FX STRATEGY 4 May 0 The comments represented in this publication are made on the basis of a 4 week outlook Contents EUR USD Pg USD JPY Pg AUD USD Pg 4 USD SGD Pg 5 GBP USD Pg 6 Interest rate differentials and FX implied Pg 7 volatility Central Bank Monetary Policy Schedule Pg 8 Appendix Pg 9 Disclaimer Pg 0 Watch for minor pullbacks A stronger USD, arising from higher global risk aversion is likely to be the key driver in FX markets this week. Speculation over the US Fed s monetary policy decision on June 0 is also going to be key Technical indicators are pointing to minor pullbacks in selected pairs before resuming their trend The impact of the announcement by the People s Bank of China (PBoC) this weekend on Asia ex Japan and commodity currencies is expected to be marginal given that markets were expecting the decision by the PBoC. USD building strength DXY and ADXY Indices Index 0 9 8 7 6 5 4 Jun- Aug- Oct- Dec- Feb- Apr- ADXY Index DXY Curncy (RHS) 8 80 78 76 74 7 Index EUR-USD We are bearish on EUR-USD given ongoing political uncertainty in the Euro area. We see the next level of at.85 USD-JPY We are bearish on USD-JPY and expect the downtrend to resume. Initial USD-JPY at 79.65 AUD-USD We are bearish on the AUD-USD and expect a test of 0.987. Impact of China s recent required reserve ratio cut is unlikely to have a significant impact on the pair Suren Chelliah Steve Brice Rob Aspin, CFA Manpreet Gill Investment Strategist Chief Investment Strategist Head, Equity Investment Strategy Head, FICC Investment Strategy USD-SGD We are neutral on USD-SGD given mixed technical signals and hence expect it to be range-bound between.40 and.64 GBP-USD We are neutral on GBP-USD. Given that technical indicators are pointing to a less bearish stance, we expect the pair to clear the important 50% retracement level at.607 before having stronger conviction on the downtrend Technicals* Short term Spot (-4 weeks) Support Support Resistance Resistance EUR-USD.74.85.87.00.0 USD-JPY 79.8 79.65 79.9 80.07 80.4 AUD-USD 0.967 0.987 0.998.05.06 USD-SGD Neutral.40.46.50.59.64 GBP-USD Neutral.590.605.607.60.6 *As of end May 0 Source: Standard Chartered This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank.
EUR - USD Key technical indicators and forecasts* TECHNICAL INDICATORS RSI VIEW We are bearish on EUR-USD given ongoing political uncertainty in the Euro area. We see the next level of at.85. Stochastic MACD ADX Momentum Weak KEY LEVELS Levels Importance.0 Strong.00 Weak Spot.94 Performance EUR-USD declined.8% last week as failed negotiations between political parties in Greece raised speculation that Greece may leave the Euro area. Technical analysis All major technical indicators remain bearish, but we remain cognisant of the fact that we moving closer to the oversold zone. The pair is expected to continue to trend lower, but we prefer to sell if it breaks its at.85 or on pullbacks approaching the line at.00. We would review our outlook if we see a quick recovery above.00..85 Medium.74 Strong Key signposts Greece, and its ability to abide by the agreed austerity measures, remains the key risk for the EUR. Spain s ability to recapitalise its banks successfully is also a key factor. FORECASTS SCB Consensus Q 0.5.9 Q 0.8.9 Q4 0..9 Q 0.0.8 *Please see Appendix on Pg 0 for explanation on technical indicators EUR finally broke strong Technical Analysis: EUR-USD.50.45 50 dma 00 dma 00 dma.6.6.48 EUR - USD.40.5.0.0.74.5 Mar- Jun- Sep- Dec- Mar- EUR-USD 50 dma 00 dma 00 dma
USD - JPY Key technical indicators and forecasts* TECHNICAL INDICATORS RSI Stochastics MACD ADX Momentum VIEW Weak We are bearish on USD-JPY and expect the downtrend to resume. Initial USD-JPY at 79.65 Performance USD-JPY rose 0.% last week after economic data showed Japan s current account balance continuing to be in deficit. However, rising risk aversion has continued to keep the pair low. KEY LEVELS Levels Importance 80.4 Strong 80.07 Strong Spot 79.90 79.65 Medium 79.8 Strong Technical Analysis All major technical indicators remain bearish. The price continues to trade below the primary levels and we expect the downtrend to resume after a small pullback. We would review our outlook if we witness a faster pullback above 80.60. Key signposts Japan s machinery orders data will be released on May 6 with preliminary GDP growth data release on May 7. Improving economic indicators would likely to reduce the probability of further monetary easing by the Bank of Japan. FORECASTS SCB Consensus Q 0 80 8 Q 0 79 8 Q4 0 77 8 Q 0 80 85 *Please see Appendix on Pg 0 for explanation on technical indicators USD-JPY expected to be bearish in the short term Technical Analysis: USD-JPY 85.00 8.00 50 dma 00 dma 00 dma 8.59 79.74 78.44 USD - JPY 8.00 79.00 80.4 79.8 77.00 75.00 Mar- Jun- Sep- Dec- Mar- USD-JPY 50 dma 00 dma 00 dma
AUD - USD Key technical indicators and forecasts* TECHNICAL INDICATORS VIEW We are bearish on the AUD-USD and expect a test of 0.987. Impact of China s recent required reserve ratio cut is unlikely to have a significant impact on the pair RSI Stochastic MACD ADX Performance AUD-USD declined.59% last week on rising risk aversion due to the ongoing uncertainty in the Euro area. Weaker than expected economic data from China at the end of last week also weighed on AUD-USD. Momentum Weak KEY LEVELS Levels Importance.06 Strong.05 Strong Spot 0.998 0.987 Strong 0.967 Strong Technical Analysis All major leading technical indicators are bearish. There is sufficient momentum on the downside to test the lower s. We expect to the pair to witness selling on any minor pullback If the pair refuses to close below parity for more than a week, we would review our outlook. Key signposts We believe China s required reserve ratio cut is unlikely to have a significant impact on the pair. The outcome of political developments in the Euro area will most likely impact the direction of the pair in the coming month. FORECASTS SCB Consensus Q 0.0.0 Q 0.06.0 Q4 0.0.04 Q 0.0.05 *Please see Appendix on Pg 0 for explanation on technical indicators AUD-USD to face further downside Technical Analysis: AUD-USD..09 50 dma 00 dma 00 dma.08.0459.0 AUD - USD.07.05.0.0 0.99 0.97.06 0.967 0.95 Mar- Jun- Sep- Dec- Mar- AUD-USD 50 dma 00 dma 00 dma 4
USD - SGD Key technical indicators and forecasts* TECHNICAL INDICATORS VIEW We are neutral on USD-SGD given mixed technical signals and hence expect it to be range-bound between.40 and.64. RSI Stochastic MACD ADX Neutral Overbought Neutral Performance USD-SGD rose 0.66% over the week on higher demand for safe haven currencies like the USD given the ongoing political uncertainty in the Euro area. Momentum Strong KEY LEVELS Levels Importance.64 Strong.59 Strong Spot.50 Technical Analysis Major leading technical indicators are indicating mixed signals at this point. The pair witnessed a quick pullback from the low of.5 to recouping most of its losses. Momentum appears to have reduced, hence the pair is expected to consolidate within a range of.40.64. We stay neutral while watching for further directional cues. Any breakout outside the range of.40 or.64 would cause us to review our outlook..46 Strong.40 Strong Key signposts Being an open economy, Singapore s non-oil exports growth data out on May 7 will be key. A contraction in the data would likely cause the pair to rise. FORECASTS SCB Consensus Q 0.5.5 Q 0.4.4 Q4 0.0. Q 0.8. *Please see Appendix on Pg 0 for explanation on technical indicators USD-SGD to stay neutral for now Technical Analysis: USD-SGD...9 USD - SGD.7.5...64.40 50 dma 00 dma 00 dma.56.6.6.9 Mar- Jun- Sep- Dec- Mar- USD-SGD 50 dma 00 dma 00 dma 5
GBP-USD Key technical indicators and forecasts* TECHNICAL INDICATORS RSI Stochastic MACD ADX Momentum VIEW Neutral Bullish Neutral Neutral We are neutral on GBP-USD. Given that technical indicators are pointing to a less bearish stance, we expect the pair to clear the important 50% retracement level at.607 before having stronger conviction on the downtrend Performance GBP-USD declined 0.5% as economic data continued to show a contraction in economic activity. KEY LEVELS Levels Importance.6 Weak.60 Strong Spot.64.607 Strong.590 Medium FORECASTS SCB Consensus Technical Analysis The technical indicators are more or less neutral at this point of time. The pair has shown significant strength during the last leg up from.58 and has completed a 50% correction of the last rally. Though we observe the momentum building to the downside, we would like to see the pair clear the important Fibonacci retracement level before expressing greater conviction. We would be much more confident in the down trend if the psychological of.59 is broken in the next few trading sessions. Key signpost The unemployment rate is expected to be released on May 6. An increase in the rate is likely to be bearish for the pair. Q 0.55.58 Q 0.59.58 Q4 0.6.59 Q 0.60.60 *Please see Appendix on Pg 0 for explanation on technical indicators GBP-USD looking exhausted Technical Analysis: GBP-USD GBP - USD.68.66.64.6.60.58 50 dma 00 dma 00 dma.596.58.58.6.590.56.54.5 Mar- Jun- Sep- Dec- Mar- GBP-USD 50 dma 00 dma 00 dma 6
Interest rate differentials Measures the yield of holding a foreign currency relative to the base currency EUR-USD ECB hints at holding back for now % 0 - - Feb-07 Feb-08 Feb-09 Feb-0 Feb- Feb- mth EUR LIBOR less mth USD LIBOR EUR-USD (RHS).7.6.5.4... EUR-USD EUR-USD Euro area risk elevated 0 8 6 4 0 FX Implied Volatility An approximate indicator used to gauge future expectations of price movements based on FX options market pricing 8 Jan- Apr- Jul- Oct- Jan- Apr- W Implied Volatility USD-JPY Both CBs implementing monetary easing 6 5 4 % 0 - Feb-07 Feb-08 Feb-09 Feb-0 Feb- Feb- mth USD LIBOR less mth JPY LIBOR USD-JPY (RHS) 5 5 5 05 95 85 75 USD-JPY USD-JPY Consensus highlights bearishness 9 7 5 9 7 5 Jan- Apr- Jul- Oct- Jan- Apr- W Implied Volatility AUD-USD Differentials ive of carry trades AUD-USD Risk aversion in Euro area influencing AUD 6. % 5. 4 8 0.9 0.8 0.7 0.6 8 0 0.5 Jan- Apr- Jul- Oct- Jan- Apr- Feb-07 Feb-08 Feb-09 Feb-0 Feb- Feb- mth AUD LIBOR less mth USD LIBOR AUD-USD (RHS) W Implied Volatility AUD-USD USD-SGD significantly low rates in both countries %.5.5.5 0.5 0-0.5 - Feb-07 Feb-08 Feb-09 Feb-0 Feb- Feb- mth USD LIBOR less mth SGD SIBOR USD-SGD (RHS).65.55.45.5.5.5 USD-SGD USD-SGD SGD impacted by external events 8 6 4 0 8 6 4 Jan- Apr- Jul- Oct- Jan- Apr- W Implied Volatility GBP-USD BoE may hold back on further QE.5.5 %.5.4.5 0.5 0. Feb-07 Feb-08 Feb-09 Feb-0 Feb- Feb-.6.7.8.9 GBP-USD GBP-USD Sudden change in QE expectations 4 0 9 8 7 6 Jan- Apr- Jul- Oct- Jan- Apr- mth GBP LIBOR less mth USD LIBOR GBP-USD (RHS) W Implied Volatility 7
Central Bank Monetary Policy Meeting Schedules 0* FX Strategy Policy rate** Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Majors US 0.5 5 5 0 4 UK 0.5 9 8 5 0 7 5 6 4 8 6 Euro area 9 8 4 6 5 6 4 8 6 Japan 0. 4 4 0,7 5 9 9 5,0 0 0 Australia.75 7 6 5 7 4 6 4 New Zealand.5 6 8 6 4 6 5 6 Canada 7 8 7 5 7 5 4 Switzerland 0 5 4 Asia ex-japan China 6.56 India 8.5 South Korea.5 9 8 0 8 9 8 Taiwan.875 8 7 7 Singapore Expected Expected Malaysia 9 5 6 8 Indonesia 5.75 9 8 0 9 8 Thailand 5 5 5 7 8 Philippines 4 9 9 4 6 5 * Subject to change ** Data as of May 0
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 0 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.
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