Global FX Strategy More weakness for Scandis ahead Nordea Research, 12 November 2013

Foreign Exchange Strategy Global FX Strategy More weakness for Scandis ahead Nordea Research, 12 November 2013 Global Markets : Downside limited GBP: BoE to turn less dovish? CZK: Swiss-type floor Scandi Focus NOK: Weaker alongside rate cuts SEK: It s all about weakness Quant of the week Biweekly quant highlight: More EUR downside after ECB cut? The Euro off course tends to go down in the aftermath of an ECB refi rate cut, but if history proves to be a guide, we still have some room left for further falls versus the Dollar and the Pound in particular. Fair Value Framework: Long! The framework considers the Aussie and Nokkie cheap versus the USD. Currently the framework targets 0.96 for and 5.91 for USDNOK. Risk Reversals: Long and long! RR levels now support a comeback up to 1.35-1.36. Moreover, current RR levels support a rise in the spot to just below parity. Contents Global Markets... 2 Scandi focus... 5 FX Quant; Spot & highlight... 6 FX Quant; Fair Value... 8 FX Quant; Volatility... 9 FX Quant; Risk Reversal... 10 FX Quant; Vol & RR heatma.. 11 FX Quant; Seasonality... 12 FX Quant; Track.. 13 FX Quant; Strategic Monitor.. 15 Chart of the week corrects on relative stocks Last line first page (d

Global Markets : downside limited The USD correction won t last flows support EUR The has reached our short-term (3M forecast) of 1.33 even quicker than expected. The concern over the sharp appreciation has materialised as ECB surprised with a rate cut: we do not expect more from the bank. We keep the unchanged, seeing more upside within 3M. After the rate cut, relative monetary policy has become more aligned benchmark rates at 0.25%. Yet the Fed is still running QE in full, and we do not expect tapering until January. The US budget negotiations start again this week, increasing policy uncertainty. Even payrolls data are necessary but not a sufficient condition: low inflation (1.2%) is still a worry even in the US. With the falling participation ratio, the Fed may have to adjust the thresholds in line with the senior Fed staff research last week, speculations of which may weaken the USD again in the coming months. More importantly, the relative flow data still support the EUR. The current account surplus remains strong (EUR 15-20bn/month), and we observe further improvement of international investment position (EUR 302bn over the past 12 months). The net capital flow is now in fact the largest contributor to M3 growth. Will the financial flows to the Euro area resume? In a world with normalisation and ultra-easy monetary policies it is difficult to see a reversal of major bull trends. Even a short-term correction will likely be greeted as a chance and a buy what is cheap mentality will prevail in the coming months. European equities are still cheaper than US equities for example banks, with a P/B ratio at below 0.5, and equity indices still much below the early 2008 levels. And European peripheral bonds still yield 1-3% over US and German bonds. In short, while the correction is justified by the ECB s easing, the current correction in the relative stock markets will not last, ultimately underpinning flows to the EUR. The downside risks capped at 1.3130. Fig 1: corrects on relative stocks Fig 2: But more room to go ahead 2

GBP: BoE to turn less dovish? The incoming data will most likely underpin the current bright picture. In the aftermath of both the ECB and the Fed surprising the markets on the dovish side in recent months, risks are skewed towards the BoE being the next central bank that could take the market by surprise. Although this time on the less dovish side. However, data coming in over the next weeks could also be enough to change the market perception of the BoE s next move. As the Claimant Count leads the official ILO UK unemployment rate by two months of data, we are already reasonably certain that the unemployment rate will move a couple of notches closer to the BoE s 7% benchmark. However, having had a look at various leading indicators, momentum in the Claimant Count seems to gather even more pace (Figure 1). Currently the indicators suggest that the 7% could be breached already in 2014 way before the MPC forecasts it to do so. So risks are skewed for the Claimant Count to surprise on the GBP positive side this Wednesday once again. The big question is then how this pick-up in labour market momentum will affect the upcoming BoE inflation report out on Wednesday? Inflation remains on course towards the 2% BoE target, and our indicators support that view. Upward revisions to the growth outlook are highly likely in the upcoming inflation report. However, as mentioned before, the recovery of the GDP could come to a larger extent from a pick-up in productivity than from employment, and we believe the MPC will choose a bearish forecast for the unemployment rate for some time. But with that said, the MPC s current projection of only 50% chance of an unemployment rate come yearend 2016, will turn less and less credible, if not changed. Other hard data such as retail sales have also started to accelerate, and again our indicators provide more medium-term optimism (Figure 2). This coming Thursday consensus is for another big jump in retail sales year over year. So indeed, the GBP looks as one of the strongest currencies out there over the medium-term. But as this shows, market perceptions naturally follow up rapidly when momentum starts to gather pace. Hence, quite a bit of the improving outlook (even that shown in the leading indicators) seems to be priced in already. The UK macro surprise index has hence been trending down lately although from high levels. This could weigh on the GBP short term, but medium term GBP looks strong. Especially versus the EUR. Fig 1: The UK labour market is clearly improving Fig 2: UK retail sales on the way up 3

FX intervention to avoid a deflation trap and protect the recovering economy. CZK: Swiss-type floor CNB opens its unconventional toolbox to avoid deflation After more than a year of fiddling with the idea, the Czech National Bank (CNB) finally decided to use the exchange rate as an additional instrument for easing the monetary conditions on 7 November. The CNB stated that it will intervene in any amount needed on the FX market to weaken the CZK to a target of CZK 27/EUR, until inflation increases significantly which is unlikely to happen before end-2014. Immediately after announcement, the CZK weakened 5% against the EUR as the CNB purchased EUR 3-5bn. Yesterday, inflation decelerated further to 0.9% y/y in October, the lowest print since March 2010, reinforcing the CNB s decision to extend its easing measures. The Czech economy has just emerged from a 6-quarter-long recession, and avoiding deflation is crucial for maintaining momentum going into 2014. We expect inflation to bottom at close to zero levels in the first quarter of 2014 and hereafter to gradually increase towards the CNB s target of 2% by end-2014, supported by a sustained economic recovery and the weaker exchange rate. However, risks remain that the current FX intervention scheme might not be enough (or has come too late) to completely avoid deflation as was evidenced by the Swiss case. Recall that in September 2011 the Swiss National Bank intervened to stem the appreciation of the CHF by implementing a floor. Unfortunately, Switzerland has suffered from a mild deflation ever since. Nonetheless, we believe that the actions taken by the CNB will help lift inflation going into 2014 and provide some much needed relief to exports, which, together with the recovery of the Euro zone, will support growth. Appreciation in the long term Looking ahead, we expect the CZK to be kept around current levels, that is, 27/EUR, until the end of 2014 when inflation and economic activity should have gained enough momentum for the CNB to wind down its FX intervention. Hereafter, EUR/CZK will gradually appreciate in line with a sustained economic recovery and increasing interest rates. Fig 1: October inflation eases and crawls under bands Fig 2: Swiss-type floor on EUR/CZK 4

Scandi focus Weaker NOK with rate cuts The impression of NOK has certainly changed during the last year. Coming from a status as safe haven compared to EUR in last year s debt crisis then sideways through the yield hunting market of Fed s QE, we are now questioning several old truths. Rate cuts from Norges Bank and perhaps especially in a market where we see normalisation and improvements in Europe could have substantial impact. It also seemed like expectations of tapering from FED had effects in carry trades like NOK this summer. We see tapering starting early next year, more or less at the same time as the market will start discounting rates cuts from Norges Bank. This could in other words turn into an environment with low risk appetite in combination with rate cuts. We forecast the top in EURNOK at 8.35 next summer, more or less at the same time as we see rates cuts coming. Read the rest of the Norwegian forecast update at the below link http://research.nordeamarkets.com/en/2013/11/07/norway-viewpoint-norgesbank-to-cut-rates/ 5

Global FX Strategy SEK: It s all about weakness A EUR/SEK rate of 8.80 is somewhat of a sweet spot for the krona. At that level, it is higher than the budget rate of most Swedish export companies and it is higher than the Riksbank s own EUR/SEK forecast. There is much less pressure on the Riksbank to reduce interest rates to weaken the krona at 8.80 than at 8.50. Just like the rest of the world, Sweden is suffering from the weak growth rate and last week, once again, weak industrial production figures were presented and a weaker than expected PMI for the manufacturing industry. Add to that today s inflation numbers, CPI -0.1 y/y and CPIF (Riksbank preferred measure) at 0.6% y/y. Naturally, the value of the krona fell as a consequence, which indicates its sensitivity to better or worse macro data. The surprising reduction in the key interest rate from the ECB last week (Nordea expected 25 basis points in December) had beforehand strengthened the krona marginally, but weaker hard data in Sweden has since made a greater impression than lower interest rates in Europe. The fact that the interest differential in a Swedish 2-year swap contract compared to a German 2- year swap moved closer together and not apart, explains the marginal movement in the krona after the statement. What is the reason for this counter-intuitive interest movement? The answer is that Swedish interest rates have more room to fall than European rates. The market, in line with the Riksbank, has seen the beginning of a hiking cycle as the next stage in monetary policy. The ECB s change of direction and gloomy outlook made the market question the Riksbank s call of a tightening in December 2014. The low CPI numbers will add to that questioning. The repricing of short-term interest rates in Sweden means that representatives of Swedish export companies have got close to half of their requested 25 basis point reduction in interest rates and a weaker SEK. The market is discounting a 30% probability at present of a 25 point reduction in April 2014, and the first hike has been deferred until April 2015. This may be compared to how the market interpreted the Riksbank s statement two months ago, when the first hike in rates was expected in April 2014. Per Jansson and Cecilia Skingsley(board members) also say in the minutes of the Riksbank s October meeting make it clear that higher activity in the Swedish economy will not necessarily result in an increase in rates. First "no taper". Then an ECB rate cut. Is the Riksbank next in line to surprise in December? It can t be ruled out. A EURSEK above 9 is coming closer. EURSEK It s all about negative surprises The inflation outlook is an upside risk to EURSEK 6

FX Quant; Spot & highlight Spot heatmap G10 Heatmap Spot Change* 10-day MA 25-day MA 1.3386-2.65% 1.3512 1.3593 EURJPY 133.59-1.02% 133.3473 133.5824 EURGBP 0.83945-2.03% 0.8436 0.8466 EURCHF 1.23375-0.14% 1.2321 1.2328 EURSEK 8.8289 0.62% 8.7960 8.7790 EURNOK 8.2774 2.08% 8.1204 8.1221 USDSEK 6.5946 3.26% 6.5103 6.4592 GBPSEK 10.5158 2.63% 10.4279 10.3700 CHFSEK 7.1562 0.77% 7.1391 1.3593 NOKSEK 1.0667-1.45% 1.0833 1.0809 USDNOK 6.1827 4.71% 6.0104 5.9759 GBPNOK 9.8588 4.07% 9.6271 9.5936 CHFNOK 6.7092 2.23% 6.5907 6.5883 0.9325-1.64% 0.9448 0.9517 USDCAD 1.0492 0.22% 1.0455 1.0403 NZDUSD 0.8225-0.40% 0.8285 0.8340 GBPUSD 1.5946-0.63% 1.6018 1.6056 USDJPY 99.78 1.61% 98.6882 98.2748 *Change over the last two weeks The Euro has lost value against the Dollar and the Pound on the heels of the ECB rate cut last week. That alongside the Dollar strengthening on better than expected payrolls and Q3 GDP. Scandis have suffered from the expected easing bias of their central banks. Biweekly data highlight: 10 day EUR reactions to the latest ECB refi rate cuts ECBs latest rate cuts and EUR status 10 days after the announcement Date Rate EURSEK EURNOK EURGBP EURCHF 07/11/2013 0.25 0.21% 2.36% -0.77% -0.17% 0.00% 02/05/2013 0.50 0.80% -1.16% -2.27% -0.45% 1.67% 05/07/2012 0.75-1.88% -0.82% -1.96% -2.78% 0.00% 08/12/2011 1.00-0.43% 0.71% -2.75% -2.50% -1.35% 03/11/2011 1.25 0.83% 0.75% -2.11% -0.92% 2.07% Average: -0.17% -0.13% -2.27% -1.66% 0.60% To go: -0.38% -2.49% -1.50% -1.50% 0.60% The Euro off course tends to go down in the aftermath of an ECB refi rate cut, but if history proves to be a guide, we still have some room left for further falls versus the Dollar and the Pound in particular. Biweekly chart spotlight: EURGBP 7

FX Quant; Fair Value The recent moves in and GBPUSD have moved them back in line with the fair value framework. The framework considers the Aussie and Nokkie cheap versus the USD. Currently the framework targets 0.96 for and 5.91 for USDNOK. Average Z - score 1.0 0.5 0.0-0.5-1.0-1.5 Expensive currencies Thursday -2.0 Cheap currencies GBP EUR NZD CHF JPY SEK CAD NOK AUD this week. 1212 Fair value heat map Misalignment against USD. The heat map shows the deviation of spot vs. fair values (yearly z-scores in brackets). Coloring according to z-scores. Model EUR GBP AUD JPY CHF CAD NZD SEK NOK Macro 1.89% (0.94) 2.41% (1.45) -0.02% (-0.01) -6.25% (-1.78) 0.16% (0.05) -1.16% (-0.5) 0.97% (0.27) -1.67% (-0.61) -2.12% (-0.88) PPP - CPI 1.2% (0.3) 1.9% (0.55) -4.76% (-1.14) -0.41% (-0.08) 0.22% (0.04) -0.24% (-0.07) 0.74% (0.1) -1.82% (-0.31) -2.65% (-0.48) PPP - Real rate 1.44% (0.32) 2.51% (0.57) -4.41% (-0.92) -0.34% (-0.06) 0.5% (0.1) -0.51% (-0.12) 0.4% (0.06) -2.09% (-0.38) -2.89% (-0.57) PPP - PPP 0.96% (0.21) 1.89% (0.37) -3.56% (-0.62) -5.22% (-1.13) 0.63% (0.13) -1.01% (-0.26) 1.65% (0.22) -1.58% (-0.3) -6.49% (-1.2) Vol - VIX 1.37% (0.84) 1.94% (0.75) -5.4% (-1.18) -5.43% (-0.98) 0.93% (0.59) -2.94% (-1.44) 0.25% (0.08) -1.95% (-1.01) -6.95% (-2.25) Vol - ATM (1M) 0.32% (0.21) 1.63% (0.98) -5.17% (-3.88) -8.96% (-2.1) 0.57% (0.34) -4.04% (-2.89) 1.37% (1.01) -2.35% (-1.4) -6.01% (-3.8) Vol - RR (10 delta) 0.71% (0.36) -1.08% (-0.61) -6.52% (-7.22) -6.08% (-1.01) -0.17% (-0.08) -2.2% (-1.67) 0.55% (0.49) -2.3% (-1.15) -6.42% (-4.79) Consensus (12m)* 8.81% (0.61) 1.51% (1.15) -- -20.21% (0.72) 5.83% (0.2) -7.9% (0.41) -- 0.08% (-0.16) -9.06% (-0.25) CDS - CDS (5y) -0.49% (-0.14) -1.05% (-0.28) -3.07% (-0.45) -0.77% (-0.32) -0.13% (-0.04) -1.65% (-0.66) -0.42% (-0.11) -2.87% (-1.04) -4.79% (-0.98) CDS - Risk free rate -1.73% (-1.22) -1.81% (-1.19) -4.17% (-1.9) -0.66% (-0.4) 0.63% (0.47) -1.55% (-2.22) -0.74% (-0.2) -1.97% (-1.3) -4.49% (-2.13) Average 2.32% (0.32) 1.09% (0.55) -3.39% (-1.54) -7.2% (-0.64) 1.43% (0.17) -2.86% (-0.74) 0.51% (0.19) -1.45% (-0.69) -4.86% (-1.41) GBPUSD USDJPY USDCHF USDCAD NZDUSD USDSEK USDNOK Fair Value 1.31 1.57 0.96 92.5 0.93 1.02 0.82 6.55 5.91 * Consensus Economic Inc. and Nordea Analytics Very Rich Z-Score > 2 Z - score = (current FX spot - current fair value) / stdev, i.e. how many standard Rich 1 < Z-Score < 2 deviations the spot is from the fair value. In the calculations, the non-usd currency Neutral -1 < Z-Score < 1 is used as base. Cheap -2 < Z-Score < -1 Very Cheap Z-Score < -2 The models Using a set of regression models the long term fair values of G10 currencies are estimated. The models are split into five different categories found below. The framework is not associated with our or trading, but rather a stand-alone model. Macro: Uses macroeconomic indicators such as industry production and money supply to calculate fair values. Purchasing Power Parity: Is based on the relative price levels and interest rates of the two countries. Consensus: Twelve month forecasts are used as input variables to generate fair values. CDS: To capture the overall riskiness of a country CDS spreads are used both as standalone variables and in a real rate framework Vol: Estimates fair values by means of volatility proxies such as implied vol, risk reversal and VIX. 8

Current 1M ATM vs. 3 month mean FX Quant; Volatility Implied volatility levels are broadly in line with mean levels. Fig 1 - Divergence of 1M implied vol from 3 month mean. Z-Score = (current mean)/stdev Z-Score 1.0 0.0-1.0 Volatility Rich EURGBP EURNOK NZDUSD GBPUSD GBPSEK GBPNOK NOKSEK CHFNOK EURSEK USDCAD USDJPY USDSEK CHFSEK EURCHF EURJPY USDNOK J ajaj jaaja -2.0 Current 1M ATM vs. realized volatility Volatility Cheap Looking at how implied volatility levels have realized, especially the EURGBP stands out as volatility rich. Fig 2 - Residual from regressing 1M implied vol against realized vol. Z-Score = (current regression value)/stdev. Realized vol calculated using an exponentially weighted moving average. For the regression we use one year of data. Z-Score 3.0 2.0 1.0 0.0-1.0 Volatility Rich EURGBP EURNOK NZDUSD GBPUSD GBPSEK GBPNOK NOKSEK CHFNOK EURSEK USDCAD USDJPY USDSEK CHFSEK EURCHF EURJPY USDNOK -2.0 Volatility Cheap ATM volatility heat map The FX volatility heat map is still in blue territories, indicating some volatility cheapness. The vol. map combined with the implied volatility vs. realized volatility regression above suggests selling volatility in EURGBP. It can be done via a short 1M ATM straddle. 1W 2W 1M 2M 3M 6M 9M 1Y Rich/ Cheap Vol Score Cheap Vol Score Cheap Vol Score Cheap Vol Score Cheap Vol Score Cheap Vol Score Cheap Vol Score Cheap Vol -0.22 6.92-0.23-0.39 6.90-0.73-0.18 7.16-0.35-0.31 7.09-0.69-0.30 7.19-0.66-0.33 7.56-0.85-0.44 7.82-1.13-0.52 8.01-1.28 EURJPY -1.19 8.65-0.96-1.30 8.78-1.14-1.27 9.09-1.12-1.53 9.15-1.34-1.26 9.68-1.18-1.05 10.60-1.26-0.87 11.26-1.21-0.77 11.70-1.18 EURGBP 1.26 7.61 1.41 0.56 6.93 0.86 0.27 6.69 0.52 0.01 6.51 0.03-0.03 6.52-0.06-0.10 6.75-0.27-0.11 6.97-0.40-0.13 7.16-0.53 EURCHF -0.84 3.00-1.11-0.84 3.15-1.11-0.72 3.47-0.96-0.92 3.41-1.32-0.79 3.64-1.22-0.60 4.15-1.38-0.38 4.61-1.29-0.25 4.90-1.26 EURSEK -0.24 7.23-0.30-0.34 7.04-0.55-0.33 6.94-0.62-0.51 6.63-1.10-0.43 6.65-1.12-0.35 6.73-1.18-0.29 6.78-1.07-0.26 6.84-1.06 EURNOK 0.17 9.36 0.14-0.11 8.80-0.12 0.14 8.83 0.17-0.21 8.18-0.30-0.16 8.00-0.28-0.05 7.82-0.13-0.02 7.74-0.05 0.00 7.70 0.00 USDSEK -0.50 9.40-0.54-0.68 9.32-1.18-0.48 9.62-0.83-0.54 9.55-1.11-0.42 9.66-0.94-0.40 9.95-1.11-0.41 10.17-1.18-0.49 10.31-1.37 GBPSEK 0.49 9.60 0.49-0.03 9.00-0.04-0.23 8.87-0.32-0.49 8.63-0.76-0.47 8.66-0.80-0.38 8.88-0.88-0.36 9.06-0.92-0.27 9.24-0.82 CHFSEK -0.65 7.44-0.66-0.83 7.24-0.99-0.69 7.44-0.92-0.85 7.25-1.30-0.76 7.33-1.31-0.64 7.65-1.44-0.54 7.85-1.45-0.41 8.02-1.30 NOKSEK -0.10 8.17-0.09-0.43 7.61-0.49-0.26 7.52-0.33-0.50 7.02-0.77-0.45 6.86-0.79-0.23 6.76-0.64-0.01 6.84-0.05-0.02 6.80-0.08 USDNOK -1.21 9.59-1.06-1.28 9.55-1.61-0.92 9.85-1.19-1.01 9.59-1.58-0.79 9.69-1.50-0.66 9.90-1.58-0.61 10.10-1.58-0.65 10.23-1.72 GBPNOK 0.45 10.46 0.40-0.29 9.63-0.36-0.22 9.64-0.32-0.47 9.25-0.77-0.40 9.24-0.75-0.22 9.34-0.55-0.12 9.44-0.33-0.12 9.50-0.41 CHFNOK -0.19 9.79-0.15-0.58 9.21-0.57-0.33 9.31-0.36-0.65 8.74-0.85-0.51 8.69-0.78-0.34 8.69-0.71-0.29 8.66-0.73-0.26 8.72-0.80-0.70 9.18-0.44-0.79 9.23-0.54-0.45 9.64-0.31-0.54 9.53-0.40-0.45 9.60-0.35-0.20 9.99-0.20-0.08 10.24-0.09-0.03 10.39-0.03 USDCAD -0.52 5.52-0.62-0.53 5.64-0.67-0.55 5.73-0.68-0.54 5.82-0.72-0.49 5.99-0.69-0.37 6.39-0.66-0.27 6.71-0.53-0.24 6.92-0.52 NZDUSD 0.03 10.92 0.03-0.20 10.83-0.18 0.12 11.31 0.11-0.13 11.03-0.13-0.07 11.08-0.07 0.17 11.49 0.25 0.28 11.73 0.46 0.34 11.88 0.61 GBPUSD 0.88 8.03 1.21 0.24 7.42 0.55 0.00 7.18 0.00-0.20 6.99-0.47-0.15 7.05-0.37-0.11 7.30-0.32-0.08 7.55-0.25-0.04 7.76-0.15 USDJPY -0.57 9.81-0.33-0.97 9.68-0.61-1.07 9.69-0.69-1.21 9.58-0.83-0.83 10.00-0.62-0.53 10.53-0.51-0.33 10.87-0.37-0.21 11.09-0.27 Z- Score Very Rich Z-Score > 2 Vol is current Implied Volatility, data as of shortly before send out today Rich 1 < Z-Score < 2 Rich/Cheap = current IV - 3 month average IV Neutral -1 < Z-Score < 1 Cheap -2 < Z-Score < -1 Very Cheap Z-Score < -2 Z-Score = (current IV - 3 month average IV)/stdev, i.e. how many standard deviations current IV is from it's mean. 9

Current 1M RR vs. 3 month mean FX Quant; Risk Reversal The recent fall is mirrored in the RR levels, but RR levels now support a comeback up to 1.35-1.36. Moreover, current RR levels support a rise in the spot to just below parity. (See below graphs) Fig 1 - Divergence of 1M RR from 3 month mean. Z-Score = (current mean)/stdev Z-Score 3.0 2.0 1.0 0.0-1.0-2.0 Volatility Rich CHFNOK GBPNOK USDJPY GBPSEK EURJPY GBPUSD USDCAD NZDUSD NOKSEK USDSEK USDNOK CHFSEK EURSEK EURCHF EURGBP EURNOK Volatility Cheap 0.2 xxx 0 06/01/2013 27/03/2013 15/06/2013 03/09/2013 22/11/2013 10/02/2014 1.38-0.2-0.4-0.6-0.8-1 -1.2-1.4-1.6-1.8 RR 1M aeraexasudhausdhaiwiojeaxxxxxxxxxx RR Heat Map The recent rise in RR levels in GBPNOK & CHFNOK seem exaggerated from a z-score perspective. 1.4 1.36 1.34 1.32 1.3 1.28 1.26 0 1.08 18/10/2012 26/01/2013 06/05/2013 14/08/2013 22/11/2013 02/03/2014 1.06-0.5 1.04-1 -1.5-2 -2.5-3 RR 1M 1.02 1 0.98 0.96 0.94 0.92 0.9 0.88 1W 2W 1M 2M 3M Rich/ Cheap RR Score Cheap RR Score Cheap RR Score Cheap RR Score Cheap RR 6M Score Cheap RR 9M Score Cheap RR 1Y Score Cheap RR 0.08-0.33 0.23 0.13-0.37 0.36 0.20-0.45 0.53 0.27-0.60 0.71 0.34-0.72 0.87 0.45-0.98 1.20 0.47-1.09 1.31 0.49-1.17 1.40 EURJPY 0.22-0.29 1.12 0.26-0.34 1.19 0.37-0.45 1.31 0.49-0.63 1.44 0.59-0.86 1.67 0.61-1.39 1.64 0.68-1.69 1.87 0.74-1.94 2.05 EURGBP -0.20-0.40-1.22-0.15-0.36-1.06-0.12-0.36-1.06-0.11-0.37-1.00-0.09-0.37-0.81-0.11-0.41-1.06-0.12-0.44-1.22-0.12-0.45-1.17 EURCHF -0.14 0.63-1.09-0.15 0.80-1.00-0.24 0.96-1.02-0.20 1.20-1.02-0.16 1.39-0.89-0.11 1.50-0.79-0.11 1.11-0.88-0.06 0.80-0.73 EURSEK -0.05 0.52-0.88-0.03 0.63-0.63-0.03 0.70-0.70-0.04 0.72-0.96-0.05 0.75-1.15-0.03 0.76-0.72 0.00 0.78-0.08-0.01 0.79-0.30 EURNOK -0.17 0.61-1.04-0.19 0.69-1.22-0.18 0.81-1.18-0.11 0.93-0.83-0.10 0.96-0.75-0.05 1.00-0.46-0.06 0.98-0.53-0.02 1.02-0.20 USDSEK -0.09 0.45-0.34-0.11 0.53-0.36-0.17 0.65-0.52-0.24 0.77-0.68-0.30 0.86-0.83-0.41 1.06-1.14-0.42 1.18-1.22-0.43 1.27-1.31 GBPSEK 0.22 0.43 1.99 0.28 0.55 2.58 0.15 0.48 1.71 0.14 0.51 1.66 0.13 0.52 1.46 0.16 0.58 1.49 0.18 0.60 1.50 0.18 0.63 1.44 CHFSEK -0.01 0.06-0.08 0.00 0.14-0.03-0.07 0.13-0.66-0.07 0.18-0.83-0.15 0.14-1.69-0.03 0.32-0.35 0.03 0.50 0.32-0.07 0.59-0.65 NOKSEK 0.05 0.05 0.32 0.09 0.12 0.51-0.01 0.03-0.07-0.02-0.01-0.20-0.01-0.01-0.09-0.05-0.02-0.27-0.03-0.08-0.13-0.07-0.05-0.42 USDNOK -0.20 0.41-0.99-0.20 0.53-0.87-0.20 0.69-0.65-0.24 0.78-0.72-0.33 0.85-0.88-0.43 1.03-1.17-0.41 1.15-1.23-0.42 1.26-1.32 GBPNOK 0.27 0.54 1.64 0.30 0.68 2.31 0.23 0.69 2.17 0.22 0.70 2.08 0.20 0.70 1.87 0.23 0.74 1.91 0.25 0.74 1.91 0.27 0.80 1.85 CHFNOK 0.24 0.06 1.80 0.28 0.08 2.38 0.31 0.11 2.61 0.30 0.12 2.26 0.32 0.10 2.14 0.43 0.12 1.79 0.41 0.09 1.80 0.37 0.13 1.61-0.05-0.83-0.13-0.08-1.07-0.21-0.04-1.47-0.09 0.00-1.86 0.00-0.02-2.27-0.06 0.06-2.81 0.17-0.01-3.17-0.03-0.02-3.48-0.08 USDCAD 0.08 0.60 0.96 0.05 0.73 0.53 0.01 0.88 0.08 0.02 1.14 0.20-0.02 1.31-0.12-0.01 1.48-0.13 0.01 1.57 0.06-0.01 1.66-0.13 NZDUSD 0.02-0.68 0.06-0.03-0.91-0.08 0.00-1.26 0.00 0.00-1.65 0.01-0.04-2.05-0.13 0.00-2.57 0.00-0.06-2.91-0.24-0.09-3.21-0.35 GBPUSD 0.15-0.09 0.74 0.19-0.14 0.85 0.26-0.22 0.88 0.31-0.36 0.86 0.35-0.51 0.91 0.44-0.72 1.17 0.46-0.83 1.24 0.48-0.91 1.30 USDJPY 0.73 0.61 1.85 0.64 0.43 1.89 0.59 0.24 2.08 0.65 0.20 2.29 0.69 0.12 2.39 0.62-0.14 2.17 0.62-0.31 2.18 0.68-0.42 2.37 Z- Score Very Rich Z-Score > 2 RR is current Risk Reversal, data as of shortly before send out today Rich 1 < Z-Score < 2 Rich/Cheap = current RR - 3 month average RR Neutral -1 < Z-Score < 1 Cheap -2 < Z-Score < -1 Very Cheap Z-Score < -2 Z-Score = (current RR - 3 month average RR)/stdev, i.e. how many standard deviations current RR is from it's mean. 10

FX Quant; Vol & RR heatmap Below we show the changes in implied volatility and risk reversal week over week and month over month, respectively. Implied Vol W/W Implied Volatility - ATM 1W 2W 1M 2M 3M 6M 9M 1Y -2.15-1.20-0.66-0.36-0.40-0.30-0.32-0.32 EURJPY -1.35-0.72-0.50-0.45-0.26-0.24-0.13-0.05 EURGBP 0.37 0.12 0.03 0.25 0.16 0.08-0.01-0.05 EURCHF -0.27-0.15 0.03-0.02-0.04-0.09-0.04-0.03 EURSEK 0.14 0.20 0.20 0.13 0.15 0.11 0.13 0.12 EURNOK 1.41 1.11 1.02 0.83 0.65 0.44 0.31 0.23 USDSEK -2.01-1.03-0.62-0.30-0.39-0.33-0.33-0.33 GBPSEK 0.22 0.04 0.06 0.12 0.09 0.15 0.24 0.13 CHFSEK -0.25-0.17 0.05 0.02 0.04 0.01 0.06 0.11 NOKSEK 1.37 0.94 0.74 0.47 0.33 0.22 0.31 0.22 USDNOK -1.77-0.77-0.39-0.28-0.26-0.25-0.29-0.33 GBPNOK 0.71 0.17 0.40 0.42 0.35 0.39 0.44 0.26 CHFNOK 0.96 0.77 0.73 0.53 0.50 0.44 0.36 0.25-0.16 0.29 0.57 0.58 0.39 0.33 0.30 0.29 USDCAD -0.35 0.00 0.05 0.14 0.05 0.01-0.01-0.09 NZDUSD 0.28 0.45 0.71 0.55 0.33 0.30 0.32 0.32 GBPUSD 0.62 0.24 0.13 0.11 0.06-0.04-0.05-0.06 USDJPY 1.11 1.15 1.06 0.83 0.76 0.61 0.52 0.47 Implied Vol M/M Implied Volatility - ATM 1W 2W 1M 2M 3M 6M 9M 1Y 0.74 0.66 0.28 0.08 0.10-0.14-0.29-0.40 EURJPY -0.28-0.51-1.02-1.36-1.07-1.11-0.94-0.81 EURGBP 2.18 1.31 0.56 0.32 0.34 0.14 0.06-0.01 EURCHF -0.36-0.44-0.45-0.75-0.55-0.57-0.45-0.40 EURSEK -0.65-0.91-0.71-0.89-0.77-0.67-0.58-0.51 EURNOK 0.95-0.17-0.08-0.53-0.23-0.15-0.15-0.16 USDSEK 0.97 0.56 0.04-0.17-0.01-0.19-0.30-0.38 GBPSEK 0.76 0.05-0.29-0.45-0.40-0.34-0.32-0.24 CHFSEK -0.61-1.13-0.91-1.07-0.93-0.86-0.77-0.62 NOKSEK 1.59-0.08-0.18-0.52-0.32-0.16 0.05 0.00 USDNOK -0.03-0.48-0.70-1.01-0.74-0.77-0.75-0.75 GBPNOK 0.41-0.67-0.59-0.75-0.51-0.32-0.22-0.24 CHFNOK 0.54-0.73-0.52-0.91-0.56-0.43-0.38-0.43 0.99 0.87 0.47 0.25 0.41 0.41 0.48 0.47 USDCAD 0.32 0.17 0.03-0.01-0.05-0.08-0.04-0.06 NZDUSD 1.53 1.15 0.85 0.48 0.63 0.62 0.67 0.69 GBPUSD 1.53 0.91 0.25 0.02 0.13 0.04 0.04 0.07 USDJPY 0.85 0.29-0.51-0.66-0.25-0.22-0.08-0.02 Risk Reversal W/W Risk Reversal 1W 2W 1M 2M 3M 6M 9M 1Y 0.22 0.19 0.19 0.17 0.15 0.12 0.11 0.08 EURJPY 0.20 0.20 0.20 0.23 0.21 0.17 0.21 0.27 EURGBP -0.04-0.01-0.02-0.03-0.01-0.02-0.03-0.03 EURCHF 0.02 0.07 0.09 0.09 0.10 0.10 0.02 0.01 EURSEK 0.01 0.01 0.05 0.05 0.03 0.04 0.07 0.05 EURNOK 0.07 0.07 0.09 0.13 0.08 0.07 0.03 0.04 USDSEK -0.24-0.18-0.17-0.15-0.12-0.09-0.07-0.04 GBPSEK 0.17 0.25 0.13 0.13 0.12 0.12 0.09 0.14 CHFSEK 0.07 0.08 0.05 0.04-0.05 0.11 0.18 0.09 NOKSEK -0.12-0.09-0.11-0.12-0.08-0.03 0.05-0.02 USDNOK -0.33-0.30-0.20-0.14-0.10-0.06-0.03-0.02 GBPNOK 0.18 0.22 0.20 0.20 0.19 0.19 0.15 0.21 CHFNOK 0.21 0.29 0.28 0.23 0.17 0.14 0.14 0.13-0.08-0.17-0.28-0.26-0.26-0.12-0.15-0.15 USDCAD 0.05 0.04 0.05 0.05 0.04 0.06 0.08 0.05 NZDUSD -0.06-0.14-0.23-0.22-0.23-0.08-0.10-0.11 GBPUSD 0.05 0.04 0.08 0.03 0.03 0.09 0.06 0.04 USDJPY -0.03 0.01 0.07 0.16 0.20 0.15 0.14 0.22 Risk Reversal M/M Risk Reversal 1W 2W 1M 2M 3M 6M 9M 1Y -0.35-0.26-0.19-0.08 0.05 0.25 0.31 0.36 EURJPY 0.06 0.12 0.25 0.37 0.51 0.62 0.70 0.77 EURGBP -0.42-0.31-0.22-0.18-0.15-0.12-0.11-0.09 EURCHF -0.02-0.01-0.08-0.04 0.01 0.01 0.00 0.03 EURSEK -0.18-0.14-0.08-0.10-0.10-0.09-0.07-0.05 EURNOK -0.20-0.28-0.31-0.24-0.26-0.21-0.21-0.14 USDSEK 0.27 0.22 0.18 0.13 0.01-0.20-0.26-0.31 GBPSEK 0.35 0.39 0.18 0.16 0.14 0.09 0.12 0.10 CHFSEK -0.05-0.04-0.09-0.09-0.15-0.06 0.00-0.12 NOKSEK 0.17 0.23 0.16 0.12 0.15 0.15 0.23 0.13 USDNOK -0.04 0.01 0.07 0.09-0.04-0.25-0.29-0.31 GBPNOK 0.49 0.43 0.26 0.22 0.20 0.16 0.20 0.19 CHFNOK 0.41 0.39 0.38 0.35 0.31 0.39 0.44 0.39-0.39-0.43-0.42-0.34-0.26-0.04-0.06-0.09 USDCAD 0.01-0.02-0.04 0.05-0.07-0.05-0.04-0.09 NZDUSD -0.45-0.49-0.43-0.37-0.30-0.10-0.20-0.21 GBPUSD -0.02 0.03 0.08 0.11 0.15 0.27 0.31 0.36 USDJPY 0.72 0.64 0.62 0.67 0.72 0.67 0.65 0.71 11

FX Quant; Seasonality November EUR tends to perform The EUR has gained versus the GBP 7 out of the last 10 years in November Percentage of last 10 years when currency cross has appreciated in November 100% 60% 20% 70% 60% 60% 50% 50% 50% NZDUSD EURCHF USDJPY Percentage of last 10 years when currency cross has depreciated in November 20% 60% 100% EURGBP EURNOK USDCAD EURSEK 60% 60% 70% December Kiwi strong versus USD The NZD has gained versus the USD 8 out of the last 10 years in December. December is another strong EURGBP upside month as well. Percentage of last 10 years when currency cross has appreciated in December 100% 60% 20% 80% 80% 60% 50% 50% 50% USDJPY EURSEK USDCAD Percentage of last 10 years when currency cross has depreciated in December 20% 60% 100% NZDUSD EURGBP EURCHF EURNOK 60% 60% 70% Monthly movers Average monthly movements since 2000. The EUR has gained more than 1.0 % on average versus the GBP since 2000 in both November and December. November December EURGBP NZDUSD EURNOK EURSEK USDCAD EURCHF USDJPY -0.5% 0.0% 0.5% 1.0% 1.5% EURGBP NZDUSD EURNOK USDJPY EURSEK USDCAD EURCHF -1.0% 0.0% 1.0% 2.0% Month-end patterns The heat map shows how many times a cross has appreciated during the last trading day of the specific month as percentage during the last ten years (indicated x in the heat map colouring specification below). Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec EURSEK 70% 10% 50% 60% 50% 70% 30% 60% 40% 40% 40% 30% EURNOK 20% 60% 40% 20% 30% 100% 10% 40% 40% 30% 40% 0% 50% 40% 80% 50% 50% 70% 60% 60% 50% 60% 70% 30% EURGBP 50% 20% 40% 30% 30% 80% 40% 60% 50% 10% 40% 20% EURCHF 30% 50% 20% 50% 40% 60% 10% 40% 50% 50% 60% 40% USDJPY 40% 40% 70% 20% 50% 50% 20% 10% 60% 40% 60% 60% 70% 50% 70% 60% 50% 60% 40% 80% 50% 60% 60% 90% NZDUSD 60% 40% 50% 40% 40% 60% 50% 30% 50% 40% 50% 30% USDCAD 60% 60% 70% 60% 60% 60% 60% 80% 50% 60% 40% 70% x < 20% 20% x < 40% 40% x 60% 60% < x 80% x > 80% 12

FX Quant; Tracker Rate differentials are driving the currency markets in the aftermath of heavy central bank action. EURSEK 0.5 EURNOK 0.1-0.3 0.4 0.0-0.7-0.4 SP500 CRBMetals CRBMetals Gold EURNOKRateDiff Highest Short-Term s to EURSEK CRBMetals SP500 42% -36% 33% Highest Long-Term s to EURSEK EURSEKRateDiff Copper Gold 37% -17% -14% Highest Short-Term s to EURNOK EURNOKRateDiff CRBMetals Gold 57% 54% -39% Highest Long-Term s to EURNOK EURNOKRateDiff EURNOK2/10 Gold 45% -23% -17% 0.9 0.5 0.1 EURGBP 0.7 0.3-0.1-0.3 Brent Gold 2/10 Highest Short-Term s to Gold 2/10 Brent 72% 42% 37% Highest Long-Term s to Gold RateDiff SP500 33% 32% 24% -0.5 Copper EURGBPRateDiff Highest Short-Term s to EURGBP EURGBPRateDiff Copper 62% 53% 47% Highest Long-Term s to EURGBP EURGBPRateDiff SP500 45% 32% 20% EURCHF 0.7 USDJPY 0.8 0.3-0.1-0.5 SP500 Brent EURCHFRateDiff 0.4 0.0-0.4-0.8 SP500 VIX USDJPY2/10 Highest Short-Term s to EURCHF SP500 Brent VIX 40% 37% -35% Highest Long-Term s to EURCHF SP500 VIX EURCHF2/10 38% -31% 25% Highest Short-Term s to USDJPY SP500 VIX USDJPY2/10 71% -57% 56% Highest Long-Term s to USDJPY VIX SP500 USDJPY2/10-31% 31% 29% 13

0.7 FX Quant; Tracker NZDUSD 0.7 0.3 0.3-0.1-0.1-0.5 Gold RateDiff CRBMetals Gold NZDUSDRateDiff Highest Short-Term s to Gold RateDiff 57% 56% 46% Highest Long-Term s to Gold SP500 39% 38% 36% Highest Short-Term s to NZDUSD CRBMetals Gold NZDUSDRateDiff -48% 44% 42% Highest Long-Term s to NZDUSD Gold SP500 40% 39% 31% USDCAD 0.5 0.1-0.3-0.7 SP500 VIX Copper Highest Short-Term s to USDCAD VIX Copper SP500 36% -35% -26% Highest Long-Term s to USDCAD SP500 Gold -49% -41% -39% Fact Box We display the movements in realized correlation between the major currency crosses and important drivers. For each currency cross short-term correlation movements are displayed in the graphs. In the tables we display the highest short-term and long-term (1Y) correlated assets. Short-term correlations are calculated using an exponentially weighted moving average (EWMA), a method designed to quickly pick up changes. The drivers considered for each currency cross are spot, S&P 500, Chicago Board Options Exchange Volatility Index (VIX), gold, copper, CRB Metals Index, Brent crude oil, slope in cross asset rate curve (2Y/10Y swap rates), difference in basis spreads (OIS v.s. Libor 3M), and difference in short rates (4 th FRA contract) 14

FX Quant; Strategic Monitor In the graphs below we display consensus forecasts and forward price. To visualize volatility and skew we plot the 5 delta and 25 delta strikes. These can be seen as the boundaries for the future spot price implied by options with 90% and 50% probabilities, respectively. Consensus forecasts from FX4Casts/Global Insight. EURSEK EURNOK 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 90% prob 50% prob EURSEK Forward Consensus 3M 8.7194 8.8427 9.0604 / 8.6544 9.4633 / 8.3756 6M 8.6541 8.8739 9.1856 / 8.5982 9.7962 / 8.2036 12M 8.5023 8.9197 9.3918 / 8.5296 10.338 / 7.9481 24M 8.4419 -- -- -- 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 90% prob 50% prob Forward Consensus 3M 1.3283 1.3405 1.3922 / 1.2870 1.4621 / 1.1878 6M 1.3122 1.3410 1.4156 / 1.2644 1.5199 / 1.1155 12M 1.2771 1.3420 1.4524 / 1.2337 1.6102 / 1.0180 24M 1.2564 -- -- -- 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 11Nov11 29Aug12 17Jun13 05Apr14 22Jan15 10Nov15 90% prob 50% prob EURNOK Forward Consensus 3M 8.0001 8.2602 8.5120 / 8.0567 8.9556 / 7.7517 6M 7.9446 8.2889 8.6507 / 8.0092 9.3092 / 7.5892 12M 7.7977 8.3485 8.8802 / 7.9612 9.8985 / 7.3701 24M 7.7220 -- -- -- EURGBP 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 90% prob 50% prob EURGBP Forward Consensus 3M 0.8367 0.8395 0.8586 / 0.8207 0.8895 / 0.7889 6M 0.8419 0.8404 0.8691 / 0.8131 0.9178 / 0.7657 12M 0.8315 0.8414 0.8871 / 0.8025 0.9626 / 0.7340 24M 0.8276 -- -- -- EURCHF 1.45 1.40 1.35 1.30 1.25 1.20 1.15 1.10 1.05 90% prob 50% prob EURCHF Forward Consensus 3M 1.2292 1.2320 1.2502 / 1.2184 1.2897 / 1.1992 6M 1.2332 1.2306 1.2616 / 1.2093 1.3277 / 1.1788 12M 1.2336 1.2284 1.2785 / 1.1894 1.3958 / 1.1112 24M 1.2353 -- -- -- USDJPY 130 120 110 100 90 80 70 90% prob 50% prob USDJPY Forward Consensus 3M 100.0402 99.2080 102.58 / 96.089 108.43 / 91.069 6M 102.5725 99.1004 104.42 / 94.478 113.76 / 86.563 12M 104.0952 98.8720 107.11 / 92.169 121.72 / 80.125 24M 105.1843 -- -- -- 15

FX Quant; Strategic Monitor USDCAD 1.2 1.1 1.0 0.9 0.8 0.7 0.6 90% prob 50% prob Forward Consensus 3M 0.9415 0.9294 0.9660 / 0.8935 1.0146 / 0.8246 6M 0.9234 0.9181 0.9757 / 0.8730 1.0478 / 0.7700 12M 0.9029 0.9091 0.9864 / 0.8427 1.0946 / 0.6947 24M 0.9129 -- -- -- NZDUSD 1.1 1.0 0.9 0.8 0.7 0.6 0.5 90% prob 50% prob NZDUSD Forward Consensus 3M 0.8184 0.8183 0.8509 / 0.7870 0.8937 / 0.7263 6M 0.7973 0.8064 0.8586 / 0.7684 0.9222 / 0.6777 12M 0.7872 0.7958 0.8649 / 0.7396 0.9599 / 0.6096 24M 0.7985 -- -- -- 1.30 1.25 1.20 1.15 1.10 1.05 1.00 0.95 0.90 0.85 90% prob 50% prob USDCAD Forward Consensus 3M 1.0522 1.0505 1.0744 / 1.0315 1.1215 / 1.0054 6M 1.0614 1.0529 1.0901 / 1.0250 1.1634 / 0.9863 12M 1.0685 1.0580 1.1182 / 1.0163 1.2435 / 0.9593 24M 1.0392 -- -- -- GBPUSD 2.0 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 90% prob 50% prob GBPUSD Forward Consensus 3M 1.5875 1.5967 1.6586 / 1.5334 1.7419 / 1.4152 6M 1.5587 1.5947 1.6847 / 1.5052 1.8089 / 1.3279 12M 1.5359 1.5918 1.7238 / 1.4657 1.9114 / 1.2092 24M 1.5181 -- -- -- 16