FX Outlook EUR prospects Emmanuel Ng Treasury Research & Strategy Global Treasury, OCBC Bank 24 Jan 217
1/1/28 1/7/28 1/1/29 1/7/29 1/1/21 1/7/21 1/1/211 1/7/211 1/1/212 1/7/212 1/1/213 1/7/213 1/1/214 1/7/214 1/1/21 1/7/21 1/1/216 1/7/216 1/1/217 Jan-8 Sep-8 May-9 Jan-1 Sep-1 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-1 Jan-16 Sep-16 1-Jan-1 1-Mar-1 1-May-1 1-Jul-1 1-Sep-1 1-Nov-1 1-Jan-16 1-Mar-16 1-May-16 1-Jul-16 1-Sep-16 1-Nov-16 1-Jan-17 2 Policy dichotomy still expected to structurally weigh on the. Thus, despite firming inflation expectations surrounding the EZ, resultant implied rate differentials across various metrics remain a main driver. Apart from the FOMC, evolution and shelf life of the Trump trade may be key. 1.7 1.6 1. 1.4 1.3 1.2 1.1 1. -2. -1. -1. -... 1. 1. 2. 2. 1.6 1. 1.4 1.3 1.2 1.1 1. -2. -1. -1. -... 1. 1. 2. 1.19 1.17 1.1 1.13 1.11 1.9 1.7 1. 1.3 US-EZ 1X2y diff US-EZ yy diff Actual Fitted
3 EUR will also be weighed by potential political baggage this year. Still early days yet for the ECB to publicly acknowledge and consider a QE tapering balance sheet arguments to weigh on the common unit. Weight of balance of payments flows also argue against EUR outperformance. Ratio: FED-ECB Balance Sheet (6MMA) EZ: Basic Balance vs. EUR NEER 3. 1. EUR bn 6M % chg 4 2.8 1.4 4 2 2.6 1.4 3 2.4 1.3 2 2.2 1.3 1-2 2. 1.2-4 1.8 1.2-1 -6 1.6 1.1-2 -8 1.4 1.1-3 1.2 1. Dec-29 Dec-21 Dec-211 Dec-212 Dec-213 Dec-214 Dec-21 Dec-216-4 Jan-211 Jul-211 Jan-212 Jul-212 Jan-213 Jul-213 Jan-214 Jul-214 Jan-21 Jul-21 Jan-216 Jul-216 Jan-217 Jul-217-1 FED-ECB Bal Sheet Ratio:6MMA 6MMA EUR BB: 12mma, diff, lead 9 EUR NEER: 6mma
31/1/22 31/1/23 3/1/24 31/1/2 31/1/26 31/1/27 31/1/28 3/1/29 29/1/21 31/1/211 31/1/212 31/1/213 31/1/214 3/1/21 29/1/216 31/1/22 31/1/23 3/1/24 31/1/2 31/1/26 31/1/27 31/1/28 3/1/29 29/1/21 31/1/211 31/1/212 31/1/213 31/1/214 3/1/21 29/1/216 29/8/28 31/8/29 31/8/21 31/8/211 31/8/212 3/8/213 29/8/214 31/8/21 31/8/216 Despite an improving EZ economy, relative differences in macro fundamentals in relation to the US still favor the USD at this juncture. 11 11 1 1 9 9 8 13 12 12 11 11 1 1 99 99 3 2 1-1 -2 % yoy 6M lead 1.2 1.1 1..99 1.6 1. 1.4 1.3 1.2 1.1 % yoy 2 2 1 1 - -1-1 -2 8 98-3.98 1. -2 EUR NEER EZ Leading Index Relative leading indicator Realtive Man PMI Index (lead 3) 4
4-Jun-8 19-Feb-9 6-Nov-9 24-Jul-1 1-Apr-11 26-Dec-11 11-Sep-12 29-May-13 13-Feb-14 31-Oct-14 18-Jul-1 3-Apr-16 19-Dec-16 3/1/28 3/1/29 3/1/21 3/1/211 3/1/212 3/1/213 3/1/214 3/1/21 3/1/216 3/1/217 Relative macro surprises on a structural horizon also seem to portend a southbound. 6 4 2-2 -4-6 3M lead OCBC EZ MSI 6m % 2 1 1 - -1-1 -2 2 1 1 - -1-1 -2-2 6m% 12 1 8 6 4 2-2 -4-6 -8-8 -2 6M MSI 6M Rel MSI (6M Lead)
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