FX STRATEGY 7 January 03 The comments represented in this publication are made on the basis of a week outlook Contents EUR USD Pg USD JPY Pg 3 AUD USD Pg USD SGD Pg 5 GBP USD Pg 6 XAU USD Pg 7 Interest rate differentials and FX implied Pg 8 volatility Central Bank Monetary Policy Schedule Pg 9 Appendix Pg 0 Disclaimer Pg Growing uncertainty surrounding the USD DXY and Y Indices Index 8 8 80 78 9 8 7 76 7 3 Nov- Feb- May- Aug- Nov- DXY Index Y Index (RHS) Note: DXY Index comprises of the weighted performance of the USD against the EUR, JPY, GBP, CAD, SEK and CHF. Y Index comprises of the weighted performance of the CNY, HKD, INR, IDR, KRW, MYR, PHP, SGD, TWD and THB against the USD. Suren Chelliah Investment Strategist 6 5 Index A period of consolidation We are neutral on most pairs as technical lack conviction. We believe various events leading to the US fiscal debates (raising the debt ceiling and cutting fiscal spending) and the Bank of Japan s monetary policy decision will likely be key in providing greater clarity on the pairs Though we remain bullish on Asia ex-japan, the possibility of a small correction cannot be ruled out given the strength in the rally over the last few months EUR-USD We remain neutral on EUR-USD and seek further conviction from technical before taking a directional view on the pair USD-JPY We remain bullish on USD-JPY as most technical further upside despite overbought conditions AUD-USD We remain neutral on AUD-USD as technical continue to highlight range trading between.035 and.055 USD-SGD We turn neutral on USD-SGD (from being bearish previously) as technical suggest the current period of sideways trading is likely to continue GBP-USD** We turn neutral on GBP-USD (from being bullish earlier) as technical suggest a period of consolidation Steve Brice Rob Aspin, CFA Manpreet Gill Audrey Goh Victor Teo Chief Investment Strategist Head, Equity Investment Strategy Head, FICC Investment Strategy Investment Strategist Investment Strategist XAU-USD** We remain neutral on XAU-USD, preferring to get confirmation of a bottoming in prices before turning bullish **Going forward, we will maintain the EUR, JPY, AUD and SGD outlook while rotating the others based on relevance. Technicals Short term Spot (- weeks) Support Support Resistance Resistance EUR-USD.56.8.306.39.37 USD-JPY 8.0 85.00 88.3 90.50 9.75 AUD-USD.00.035.08.055.070 USD-SGD.0.5..35.5 GBP-USD.578.593.607.630.650 XAU-USD 580 60 68 700 735 This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank.
EUR - USD Stochastic We remain neutral on EUR-USD and seek further conviction from technical before taking a directional view on the pair EUR-USD declined (-.%) last week following minutes from the US Fed s latest monetary policy meeting that signalled a possibility of the Fed s quantitative easing program ending in 03. A continued contraction in the Euro area Manufacturing PMI also weighed on the EUR..37.39 Spot.3066.8 Strong.56 Q 03.5.9 Q 03.5.8 Technical analysis Major technical are divergent. After having corrected from the.3 level, we expect prices to consolidate at current levels before trending higher. However, we prefer to stay neutral until technical provide a clearer indication that the period of consolidation is over. We would review our outlook if we get a weekly close above.39 or below.8. Key signposts The European Central Bank (ECB) decision on Jan 0 is key. Further easing measures to the Euro area economy would be bullish for the pair. Further weakness in the Euro area unemployment rate (Jan 8), or trade balance (Jan 5) would likely weigh on the EUR. Q3 03.7.7 Q 03.30.7 *Please see Appendix on Pg 0 for explanation on technical Some consolidation likely before potential upside Technical Analysis: EUR-USD.3.3.39.30 EUR - USD.8.6...8 50 dma 00 dma 00 dma.99.9.78.0 Nov- Feb- May- Aug- Nov- EUR-USD 50 dma 00 dma 00 dma
USD - JPY We remain bullish on USD-JPY as most technical further upside despite overbought conditions Stochastics USD-JPY rose (+.55%) on growing expectations of more aggressive monetary easing by the Bank of Japan (BoJ) following Prime Minister Abe s new year statement calling for bold monetary easing. The stronger USD also contributed to the rise in the pair. 9.75 Strong 90.50 Strong Spot 88.3 85.00 8.0 Technical Analysis Major technical are bullish on balance. Though USD-JPY has rallied significantly over the last few weeks, we remain bullish. Though the pair appears overbought, technical suggest further upside potential. We would review our outlook if we get a weekly close below 85. Key signposts Weaker Japanese trade balance data (Jan ), machine tool orders (Jan 5) and industrial production (Jan 8) would fuel expectations of more aggressive monetary easing, pushing the pair higher. The Bank of Japan s (BoJ) next monetary policy meeting is scheduled for Jan. Q 03 88 8 Q 03 9 85 Q3 03 9 86 Q 03 93 87 *Please see Appendix on Pg 0 for explanation on technical Further aggressive easing by the Bank of Japan expected Technical Analysis: USD-JPY 9.00 USD - JPY 89.00 87.00 85.00 83.00 8.00 50 dma 00 dma 00 dma 8.8 80.7 80.7 90.50 85.00 79.00 77.00 75.00 Nov- Feb- May- Aug- Nov- USD-JPY 50 dma 00 dma 00 dma 3
AUD - USD We remain neutral on AUD-USD as technical continue to highlight range trading between.035 and.055 Stochastic.070.055 Strong Spot.08.035.00 Strong Q 03.00.0 Q 03.03.03 AUD-USD rose (+.03%) over the last week following optimism over the US fiscal deal and better than expected manufacturing data from China. Signs of US labour market improvement also provided for the pair. However, most of the gains were trimmed on investor risk aversion after the release of the US Fed monetary policy meeting minutes and growing uncertainty over the second round of US fiscal talks. Technical Analysis Major technical are, on balance, neutral. We maintain our neutral view as technical continue to highlight range trading between.035 and.055; the current spot, however, remains far from either extreme. We would review our outlook if the pair ends the week above.055 or below.035. Key signposts The announcement of weaker than expected Australian private sector credit growth y/y has likely raised the possibility of a further rate cut by the Reserve Bank Australia on Feb 5. Labour market data (Jan 7) is a key indicator influencing the decision. Q3 03.05.0 Q 03.07.03 *Please see Appendix on Pg 0 for explanation on technical AUD-USD likely to continue range trading Technical Analysis: AUD-USD.09.07.055 AUD - USD.05.03.0.035 0.99 0.97 50 dma 00 dma 00 dma.033.039.096 0.95 Nov- Feb- May- Aug- Nov- AUD-USD 50 dma 00 dma 00 dma
USD - SGD Stochastic.5 Strong.35 Spot..5.0 Strong We turn neutral on USD-SGD (from being bearish previously) as technical suggest that the current period of sideway trading will continue USD-SGD was up marginally (+0.7%) over the last week as Singapore s Electronics Sector Index and Purchasing Managers Index were both disappointing. Technical Analysis Major technical, on balance, are neutral to bullish. We turn neutral (from being bearish earlier) as technical suggest that the current period of sideway trading is expected to continue. We would review our outlook if the pair ends the week below.5 or above.35. Key signposts Further weakness in Singapore s retail sales (Jan 5) and Singapore s exports (Jan 7) would likely keep the SGD flat against its trading partners. Q 03.. Q 03..0 Q3 03..0 Q 03.8.9 *Please see Appendix on Pg 0 for explanation on technical USD-SGD: Likely to stay flat Technical Analysis: USD-SGD.3.9 50 dma 00 dma 00 dma..7. USD - SGD.7.5.35.3.5. Nov- Feb- May- Aug- Nov- USD-SGD 50 dma 00 dma 00 dma 5
GBP - USD Stochastic We turn neutral on GBP-USD (from being bullish earlier) as technical suggest a period of consolidation GBP-USD declined (-0.5%) over the last week as a stronger USD and weaker UK Purchasing Managers Index (PMI) for construction and services outweighed optimism arising from an expansion in UK manufacturing activity.650 Strong.630 Spot.607.593.578 Strong Q 03.58.60 Q 03.60.60 Technical Analysis Major technical are, on balance, neutral to bearish. We turn neutral on GBP-USD, from being bullish previously, after the pair corrected from the high of.638. Price patterns point to a period of consolidation before any upward bounce. However, we prefer to stay neutral until we get further clarity on the length of the consolidation period. We would review our outlook if we get a weekly close below.593 or above.630. Key signposts The Bank of England (BoE) monetary policy meeting on Jan 0 is key. Weaker industrial production data (Jan ) and manufacturing data (Jan ) would likely raise expectations of further quantitative easing by the Bank of England (BoE) in Q 0. Q3 03.63.59 Q 03.67.60 *Please see Appendix on Pg 0 for explanation on technical GBP-USD: Moving into a consolidation stage Technical Analysis: GBP-USD.6.6.630 GBP - USD.60.58.56.5.593 50 dma 00 dma 00 dma.6063.6053.590.5 Nov- Feb- May- Aug- Nov- GBP-USD 50 dma 00 dma 00 dma 6
Inflation XAU - USD We remain neutral on XAU-USD and prefer to get confirmation of a bottoming in prices before going bullish Stochastic 735 700 Spot 68 60 Weak 580 Strong XAU-USD was broadly unchanged (+0.0) over the last week as earlier gains were trimmed by the strength of the USD. The USD strengthened over the last week on concerns over the upcoming US debt ceiling and spending cuts debate. Speculation the US Fed may end its quantitative easing program in 03 also provided for the USD. Technical Analysis Major technical are divergent. We remain neutral on the pair given divergent technical. Since prices have already corrected significantly, we believe gold prices are likely to undergo a brief period of consolidation before rallying again. However, we prefer to get confirmation of a bottoming in prices before going bullish. We would review our outlook if the pair ends the week above 700 or below 60. Q 03 800 800 Q 03 900 850 Q3 03 900 860 Key signpost Though monitoring inflation expectations remains key in gauging the sustainability of the rise in gold prices, we believe the role of the USD is a significant factor, in light of the US fiscal issue and monetary policy stance. Q 03 900 895 *Please see Appendix on Pg 0 for explanation on technical Some consolidation before bouncing up Technical Analysis: XAU-USD,850.00,800.00,750.00 50 dma 00 dma 00 dma 70 76 66 700 XAU-USD,700.00,650.00,600.00 60,550.00,500.00 Nov- Feb- May- Aug- Nov- XAU-USD 50 dma 00 dma 00 dma 7
EUR-USD %.5.5 0.5 0-0.5 - Interest rate differentials Measures the yield of holding a foreign currency relative to the base currency -.5 May-07 May-08 May-09 May-0 May- May- 3 mth EUR LIBOR less 3 mth USD LIBOR EUR-USD (RHS).7.6.5..3.. EUR-USD 0 8 6 0 8 FX Implied Volatility An approximate indicator used to gauge future expectations of price movements based on FX options market pricing 6 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan-3 W Implied Volatility USD-JPY 5 3 % 0 - May-07 May-08 May-09 May-0 May- May- 3mth USD LIBOR less 3mth JPY LIBOR USD-JPY (RHS) 35 5 5 05 95 85 75 USD-JPY 9 7 5 3 9 7 5 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan-3 W Implied Volatility AUD-USD 6 5 % 3 0 May-07 May-08 May-09 May-0 May- May- 3mth AUD LIBOR less 3mth USD LIBOR AUD-USD (RHS).. 0.9 0.8 0.7 0.6 0.5 AUD-USD 7 3 9 5 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan-3 W Implied Volatility USD-SGD 3 % 0 - May-07 May-08 May-09 May-0 May- May- 3mth USD LIBOR less 3mth SGD SIBOR USD-SGD (RHS).65.55.5.35.5.5 USD-SGD 8 6 0 8 6 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan-3 W Implied Volatility GBP-USD % 3.5 3.5.5 0.5 0 May-07 May-08 May-09 May-0 May- May- 3mth GBP LIBOR less 3mth USD LIBOR GBP-USD (RHS)..5.6.7.8.9. GBP-USD 0 8 6 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan-3 W Implied Volatility 8
Central Bank Monetary Policy Meeting Schedules 03* FX Strategy Policy rate** Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Majors US 0.5 30 0 3 30 8 UK 0.50 0 7 7 9 6 0 7 5 Euro area 0.75 0 7 7 6 7 5 Japan 0.0 7 8 5 0 Australia 3.5 5 5 7 6 3 5 3 New Zealand.50 30 8 3 5 Canada.00 3 6 7 9 7 3 Switzerland 0.00 0 9 Asia ex-japan China 6.00 India 8.00 South Korea.75 9 3 8 0 Taiwan.875 Singapore - Expected Expected Malaysia 3.00 30 7 9 5 7 Indonesia 5.75 0 7 3 5 8 Thailand.75 9 0 3 9 0 6 7 Philippines 3.50 8 5 0 3 5 7 * Subject to change ** Data as of 7 Jan 0
EXPLANATORY APPENDIX (Relative Strength Index) The can be used to describe the speed at which prices move over a given time period. An above 70 can indicate a currency pair is overbought while an 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 0%, while a reading of 80% is considered overbought. (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. (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. 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.
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