast* Technical Indicator Action RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Level Importance Secondary Resistance Medium Primary Resistance Medium Spot Primary Support Medium Secondary Support Medium Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical in a structural downtrend Technical Analysis Chart: (Daily) This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 4

5 We remain neutral on the pair as upward momentum in the pair appears to have slowed is a key resistance. Performance ended up (0.10%) over the previous week. Non-oil exports declined by 0.8% y/y in July, lesser than expected. Sales of private homes by developers more than tripled in July compared with a year ago. Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Technical Analysis Major technical indicators, on balance, are divergent. We remain neutral on. Last week, the pair struggled to make significant gains following the sizeable rally it already witnessed from June onwards, implying some slowing in momentum. It has exceeded key short-term moving averages (like the 20 and 50 day moving averages), raising the chances of correction. Thus, we prefer to remain neutral at the current juncture. We would review our outlook if the pair moves below or above Key Signposts CPI (24 August), industrial production (26 August). Key Levels Level Importance Secondary Resistance Medium Primary Resistance High Spot Primary Support Medium Secondary Support Medium Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical rally seems stretched in the near term Technical Analysis Chart: (Daily) This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 5

6 We turn bullish on the pair (from neutral earlier) as technical signals have begun to turn positive. Performance ended up (0.33%) over the previous week. Consumer price inflation ticked up 0.1% y/y in July against expectations of remaining flat. Factory gate prices fell 1.6% annually and house prices rose 5.7% in June, up from 5.6% in May. Finally, retail sales rose lesser than expected in July. Technical Analysis Major technical indicators, on balance, are bullish. We turn bullish on (from neutral earlier). Last week, the pair surpassed the barrier and broke above the five consecutive side-way trading range, implying a bullish outlook. Technical indicators are starting to turn up, pointing to the potential for the next up-leg to develop over the coming weeks as prices also start to move up in tandem. We would review our outlook if the pair falls below Key Signposts Nationwide house price index (27 August), Gfk consumer confidence, Q2 GDP and business investment (28 August). Key technical indicators and forecast* Technical Indicator Action RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Key Levels Level Importance Secondary Resistance Medium Primary Resistance Low Spot Primary Support Medium Secondary Support Medium Forecast Consensus Q Q Q Q * Please see Appendix on Pg 11 for explanation on technical continues to inch higher amid volatility Technical Analysis Chart: (Daily) This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 6

7 XAU/USD (Gold) We remain bearish on gold and believe the price is unlikely to rise above USD 1,166, the 100-day moving average. Performance XAU/USD ended up (4.10%) over the previous week. Gold received a boost this week as safe haven demand rose amid heighted financial market volatility. Minutes of the Fed s monetary policy meeting put downward pressure on the US dollar. Key technical indicators and forecast* Technical Indicator RSI (14) Oscillator (5,10) MACD (12,26,9) ADX (14) Momentum (14) Action Technical Analysis Major technical indicators, on balance, are divergent. However, we remain bearish on the XAU/USD pair. Gold saw a surprisingly strong rebound and ended perfectly at the earlier broken trend-line connecting November-2014 and March-15 lows, achieving its potential rebound objective. We believe the pair is unlikely to sustain or cross above the 100 DMA (1,166) which, in turn, would most likely attract sellers given the larger bearish trend remains prevalent. We would review our outlook if the pair moves above 1,200. Key Signposts Surprises in economic data, especially those related to inflation and labour market conditions, could impact the timing of the US interest rate hike, which is likely to weigh on the US dollar. Key Levels Level Importance Secondary Resistance 1,200 High Primary Resistance 1,166 Medium Spot 1,160 Primary Support 1,080 Medium Secondary Support 1,000 High Forecast Consensus Q ,152.5 Q ,170.0 Q ,179.5 Q ,191.0 * Please see Appendix on Pg 11 for explanation on technical Longer-term bearish trends prevail Technical Analysis Chart: XAU/USD (Daily) 1,400 1, ,300 XAU/USD 1,250 1,200 1,150 1,166 1,100 1,050 1,080 1,000 XAU/USD This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 7

8 SUPPLEMENTARY PAIRS *SUPPLEMENTARY PAIRS Going forward, we will maintain the EUR, JPY, AUD, SGD, GBP and XAU outlook while adding just key technical levels for the supplementary pairs We remain neutral on USD/CNH Technical Analysis: USD/CNH USD/CNH USD/CNH We remain bullish on USD/ZAR Technical Analysis: USD/ZAR USD/ZAR USD/ZAR We remain bearish on NZD/USD Technical Analysis: NZD/USD NZD/USD Jul-13 Oct-13 Feb-14 Jun-14 Sep-14 Jan-15 May-15 Aug-15 NZD/USD This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 8

9 We turn neutral on USD/CHF (from bullish earlier) Technical Analysis: USD/CHF USD/CHF Oct-13 Jan-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 USD/CHF We turn neutral on USD/SEK (from bullish earlier) Technical Analysis: USD/SEK USD/SEK Oct-13 Jan-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 USD/SEK We remain bullish on USD/CAD Technical Analysis: USD/CAD USD/CAD Jun-13 Oct-13 Jan-14 May-14 Sep-14 Jan-15 Apr-15 Aug-15 USD/CAD This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 9

10 Interest Rate Differentials Measures the yield of holding the foreign currency relative to the base currency % Dec-09 May-11 Oct-12 Mar-14 Aug-15 Difference between EUR and USD 2 yr swap (RHS) FX Implied Volatility An appropriate indicator used to gauge future expectations of price movements based on FX options market pricing Jan-11 Mar-12 Apr-13 Jun-14 Aug-15 2W Implied Volatility % Dec-09 May-11 Oct-12 Mar-14 Aug-15 Difference between USD and JPY 2 yr swap (RHS) % Dec-09 May-11 Oct-12 Mar-14 Aug-15 Difference between AUD and USD 2 yr swap (RHS) 0 Jan-11 Mar-12 Apr-13 Jun-14 Aug-15 2W Implied Volatility Jan-11 Mar-12 Apr-13 Jun-14 Aug-15 2W Implied Volatility % Dec-09 May-11 Oct-12 Mar-14 Aug-15 Difference between USD and SGD 2 yr swap (RHS) 0 Jan-11 Mar-12 Apr-13 Jun-14 Aug-15 2W Implied Volatility % Dec-09 May-11 Oct-12 Mar-14 Aug-15 Difference between GBP and USD 2 yr swap (RHS) 0 Jan-11 Mar-12 Apr-13 Jun-14 Aug-15 2W Implied Volatility This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 10

11 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. 11

12 Disclosure Appendix This document is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This document does not necessarily represent the views of every function within the Standard Chartered Bank, particularly those of the Global Research function. Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. In Dubai International Financial Centre ( DIFC ), the attached material is circulated by Standard Chartered Bank DIFC on behalf of the product and/or Issuer. Standard Chartered Bank DIFC is regulated by the Dubai Financial Services Authority (DFSA) and is authorised to provide financial products and services to persons who meet the qualifying criteria of a Professional Client under the DFSA rules. The protection and compensation rights that may generally be available to retail customers in the DIFC or other jurisdictions will not be afforded to Professional Clients in the DIFC. Banking activities may be carried out internationally by different Standard Chartered Bank branches, subsidiaries and affiliates (collectively SCB ) according to local regulatory requirements. With respect to any jurisdiction in which there is a SCB entity, this document is distributed in such jurisdiction by, and is attributable to, such local SCB entity. Recipients in any jurisdiction should contact the local SCB entity in relation to any matters arising from, or in connection with, this document. Not all products and services are provided by all SCB entities. 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fx strategy USD approaching key support EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD

fx strategy USD approaching key support EUR/USD USD/JPY AUD/USD USD/SGD GBP/USD XAU/USD fx strategy fx 18 May 2015 The views expressed in this publication are made on the basis of a 2-4 week outlook and may differ from our longer term views and forecasts from the Global Research function