FX STRATEGY September 03 This commentary reflects the views of the Wealth Management Group The views expressed in this publication are made on the basis of a -4 week outlook and may differ from our longer term views and forecasts from the Global Research function. Contents EUR USD Pg USD JPY Pg 3 AUD USD Pg 4 USD SGD Pg 5 GBP USD Pg 6 XAU USD Pg 7 Supplementary pairs charts Pg 8-9 Interest rate differentials and FX implied Pg 0 volatility Central Bank Monetary Policy Schedule Pg Appendix Pg Disclaimer Pg 3 Weekly performance of pairs 6 August to 3 August 03 EUR USD USD JPY AUD USD USD SGD GBP USD XAU USD.43.0 0.56 0.3 0.4 0.8.5.5 0.5 0.5 % Steve Brice Chief Investment Strategist Rob Aspin, CFA Head, Equity Investment Strategy Manpreet Gill Head, FICC Investment Strategy Adi Monappa, CFA Head, Asset Allocation Audrey Goh Investment Strategist Victor Teo, CFA Investment Strategist The USD strengthened broadly against major currencies as we approach the key September Fed meeting. We continue to expect modest USD strength over time. The Indian Rupee and Indonesian Rupiah rebounded following policy measures aimed at stemming currency weakness. EUR-USD We remain bearish on EUR-USD as technical indicators argue the recent rebound is likely to reverse. USD-JPY We remain neutral on USD-JPY and expect sideways consolidation to continue in the near term. AUD-USD We turn bearish on AUD-USD as we expect negative momentum to resume. USD-SGD We remain neutral on USD-SGD, though a minor consolidation could temporarily correct prices lower. GBP-USD We remain bearish on GBP-USD as technical indicators argue further weakness is in the offing. XAU-USD USD bounces back We remain bearish on gold as the medium term trend remains to the downside. The recent rebound is likely to be temporary. CORE PAIRS Short term Spot ( 4 weeks) Support Support Resistance Resistance EUR USD.85.308.30.345.385 USD JPY 93.00 95.50 98.6 99.50 0.5 AUD USD 0.855 0.878 0.897 0.930 0.945 USD SGD.40.54.74.86.300 GBP USD.500.53.553.575.595 XAU USD 80 360 39 40 480 SUPPLEMENTARY PAIRS* Short term Spot ( 4 weeks) Support Support Resistance Resistance USD CNH 6.080 6.095 6.5 6.5 6.45 USD ZAR 9.600 9.965 0.30 0.45 0.70 NZD USD 0.75 0.760 0.77 0.88 0.846 USD CHF Bullish 0.896 0.90 0.930 0.945 0.960 USD SEK Bullish 6.380 6.500 6.69 6.70 6.850 USD CAD Bullish.00.035.053.065.080 *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
EUR - USD Key technical indicators and forecasts* TECHNICAL INDICATORS VIEW We remain bearish on EUR-USD as technical indicators argue the recent rebound is likely to reverse. RSI Stochastic MACD ADX Momentum KEY LEVELS Levels Importance.385 Strong.345 Strong Spot.30.308.85 Strong Performance EUR-USD dropped -.% over the last week, approaching a fresh four week low, as annualised US Q GDP of.5% beat street expectations and US jobless claims fell to their lowest levels since 007. This bolstered market expectations the Fed may begin winding down QE stimulus later this month, leading to USD strength against the EUR. European economic data, meanwhile, remained mixed. German Q GDP and Ifo business sentiment were strong, but consumer confidence remained weak. Technical analysis Major technical indicators are, on balance, neutral to bearish. We remain bearish on EUR-USD due to unfavourable technicals. Major lines above.345 are likely to prevent a move higher, in our view. We expect last week s strong bearish reversal pattern to lead to weakness in the pair in the coming weeks. We would review our outlook if the pair breaks above.345. FORECASTS Consensus Q3 03.30 Q4 03.7 Q 04.6 Q 04.6 Key signposts The ISM manufacturing index (3-Sep) and the employment report (6-Sep) are key upcoming data points. The ECB is unlikely to change its stance at its upcoming monetary policy meeting (Sep 5). The possibility of Greece requiring another bailout remains a risk. *Please see Appendix on Pg 0 for explanation on technical indicators Pair is likely to continue to weaken further Technical Analysis: EUR-USD EUR USD.38.36.34.3.30.8.6.345.308.4..39.336.344.0 Jul Oct Jan 3 Apr 3 Jul 3 EUR USD
USD - JPY Key technical indicators and forecasts* TECHNICAL INDICATORS RSI Stochastics MACD ADX Momentum VIEW Bullish Bullish We remain neutral on USD-JPY and expect sideways consolidation to continue in the near term. Performance USD-JPY ended marginally lower (-0.6%) over the previous week. Japan s inflation rate accelerated in July and factory output rebounded smartly (though disappointed relative to expectations). Concerns remain whether these trends remain sustainable. KEY LEVELS Levels Importance 0.5 Strong 99.50 Strong Spot 98.6 FORECASTS 95.50 Strong 93.00 Strong Consensus Technical Analysis Major technical indicators are, on balance, neutral to bullish. We are neutral on USD-JPY at current levels. We expect the pair to consolidate within a 95.5 99.5 range in the near term. We believe the longer term trend is still bullish, a view we expect to hold unless key is breached. We would review our outlook if the pair closes below 95.5 or above 99.5. Key signposts The Bank of Japan s monetary policy meeting (Sep 5) is key. We do not expect any change in the policy stance. The debate around the sales tax hike decision remains key. Q3 03 00 Q4 03 03 Q 04 06 Q 04 07 *Please see Appendix on Pg 0 for explanation on technical indicators USD-JPY likely to continue consolidating in the near term. Technical Analysis: USD-JPY 03.00 99.00 USD JPY 95.00 9.00 87.00 98.7 98.95 94.78 99.50 95.50 83.00 79.00 75.00 Jul Oct Jan 3 Apr 3 Jul 3 USD JPY 3
AUD - USD Key technical indicators and forecasts* TECHNICAL INDICATORS VIEW We turn bearish on AUD-USD as we expect negative momentum to resume. RSI Stochastic MACD ADX Momentum KEY LEVELS Levels Importance 0.945 Strong 0.930 Strong Spot 0.897 FORECASTS 0.878 Strong 0.855 Strong Consensus Q3 03 0.90 Performance AUD-USD declined (-.4%) over last week due to a stronger USD and renewed expectations of further rate cuts by the Reserve Bank of Australia (RBA). Technical Analysis Major technical indicators are, on balance, neutral to bearish. We turn bearish (from neutral earlier) on the AUD-USD pair as we see negative momentum resuming once again. The pair appears to be breaking down following the last few weeks consolidation pattern. We expect the pair to move lower in line with the broader negative downtrend. The longer term trend continues to remains down. We would review our outlook if the pair ends the week above 0.930 or below 0.878. Key signposts The RBA s interest rate decision (Sep 3) & GDP data (Sep 4) will be key. We continue to expect the central bank to signal its comfort with further weakness in the currency. Q4 03 0.89 Q 04 0.89 Q 04 0.88 *Please see Appendix on Pg 0 for explanation on technical indicators We expect short term negative momentum to resume Technical Analysis: AUD-USD.06.0 AUD USD 0.96 0.909 0.948 0.9948 0.930 0.9 0.878 0.86 Jul Oct Jan 3 Apr 3 Jul 3 AUD USD 4
USD - SGD Key technical indicators and forecasts* TECHNICAL INDICATORS VIEW We remain neutral on USD-SGD, though a minor consolidation could temporarily correct prices lower. RSI Stochastic MACD ADX Bullish Bullish Performance USD-SGD was down marginally (-0.3%) over the last week as July industrial output growth disappointed. Momentum KEY LEVELS Levels Importance.300 Strong.86 Spot.74 FORECASTS.54 Strong.40 Strong Consensus Q3 03.7 Q4 03.8 Technical Analysis Major technical indicators are, on balance, neutral to bullish. We remain neutral on USD-SGD. The longer-term trend remains to the upside within the upward-sloping trend channel. However, we believe a temporary correction is likely in the interim, which may also offer more attractive levels to turn bullish. We prefer to remain neutral at this time until the risk-reward trade-off improves. We would review our outlook if the pair ends the week below.54 or above.86. Key signposts We believe the MAS will likely maintain its current monetary policy stance at its October 03 monetary policy meeting so as to provide an accommodative growth environment while maintaining downward pressure on inflation expectations. Positive economic data from China would likely be bullish for the SGD and vice versa. The performance of the Renminbi is also important for the pair from a trade competitiveness perspective. Q 04.8 Q 04.7 *Please see Appendix on Pg 0 for explanation on technical indicators USD-SGD likely to retreat temporarily within the band Technical Analysis: USD-SGD USD SGD.30.9.8.7.6.5.4.3.. Jul Oct Jan 3 Apr 3 Jul 3 USD SGD.86.70.598.466.54 5
ingapore s manufacturing PMI GBP - USD Key technical indicators and forecasts* TECHNICAL INDICATORS RSI Stochastic MACD ADX VIEW We remain bearish on GBP-USD as technical indicators argue further weakness is in the offing. Performance GBP-USD fell marginally (-0.4%) over the last week, largely driven by USD gains. Momentum KEY LEVELS Levels Importance.595 Strong.575 Strong Spot.553 FORECASTS.53.500 Strong Consensus Technical Analysis Major technical indicators are, on balance, neutral to bearish. We remain bearish on GBP-USD as we expect it to retreat lower after testing key at.575. Many technical indicators are also bearish, arguing the case for a correction. We would review our outlook if we get a weekly close above.575. Key signposts The BoE s forward guidance strategy of keeping rates low as long as unemployment stays above 7% is likely to mean (a) the GBP will become more sensitive to labour market data, and (b) further quantitative easing is more likely. Services PMI (Sep 4) and the Bank of England s policy meeting (Sep 5) will be key. Q3 03.5 Q4 03.50 Q 04.50 Q 04.50 *Please see Appendix on Pg 0 for explanation on technical indicators A corrective retracement within the broader downtrend Technical Analysis: GBP-USD GBP USD.64.6.60.58.56.54.5.50.575.53.5344.5364.5505.48 Jul Oct GBP USD Jan 3 50 dma 00 dma Apr 3 00 dma Jul 3 6
Key technical indicators and forecasts* Inflation XAU - USD TECHNICAL INDICATORS RSI Stochastic MACD ADX VIEW We remain bearish on gold as prices as the medium term trend remains to the downside. The recent rebound is likely to be temporary. Performance XAU-USD was largely flat (-0.07%) over the last week as the probability of an immediate U.S strike on Syria faded, easing safe haven demand. Momentum KEY LEVELS Levels Bullish Importance 480 Strong 40 Spot 39 360 80 Strong Consensus Technical Analysis Major technical indicators are, on balance, neutral to bearish. We remain bearish on gold. The recent rebound is likely temporary due to extremely oversold conditions. The medium term trend remains to the downside. We would review our outlook if the pair rallies above 40. Key signpost This short-term view should be viewed within the context of our longer term Underweight view on Gold. Rising expectations of an end to the Fed s QE program, receding tail risks, likely USD strength and rising opportunity costs continue to work against gold, in our view. Ongoing central bank purchases, firm retail demand and higher inflation expectations pose some risks to our view. Q3 03 300 Q4 03 300 Q 04 87 Q 04 30 *Please see Appendix on Pg 0 for explanation on technical indicators Current rebound is likely temporary Technical Analysis: XAU-USD,800,700,600 XAU USD,500,400,300,00 35 359 498,00 Jul Oct XAU USD Jan 3 50 dma 00 dma Apr 3 00 dma Jul 3 40 360 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 are bearish on USD-CNH Technical Analysis: USD CNH 6.40 6.35 6.30 6.78 6.374 6.743 USD CNH 6.5 6.0 6.5 We turn neutral on USD-ZAR (from bullish earlier) Technical Analysis: USD ZAR 6.5 6.0 6.095 6.05 Jul Oct USD CNH Jan 3 50 dma 00 dma Apr 3 00 dma Jul 3 0.0 9.80 0.45 9.97 USD ZAR 9.40 9.00 8.60 8.0 0.0 9.77 9.33 7.80 Jul Oct USD ZAR Jan 3 50 dma 00 dma Apr 3 00 dma Jul 3 We turn bearish on NZD-USD (from neutral earlier) Technical Analysis: NZD-USD NZD USD 0.89 0.87 0.85 0.83 0.8 0.79 0.77 0.75 0.7889 0.804 0.896 0.73 Jul Oct Jan Apr Jul Oct Jan 3 Apr 3 Jul 3 NZD USD 0.88 0.76 8
We are bullish on USD-CHF Technical Analysis: USD CHF 0.99 0.97 0.95 0.945 USD CHF 0.93 0.9 0.89 0.87 0.85 Oct Jan Apr Jul Oct Jan 3 Apr 3 Jul 3 USD CHF 0.9357 0.9398 0.9345 0.9 We turn bullish on USD-SEK (from neutral earlier) Technical Analysis: USD-SEK 7.40 USD CHF 7.0 7.00 6.80 6.60 6.586 6.5796 6.594 6.7 6.40 6.50 6.0 Oct Jan Apr Jul Oct Jan 3 Apr 3 Jul 3 USD SEK We are bullish on USD-CAD Technical Analysis: USD-CAD.08.06.04.065.035 USD CAD.0.00 0.98 0.96.043.03.08 0.94 Jun Sep Dec Mar Jun Sep Dec Mar 3 Jun 3 USD CAD 9
EUR-USD %.5.5 0.5 0 Interest rate differentials Measures the yield of holding a foreign currency relative to the base currency 0.5 Jan 08 Jan 09 Jan 0 Jan Jan Jan 3 Difference between EUR and USD yr swap EUR USD (RHS).7.6.5.4.3.. EUR USD 0 8 6 4 0 8 FX Implied Volatility An approximate indicator used to gauge future expectations of price movements based on FX options market pricing 6 Jan Jul Jan Jul Jan 3 Jul 3 W Implied Volatility USD-JPY 3.5 %.5 0.5 0 Jan 08 Jan 09 Jan 0 Jan Jan Jan 3 Difference between USD and JPY yr swap USD JPY (RHS) 5 0 05 00 95 90 85 80 75 USD JPY 9 7 5 3 9 7 5 Jan Jul Jan Jul Jan 3 Jul 3 W Implied Volatility AUD-USD 6 5 4 % 3 0 Jan 08 Jan 09 Jan 0 Jan Jan Jan 3 Difference between AUD and USD yr swap AUD USD (RHS).. 0.9 0.8 0.7 0.6 0.5 AUD USD 7 3 9 5 Jan Jul Jan Jul Jan 3 Jul 3 W Implied Volatility USD-SGD.5 % 0.5 0 0.5 Jan 08 Jan 09 Jan 0 Jan Jan Jan 3 Difference between USD and SGD yr swap USD SGD (RHS).65.55.45.35.5.5 USD SGD 8 6 4 0 8 6 4 Jan Jul Jan Jul Jan 3 Jul 3 W Implied Volatility GBP-USD 3.5 %.5 0.5 0 Jan 08 Jan 09 Jan 0 Jan Jan Jan 3 Difference between GBP and USD yr swap GBP USD (RHS).4.5.6.7.8.9. GBP USD 4 0 8 6 4 Jan Jul Jan Jul Jan 3 Jul 3 W Implied Volatility 0
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 4 9 6 4 0 3 5 Euro area 0.50 0 7 7 4 6 4 7 5 Japan 0.0 4 7 4 8 5 3 0 9 Australia.50 5 5 7 4 6 3 5 3 New Zealand.50 30 4 4 8 3 5 30 Canada.00 3 6 7 9 7 4 3 4 Switzerland 0.5 4 0 9 Asia ex Japan China 6.00 India 7.5 South Korea.50 4 4 9 3 8 0 4 Taiwan.875 Singapore Expected Expected Malaysia 3.00 30 7 9 5 7 Indonesia 7.00 0 7 4 3 5 8 Thailand.50 9 0 3 9 0 6 7 Philippines 3.50 4 8 4 5 0 3 5 7 4 * Subject to change ** Data as of 6 August 03
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 0%, 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.
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 853 Reference Number ZC8. The Principal Office of the Company is situated in England at Basinghall Avenue, London, ECV 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. This document is being distributed for general information only and it does not constitute an offer, recommendation, solicitation to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This document is for general evaluation only, it does not take into account the specific investment objectives, financial situation, particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons. Opinions, projections and estimates are solely those of SCB at the date of this document and subject to change without notice. Past performance is not indicative of future results and no representation or warranty is made regarding future performance. Any forecast contained herein as to likely future movements in rates or prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in rates or prices or actual future events or occurrences (as the case may be). This document has not and will not be registered as a prospectus in any jurisdiction and it is not authorised by any regulatory authority under any regulations. SCB makes no representation or warranty of any kind, express, implied or statutory regarding, but not limited to, the accuracy of this document or the completeness of any information contained or referred to in this document. This document is distributed on the express understanding that, whilst the information in it is believed to be reliable, it has not been independently verified by us. SCB accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents. SCB, and/or a connected company, may at any time, to the extent permitted by applicable law and/or regulation, be long or short any securities, currencies or financial instruments referred to on this document or have a material interest in any such securities or related investment, or may be the only market maker in relation to such investments, or provide, or have provided advice, investment banking or other services, to issuers of such investments. Accordingly, SCB, its affiliates and/or subsidiaries may have a conflict of interest that could affect the objectivity of this document. This document must not be forwarded or otherwise made available to any other person without the express written consent of SCB. Copyright: Standard Chartered Bank 03. Copyright in all materials, text, articles and information contained herein is the property of, and may only be reproduced with permission of an authorised signatory of, Standard Chartered Bank. Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of Standard Chartered Bank and should not be reproduced or used except for business purposes on behalf of Standard Chartered Bank or save with the express prior written consent of an authorised signatory of Standard Chartered Bank. All rights reserved. Standard Chartered Bank 03. THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT. 3