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 USD approaching key support The USD ended the week lower against most major peers after disappointing retail sales data. However, the USD is now approaching important technical levels against most peers. Given we believe most negative US data may already be incorporated by the market, the USD pullback may be close to running its course. The week ahead is data heavy, with meeting minutes due from four major central banks (Fed, ECB, BoE, RBA). Furthermore, EU and US CPI data are key for the USD. We turn bearish on the pair (from neutral earlier) as the rebound appears to be increasingly stretched, in our opinion. Contents USD approaching key support 1 2 USD/JPY 3 4 USD/SGD 5 6 XAU/USD (Gold) 7 SUPPLEMENTARY PAIRS 8 Interest Rate Differentials 10 FX Implied Volatility 10 Disclosure Appendix 12 USD/JPY We remain neutral on the USD/JPY pair and expect it to continue to consolidate within a 118.50-121.50 range. Weekly performance of pairs 8 May 2015 to 15 May 2015 2.25 We remain bearish on the pair and expect the rally to fade given weakening technical indicators. USD/JPY -0.43 USD/SGD -0.59 1.29 USD/SGD We remain neutral on USD/SGD. Moderating momentum highlights the risk of a trend reversal, but directional signals remain weak. 1.76 XAU/USD 3.06-1.00-0.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 % We turn bearish on the pair (from neutral earlier) as technical indicators point to the possibility of a short-term pullback. XAU/USD We remain neutral on XAU/USD and expect the pair to continue to trade in a broad sideways range. Steve Brice Clive McDonnell Manpreet Gill Adi Monappa, CFA Audrey Goh, CFA Victor Teo, CFA Tariq Ali, CFA Abhilash Narayan Chief Investment Strategist Head, Equity Investment Strategy Head, FICC Investment Strategy Head, Asset Allocation Investment Strategist Investment Strategist Investment Strategist Investment Strategist Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res Bearish 1.080 1.100 1.143 1.150 1.180 USD/JPY 116.00 118.50 119.62 121.50 124.00 Bearish 0.745 0.770 0.802 0.825 0.850 USD/SGD 1.295 1.315 1.322 1.340 1.356 Bearish 1.540 1.560 1.573 1.585 1.620 XAU/USD 1140 1180 1,225 1250 1280 USD/CNH* 6.147 6.185 6.204 6.230 6.282 USD/ZAR* 10.625 11.342 11.826 12.562 13.500 NZD/USD* 0.700 0.730 0.744 0.780 0.790 USD/CHF* Bullish 0.885 0.908 0.917 0.936 0.960 USD/SEK* 7.800 8.150 0.821 9.000 9.465 USD/CAD* Bullish 1.160 1.190 1.203 1.240 1.280 *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. 1
We turn bearish on the pair (from neutral earlier) as the rebound appears to be increasingly stretched, in our opinion. Performance ended up (2.25%) over the previous week. Greece received continued ECB emergency support after Euro area members welcomed progress on reforms. However, a final agreement still remains elusive. Q1 growth expanded 0.4%, outpacing the US and UK. In the US, retail sales remained unchanged in April, which was weaker than consensus estimates. Job creation picked up after last year s winter lull and pushed unemployment to a seven-year low of 5.4%. Subdued wage growth is likely to delay the Fed s rate hike until September. Technical Analysis Major technical indicators, on balance, are neutral. However, we turn bearish on pair (from neutral earlier). The pair had a surprisingly strong session last week, which saw it settle just below the previous swing high of 1.150. Short-term technicals are in overbought territory. Also, the presence of key resistance levels nearby may lead to profit booking around current levels. We would review our outlook if the pair moves above 1.150. Key Signposts Euro area ZEW survey expectations, CPI (19 May), Markit manufacturing, services, composite PMI, consumer confidence and the ECB account of the monetary policy meeting (21 May). US NAHB housing market index (18 May), housing starts and building permits (19 May), FOMC meeting minutes, Chicago Fed national activity, existing home sales and claims (21 May), CPI (22 May). 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 1.180 High Primary Resistance 1.150 Low Spot 1.143 Primary Support 1.100 High Secondary Support 1.080 Medium Forecast Consensus Q2 2015 1.12 Q3 2015 1.08 Q4 2015 1.05 Q1 2016 1.05 * Please see Appendix on Pg 11 for explanation on technical continues to consolidate following its earlier sharp sell-off Technical Analysis Chart: (Daily) 1.40 1.35 1.0908 1.1188 1.1941 1.30 1.25 1.20 1.15 1.150 1.10 1.05 1.100 1.00 This reflects the views of the Wealth Management Group 2
USD/JPY We remain neutral on the USD/JPY pair and expect it to continue to consolidate within a 118.50-121.50 range. Performance USD/JPY ended down (-0.43%) over the previous week. The current account surplus jumped to a seven-year high, as higher exports, investment returns and tourists and lower energy bills boosted the surplus. 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 neutral. We remain neutral on the USD/JPY pair. The pair continued to hover within the broad consolidation range established since the start of March (between 121.5 and 118.5). We prefer to wait until clearer technical signals emerge as they currently remain directionless. We would review our outlook if the pair moves above 121.50 or below 118.50. Key Signposts Machine orders, industrial productions (18 May), nationwide department sales y/y (19 May), GDP, machine order sales and convenience store sales (20 May), manufacturing PMI (21 May), BoJ s annual rise in the monetary base (22 May). Key Levels Level Importance Secondary Resistance 124.00 High Primary Resistance 121.50 High Spot 119.62 Primary Support 118.50 Medium Secondary Support 116.00 High Forecast Consensus Q2 2015 120 Q3 2015 121 Q4 2015 123 Q1 2016 125 * Please see Appendix on Pg 11 for explanation on technical USD/JPY continues to oscillate within its broader post-december range Technical Analysis Chart: USD/JPY (Daily) 121.50 122 118 118.50 114 USD/JPY 110 106 102 119.84 119.32 115.3 98 USD/JPY This reflects the views of the Wealth Management Group 3
We remain bearish on the pair and expect the rally to fade given weakening technical indicators. Performance ended up (1.29%) over the previous week. Q1 wage inflation continued to decline and was weaker than expected. In China, the central bank cut its benchmark rates for the third time since November as the economy slowed further. Industrial production and fixed asset investment was higher than last year but weaker than expectations. Technical Analysis Major technical indicators are divergent. We remain bearish on the pair. We view the recent recovery as a corrective retracement of the previous decline and expect the pair to soon find resistance in the 0.825-0.850 range. We prefer to use the current recovery to accumulate short positions as we expect the rally to fade on weakening momentum and directional indicators. We would review our outlook if it moves above 0.825. Key Signposts Australia RBA s May meeting minutes (19 May), Westpac consumer confidence m/m (20 May), consumer inflation expectations (21 May). China HSBC manufacturing PMI (21 May). 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 0.850 High Primary Resistance 0.825 High Spot 0.802 Primary Support 0.770 Medium Secondary Support 0.745 High Forecast Consensus Q2 2015 0.77 Q3 2015 0.76 Q4 2015 0.75 Q1 2016 0.73 * Please see Appendix on Pg 11 for explanation on technical rebound likely to fade, in our view Technical Analysis Chart: (Daily) 1.00 0.95 0.7784 0.7855 0.8313 0.90 0.85 0.80 0.825 0.75 0.770 0.70 This reflects the views of the Wealth Management Group 4
USD/SGD We remain neutral on USD/SGD. Moderating momentum highlights the risk of a trend reversal, but directional signals remain weak. Performance USD/SGD ended down (-0.59%) over the previous week. The recent weak US economic data continued to weigh on the pair. 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 neutral. We turn neutral on the USD/SGD pair (from bearish earlier). It currently trades close to a key retracement level while technical indicators are showing slightly positive divergence. This highlights the risk of a reversal, although we prefer to remain on the sidelines for further directional evidence. We would review our outlook if the pair moves below 1.315. Key Signposts Key Levels Level Importance Secondary Resistance 1.356 Medium Primary Resistance 1.340 Medium Spot 1.322 Primary Support 1.315 High Secondary Support 1.295 Medium No key economic releases for the week. Forecast Consensus Q2 2015 1.36 Q3 2015 1.36 Q4 2015 1.38 Q1 2016 1.38 * Please see Appendix on Pg 11 for explanation on technical The pair is beginning to consolidate following the recent downtrend Technical Analysis Chart: USD/SGD (Daily) 1.41 1.39 1.37 USD/SGD 1.35 1.33 1.31 1.29 1.27 1.340 1.315 1.25 1.23 1.3535 1.3507 1.3162 1.21 USD/SGD This reflects the views of the Wealth Management Group 5
We turn bearish on the pair (from neutral earlier) as technical indicators point to the possibility of a short-term pullback. Performance ended up (1.76%) over the previous week. The BoE cut its growth forecasts and warned about the impact of a strong pound on the outlook for interest rates. The unemployment rate for March was in line with expectations, while industrial production was stronger than anticipated. Technical Analysis Major technical indicators, on balance, are bearish. We turn bearish on the pair (from neutral earlier). The pair has seen a significant upmove from the lows of April and appears increasingly stretched. The negative divergence on the charts poses the threat the pair is creating an immediate top. We would review our outlook if the pair ends above 1.585. Key Signposts Rightmove house price index (18 May), CPI and PPI (19 May), BoE MPC meeting minutes (20 May), retail sales (21 May). 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 1.620 High Primary Resistance 1.585 High Spot 1.573 Primary Support 1.560 Medium Secondary Support 1.540 High Forecast Consensus Q2 2015 1.51 Q3 2015 1.49 Q4 2015 1.48 Q1 2016 1.49 * Please see Appendix on Pg 11 for explanation on technical The upmove, triggered by the election outcome, appears to be fading Technical Analysis Chart: (Daily) 1.74 1.70 1.5054 1.5154 1.5603 1.66 1.62 1.58 1.585 1.54 1.560 1.50 1.46 This reflects the views of the Wealth Management Group 6
XAU/USD (Gold) We remain neutral on XAU/USD and expect the pair to continue to trade in a broad sideways range. Performance XAU/USD ended up (3.06%) over the previous week as weak US data pushed back expectations of a rate hike. 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 are divergent. We remain neutral on the XAU/USD pair. Despite last week s surge in gold prices, the pair continued to trade in a broad sideways range (1,180-1250). Technical indicators also remain divergent. The pair has not been able sustain below 1,180 for long either. A convincing break out of this range would likely be required to create a strong directional indicator. We would review our outlook if the pair moves back above 1,250 or falls below 1,180. Key Signposts Any news on Greek debt talks during the week will have implications for gold prices. Also, any strong statement from the FOMC minutes due this week and/or a pickup in US and EU CPI may move gold. Key Levels Level Importance Secondary Resistance 1,280 High Primary Resistance 1,250 High Spot 1,225 Primary Support 1,180 High Secondary Support 1,140 Medium Forecast Consensus Q2 2015 1,220 Q3 2015 1,190 Q4 2015 1,190 Q1 2016 1,220 * Please see Appendix on Pg 11 for explanation on technical Gold continues to trade in a broad range Technical Analysis Chart: XAU/USD (Daily) 1,400 1,350 1223.16 1191.91 1211.97 1,300 XAU/USD 1,250 1,200 1,250 1,150 1,180 1,100 XAU/USD This reflects the views of the Wealth Management Group 7
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 6.30 6.25 6.230 USD/CNH 6.20 6.15 6.10 6.05 6.00 6.185 6.2142 6.231 6.1919 5.95 USD/CNH We remain neutral on USD/ZAR Technical Analysis: USD/ZAR 12.8 12.562 12.4 12.0 11.6 11.2 11.342 10.8 10.4 10.0 9.6 12.0337 11.8215 11.4536 9.2 USD/ZAR USD/ZAR We remain neutral on the NZD/USD Technical Analysis: NZD/USD 0.94 0.89 0.7524 0.7537 0.7756 NZD/USD 0.84 0.79 0.780 0.74 0.730 0.69 Jun-13 Sep-13 Dec-13 Apr-14 Jul-14 Oct-14 Feb-15 May-15 NZD/USD This reflects the views of the Wealth Management Group 8
We remain bullish on USD/CHF Technical Analysis: USD/CHF 1.10 1.05 0.9586 0.952 0.9512 USD/CHF 1.00 0.95 0.936 0.90 0.908 0.85 Jul-13 Oct-13 Jan-14 Apr-14 Aug-14 Nov-14 Feb-15 May-15 USD/CHF We turn neutral on the SEK (from bearish earlier) Technical Analysis: USD/SEK 9.2 9.000 8.7 USD/SEK 8.2 7.7 7.2 6.7 8.150 6.2 5.7 8.5403 8.3845 7.836 5.2 Jul-13 Oct-13 Jan-14 Apr-14 Aug-14 Nov-14 Feb-15 May-15 USD/SEK We remain bullish on USD/CAD Technical Analysis: USD/CAD 1.31 1.26 1.240 USD/CAD 1.21 1.16 1.11 1.06 1.01 1.190 1.2368 1.2331 1.1775 0.96 Jun-13 Sep-13 Dec-13 Apr-14 Jul-14 Oct-14 Feb-15 May-15 USD/CAD This reflects the views of the Wealth Management Group 9
Interest Rate Differentials Measures the yield of holding the foreign currency relative to the base currency FX Implied Volatility An appropriate indicator used to gauge future expectations of price movements based on FX options market pricing % 2.0 1.5 1.0 0.5 0.0-0.5 1.6 1.5 1.4 1.3 1.2 1.1 20 16 12 8 4-1.0 1.0 Sep-09 Feb-11 Jul-12 Dec-13 May-15 Difference between EUR and USD 2 yr swap (RHS) USD/JPY 0 Jan-11 Feb-12 Mar-13 Apr-14 May-15 2W Implied Volatility USD/JPY % 1.2 1.0 0.8 0.6 0.4 0.2 125 115 105 95 85 USD/JPY 25 20 15 10 5 0.0 75 Sep-09 Feb-11 Jul-12 Dec-13 May-15 Difference between USD and JPY 2 yr swap USD/JPY (RHS) % 6 1.2 5 1.1 4 1.0 0.9 3 0.8 2 0.7 1 0.6 0 0.5 Sep-09 Feb-11 Jul-12 Dec-13 May-15 0 Jan-11 Feb-12 Mar-13 Apr-14 May-15 2W Implied Volatility 25 20 15 10 5 0 Jan-11 Feb-12 Mar-13 Apr-14 May-15 Difference between AUD and USD 2 yr swap (RHS) 2W Implied Volatility USD/SGD % 0.6 1.45 0.4 1.40 0.2 0.0 1.35-0.2 1.30-0.4 1.25-0.6-0.8 1.20-1.0 1.15 Sep-09 Feb-11 Jul-12 Dec-13 May-15 Difference between USD and SGD 2 yr swap USD/SGD (RHS) USD/SGD USD/SGD 20 15 10 5 0 Jan-11 Feb-12 Mar-13 Apr-14 May-15 2W Implied Volatility % 2.3 1.8 1.3 0.8 0.3 1.8 1.7 1.6 1.5 20 16 12 8 4-0.2 1.4 Sep-09 Feb-11 Jul-12 Dec-13 May-15 Difference between GBP and USD 2 yr swap (RHS) 0 Jan-11 Feb-12 Mar-13 Apr-14 May-15 2W Implied Volatility This reflects the views of the Wealth Management Group 10
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 reflects the views of the Wealth Management Group 11
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