FX STRATEGY 25 November 2013 This commentary reflects the views of the Wealth Management Group 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. Contents EUR USD Pg 2 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 10 volatility Appendix Pg 11 Disclaimer Pg 12 Weekly performance of pairs 15 November 2013 to 22 November 2013 EUR-USD USD-JPY AUD-USD USD-SGD GBP-USD XAU-USD -3.59-1.97 0.26 0.46 0.67-4.00-3.50-3.00-2.50-2.00-1.50-1.00-0.50 0.00 0.50 1.00 % 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, CFA Investment Strategist Victor Teo, CFA Investment Strategist 1.08 Tapering concerns lead the market Tapering continues to be on FX markets minds. Last week was dominated by AUD, gold and the JPY weakness. European currencies remained the key exceptions. The USD may have bottomed in the short term. We remain structurally bullish on the currency. EUR-USD We remain neutral on EUR-USD pair and believe risk/reward favours awaiting greater clarity from technical indicators. USD-JPY We remain bullish on USD-JPY. The pair s breakout signals the start of a fresh uptrend, in our view. AUD-USD We turn bearish on AUD-USD after it cracked below key short term support. USD-SGD We remain bearish on USD-SGD and believe the pair is likely to find resistance around the 200 DMA. GBP-USD We turn neutral on GBP-USD (from bullish earlier) due to increasingly uncomfortable technical indicator readings. XAU-USD We remain bearish on gold and believe the trend remains negative. The decline below 1250 now brings June lows (1200.67) into focus. CORE PAIRS Short term Spot (2 4 weeks) Support Support Resistance Resistance EUR USD 1.318 1.333 1.355 1.362 1.375 USD JPY 93.15 97.65 101.74 103.00 105.85 AUD USD 0.870 0.904 0.916 0.945 0.965 USD SGD 1.230 1.242 1.253 1.260 1.272 GBP USD 1.580 1.592 1.622 1.645 1.668 XAU USD 1030 1180 1240 1360 1420 SUPPLEMENTARY PAIRS* Short term Spot (2 4 weeks) Support Support Resistance Resistance USD CNH 6.056 6.068 6.078 6.100 6.116 USD ZAR 9.700 10.000 10.08 10.502 10.605 NZD USD 0.806 0.820 0.822 0.842 0.858 USD CHF 0.890 0.902 0.909 0.928 0.942 USD SEK 6.150 6.350 6.583 6.665 6.815 USD CAD 1.016 1.029 1.055 1.055 1.067 *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 neutral on EUR-USD pair and believe risk/reward favours awaiting greater clarity from technical indicators. RSI Stochastic MACD ADX Momentum KEY LEVELS Levels Importance resistance 1.375 Strong resistance 1.362 Strong Spot 1.355 support 1.333 Strong support 1.318 Strong FORECASTS Consensus Q4 2013 1.34 Q1 2014 1.32 Q2 2014 1.30 Performance EUR-USD was up (0.46%) over the previous week after German business confidence rebounded in November to an 18 month high. Manufacturing PMI activity expanded in November, in line with expectations, but services PMI declined. US inflation slowed by more than expected, but upbeat jobless claims data and retail sales offset the impact. Technical analysis Major technical indicators, on balance, are neutral. We remain neutral on the EUR-USD pair at the moment, but with a rising downside bias. The pair has retraced nearly 50% of the fall from the year s highs and, in our view, there remains scope to a further extension to 1.362. However, we believe it is likely to run into strong resistance at 1.362, where we expect the rebound to end. We would review our outlook if the pair decisively rallies above 1.362 or falls below 1.333. Key signposts Europe German consumer confidence (27 Nov) and employment data (28 Nov), CPI inflation (28 Nov) and the unemployment rate (29 Nov) are key economic indicators to watch. US Consumer Confidence (26 Nov) and durables goods order (27 Nov) are key releases in a holiday-truncated week. Q3 2014 1.28 *Please see Appendix on Pg 12 for explanation on technical indicators EUR USD approaching key resistance levels Technical Analysis: EUR-USD 1.39 1.37 1.362 EUR - USD 1.35 1.33 1.31 1.29 1.333 1.27 1.25 1.3556 1.3399 1.3221 1.23 EUR-USD 2
Key technical indicators and forecasts* USD - JPY TECHNICAL INDICATORS RSI Stochastics MACD ADX Momentum VIEW We remain bullish on USD-JPY. The pair s breakout signals the start of a fresh uptrend, in our view. Performance USD-JPY ended up (1.08%) over the previous week as the Bank of Japan left policy and rates unchanged. It also reiterated its commitment to continuing asset purchases in order to meet its inflation target. KEY LEVELS Levels Importance resistance 105.85 Strong resistance 103.00 Strong Spot 101.74 support 97.65 Strong support 93.15 Strong FORECASTS Consensus Technical Analysis Major technical indicators are, on balance, neutral to bullish. We remain bullish on USD-JPY as it broke out to the upside from the sideways triangular shaped range it has held over the last few months. Such patterns usually signal a continuation of the broader uptrend. We believe the longer term trend is bullish, a view we expect to hold unless key retracement supports are breached. We would review our outlook if the pair closes below 97.65. Key signposts Tokyo s inflation and industrial production (28 Nov) are key economic indicators set for release this week. Q4 2013 100 Q1 2014 102 Q2 2014 104 Q3 2014 105 *Please see Appendix on Pg 12 for explanation on technical indicators USD-JPY gives out bullish signals Technical Analysis: USD-JPY 107 103 103.00 USD - JPY 99 95 91 87 83 79 97.65 98.63 98.68 98.12 75 USD-JPY 3
AUD - USD Key technical indicators and forecasts* TECHNICAL INDICATORS VIEW We turn bearish on AUD-USD after it cracked below key short term support. RSI Stochastic MACD ADX Momentum Performance AUD-USD fell (-1.97%) over the previous week after PMI manufacturing data in China, the country s largest trade partner, disappointed in November. The Australian Governor said currency intervention remained a possibility. KEY LEVELS Levels Importance resistance 0.965 Strong resistance 0.945 Strong Spot 0.916 support 0.904 support 0.870 Strong Technical Analysis Major technical indicators are divergent We turn bearish on the AUD-USD pair (from neutral earlier). The pair broke below key support of 0.935 last week, signalling a reversal lower is likely. The longer term trend remains negative, in our view. We would review our outlook if the pair rallied above 0.960. Key signposts Private new capital expenditure (28 Nov) is the key economic data set for release this week. FORECASTS Consensus Q4 2013 0.93 Q1 2014 0.92 Q2 2014 0.89 Q3 2014 0.88 *Please see Appendix on Pg 12 for explanation on technical indicators AUD-USD downtrend momentum weighing on the pair Technical Analysis: AUD-USD 1.11 1.06 0.9441 0.928 0.9634 AUD - USD 1.01 0.96 0.945 0.91 0.904 0.86 AUD-USD 4
USD - SGD Key technical indicators and forecasts* RSI TECHNICAL INDICATORS Stochastic MACD ADX Momentum VIEW KEY LEVELS Levels Importance resistance 1.272 Strong resistance 1.260 Strong Spot 1.253 support 1.242 support 1.230 Strong We remain bearish on USD-SGD and believe the pair is likely to find resistance around the 200 DMA. Performance USD-SGD was up (0.26%) over the previous week. Q3 GDP data was strong and above consensus expectations. Technical Analysis Major technical indicators, on balance, are neutral to bearish. We remain bearish on USD-SGD as we believe the downtrend is likely to remain in place. The pair has fallen below the 200 DMA and also breached (albeit temporarily, for now) a key medium term support trend line. Oversold indicators pose a risk to our view, but, on balance, we believe a bearish stance remains justified. We would review our outlook if the pair crossed above 1.260. Key signposts Industrial production (Nov 26) is the key data set for release this week. FORECASTS Consensus Q4 2013 1.25 Q1 2014 1.25 Q2 2014 1.25 Q3 2014 1.25 *Please see Appendix on Pg 12 for explanation on technical indicators USD-SGD trend remains weak Technical Analysis: USD-SGD 1.30 USD - SGD 1.29 1.28 1.27 1.26 1.25 1.24 1.2463 1.2581 1.2536 1.26 1.23 1.23 1.22 1.21 USD-SGD 5
ingapore s manufacturing PMI GBP - USD Key technical indicators and forecasts* TECHNICAL INDICATORS RSI Stochastic MACD ADX VIEW We turn neutral on GBP-USD (from bullish earlier) due to increasingly uncomfortable technical indicator readings. Performance GBP-USD was up (0.67%) over the previous week as data showed U.K. public sector finances improved last month. Momentum KEY LEVELS Levels Importance resistance 1.668 Strong resistance 1.645 Strong Spot 1.622 support 1.592 Strong support 1.580 Strong Technical Analysis Major technical indicators, on balance, are bullish. We turn neutral on GBP-USD (from bullish earlier). While we recognise the rebound could extend further, short term indicators have moved to overbought levels. Momentum has also exhibited some negative divergence. We, therefore, believe risk/reward favours moving to a neutral stance for now. We would review our outlook if the pair falls below 1.592 or moves above 1.645. Key signposts GDP (27 Nov) is the key economic data set for release this week. FORECASTS Consensus Q4 2013 1.60 Q1 2014 1.58 Q2 2014 1.57 Q3 2014 1.56 *Please see Appendix on Pg 12 for explanation on technical indicators 1.592 to remain key support Technical Analysis: GBP-USD GBP - USD 1.66 1.64 1.62 1.60 1.58 1.56 1.54 1.52 1.50 1.6079 1.5766 1.552 1.48 1.645 1.592 GBP-USD 6
Key technical indicators and forecasts* Inflation XAU - USD TECHNICAL INDICATORS RSI VIEW We remain bearish on gold and believe the trend remains negative. The decline below 1250 now brings June lows (1200.67) into focus. Stochastic MACD ADX Momentum KEY LEVELS Levels Importance resistance 1420 Strong resistance 1360 Strong Spot 1240 support 1180 support 1030 Strong Consensus Q4 2013 1300 Q1 2014 1263 Q2 2014 1230 Performance XAU-USD tumbled (-3.59%) over the previous week after minutes of the Fed October meeting showed U.S. central bankers could start scaling back monetary stimulus earlier than expected. Disappointing physical demand from Asia and continued outflows from gold also pressured bullion prices. Technical Analysis Major technical indicators are largely bearish. We remain bearish on gold as prices failed to sustain above 1300 levels. The decline below 1250 now brings the June low (1200.67) back on the radar. Our longer-term view remains negative unless we see prices decline towards the longer term support trendline. We would review our outlook if gold moves above 1360. Key signpost This short-term view should be viewed within the context of our longer term Underweight view on Gold. Any increase in QE tapering expectations and rising opportunity costs provided by equity market resilience are likely to continue working against gold, in our view. Ongoing central bank purchases, firm retail demand and geopolitical tensions pose risks to our view. Q3 2014 1206.5 *Please see Appendix on Pg 12 for explanation on technical indicators Gold continues to falter Technical Analysis: XAU-USD 1,800 1,700 1,600 XAU-USD 1,500 1,400 1,300 1307.89 1323.71 1390.54 1360 1,200 1180 1,100 XAU-USD 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 bearish on USD-CNH Technical Analysis: USD CNH 6.40 6.35 6.30 6.0931 6.1079 6.1394 USD - CNH 6.25 6.20 6.15 6.10 6.1 6.068 6.05 USD-CNH We remain bearish on USD-ZAR Technical Analysis: USD ZAR 10.6 10.502 10.2 9.8 10 USD - ZAR 9.4 9.0 8.6 8.2 10.0072 10.0073 9.7064 7.8 USD-ZAR We turn bearish on NZD-USD (from neutral earlier) Technical Analysis: NZD-USD 0.87 0.85 0.842 NZD -USD 0.83 0.81 0.79 0.77 0.75 0.82 0.8318 0.8129 0.8171 0.73 Oct-11 Feb-12 Jun-12 Oct-12 Mar-13 Jul-13 Nov-13 NZD-USD 8
We remain bearish on USD-CHF Technical Analysis: USD CHF 1.01 0.99 0.97 0.9083 0.9205 0.9318 USD-CHF 0.95 0.93 0.91 0.89 0.87 0.928 0.902 0.85 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 USD-CHF We remain bearish on USD-SEK which appears to have topped out Technical Analysis: USD-SEK 7.4 7.2 6.4703 6.5131 6.5233 USD-SEK 7.0 6.8 6.665 6.6 6.4 6.350 6.2 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 USD-SEK We remain neutral on USD-CAD Technical Analysis: USD-CAD 1.08 1.06 1.055 USD - CAD 1.04 1.02 1.00 1.029 0.98 1.0385 1.0387 1.0319 0.96 Sep-11 Jan-12 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Nov-13 USD-CAD 9
EUR-USD Interest rate differentials Measures the yield of holding a foreign currency relative to the base currency FX Implied Volatility An approximate indicator used to gauge future expectations of price movements based on FX options market pricing % 2.5 2.0 1.5 1.0 0.5 0.0-0.5 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 EUR-USD 20 18 16 14 12 10 8 6 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Difference between EUR and USD 2 yr swap EUR-USD (RHS) 2W Implied Volatility USD-JPY % 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Difference between USD and JPY 2 yr swap USD-JPY (RHS) 115 110 105 100 95 90 85 80 75 USD-JPY 21 19 17 15 13 11 9 7 5 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 2W Implied Volatility AUD-USD % 6 5 4 3 2 1 0 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 AUD-USD 25 21 17 13 9 5 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Difference between AUD and USD 2 yr swap AUD-USD (RHS) 2W Implied Volatility USD-SGD % 1.5 1.0 0.5 0.0-0.5 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 1.60 1.55 1.50 1.45 1.40 1.35 1.30 1.25 1.20 1.15 USD-SGD 18 16 14 12 10 8 6 4 2 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Difference between USD and SGD 2 yr swap USD-SGD (RHS) 2W Implied Volatility GBP-USD % 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2.1 GBP-USD 14 12 10 8 6 4 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Difference between GBP and USD 2 yr swap GBP-USD (RHS) 2W Implied Volatility 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. 11
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