FX STRATEGY 3 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 3 September to 0 September 03 EUR-USD USD-JPY AUD-USD USD-SGD GBP-USD XAU-USD -.4-0.0-0.0 0.8.73.6 - - 0 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 % Fed surprise moves the market The Fed s decision to delay tapering of asset purchases surprised the market. We believe this may lead to temporary USD weakness. However, we believe this is a delay, not a reversal in direction. We, therefore, continue to believe long-term USD strength is likely. EUR-USD We turn bullish on EUR-USD (from neutral earlier) as US Fed policy action assisted an extension to the uptrend. USD-JPY We remain neutral on USD-JPY and expect sideways consolidation to continue in the near term. AUD-USD We turn bullish on AUD-USD (from neutral earlier). A decisive break above 0.935 has reversed the earlier downtrend. USD-SGD We turn bullish on USD-SGD (from neutral earlier) as the recent correction appears to be overdone and the pair is likely to rebound. GBP-USD We remain bearish on GBP-USD as technical indicators argue a reversal down is in the offing. XAU-USD We remain bearish on gold. We believe the pair is likely to correct further on the back of weak price action and poor fundamentals. CORE PAIRS Short term Spot ( 4 weeks) Support Support Resistance Resistance EUR USD.30.34.354.365.390 USD JPY 95.50 97.65 99.4 0.50 03.80 AUD USD 0.900 0.95 0.943 0.950 0.970 USD SGD.4.40.50.60.78 GBP USD.57.586.60.60.65 XAU USD 30 85 37 380 40 SUPPLEMENTARY PAIRS* Short term Spot ( 4 weeks) Support Support Resistance Resistance USD CNH 6.095 6.05 6.09 6.0 6.3 USD ZAR 9.300 9.566 9.830 0.030 0.33 NZD USD 0.8 0.86 0.836 0.845 0.860 USD CHF 0.887 0.903 0.90 0.94 0.938 USD SEK 6.075 6.360 6.359 6.8 7.06 USD CAD.000.07.030.04.06 *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 RSI Stochastic MACD ADX Momentum VIEW We turn bullish on EUR-USD (from neutral earlier) as US Fed policy action assisted an extension to the uptrend. Performance EUR-USD rose (.73%) over the previous week. The Fed surprised the market by deciding not to taper quantitative easing which, in turn, weakened the US dollar. Merkel s strong election lead and an improvement in German economic sentiment helped the Euro. KEY LEVELS Levels Importance.390 Strong.365 Spot.354 FORECASTS.34 Strong.30 Strong Consensus Q4 03.30 Technical analysis Major technical indicators are largely bullish. We turn bullish on EUR-USD pair (from neutral earlier). The break out past the crucial area of.34 signals growing positive momentum. We would review our outlook if the pair falls below.34. Any comments ing Fed tapering at its October policy meeting (as St. Louis Fed President Bullard suggested) represents the key risk to our view. Key signposts Euro area PMI manufacturing (3 Sep), US consumer confidence (4 Sep), US new home sales (5 Sep), US GDP (6 Sep) and Euro area business and consumer confidence (7 Sep) are key data points. Q 04.7 Q 04.6 Q3 04.6 *Please see Appendix on Pg 0 for explanation on technical indicators Momentum indicators have turned incrementally positive Technical Analysis: EUR-USD EUR - USD.38.36.34.3.30.8.6.4..365.34.393.373.366.0 EUR-USD
USD - JPY Key technical indicators and forecasts* TECHNICAL INDICATORS RSI Stochastics MACD ADX Momentum VIEW We remain neutral on USD-JPY and expect sideways consolidation to continue in the near term. Performance USD-JPY ended largely flat (-0.0%) over the previous week as the US Fed s decision not to taper quantitative easing was offset by continued discussion on the possibility of a rise in consumption taxes. Japan s August trade deficit narrowed, but missed expectations. KEY LEVELS Levels Importance 03.80 Strong 0.50 Spot 99.4 FORECASTS 97.65 95.50 Strong Consensus Q4 03 03 Q 04 05 Technical Analysis Major technical indicators, on balance, are neutral. We are neutral on USD-JPY at current levels and expect to see it consolidating within a 97.65 0.5 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 97.65 or above 0.5. Key signposts CPI inflation (6 Sep), industrial production and retail sales (30 Sep) will be key data points. Prime Minister Abe s decision on a potential sales tax hike will be crucial for inflation and economic growth. Any subsequent BoJ reaction will be key for the currency outlook. Q 04 06 Q3 04 08 *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 83.00 79.00 98.66 99.09 96.04 0.50 97.65 75.00 USD-JPY 3
AUD - USD Key technical indicators and forecasts* TECHNICAL INDICATORS VIEW We turn bullish on AUD-USD (from neutral earlier). A decisive break above 0.935 has reversed the earlier downtrend. RSI Stochastic MACD ADX Performance AUD-USD rose (.6%) over the last week on the back of the Fed FOMC s decision to leave monetary stimulus unchanged. Momentum KEY LEVELS Levels Importance 0.970 Strong 0.950 Spot 0.943 0.95 Strong 0.900 Strong Technical Analysis Major technical indicators are largely bullish. We turn bullish on AUD-USD pair (from neutral earlier) as technical indicators have turned constructive. Record short positioning continues to be a for the pair, but a decisive breakout above 0.935 has validated a bullish view. However, the longer term trend continues to be negative, in our view. We would review our outlook if the pair falls below 0.95. Key signposts Chinese manufacturing PMI (3 Sep) would be key data to watch. The RBA Financial stability review (5 Sep) would likely provide clues on future monetary policy. FORECASTS Consensus Q4 03 0.84 Q 04 0.84 Q 04 0.84 Q3 04 0.84 *Please see Appendix on Pg 0 for explanation on technical indicators AUD-USD pair likely to retrace some losses Technical Analysis: AUD-USD.06 AUD - USD.0 0.96 0.9 0.947 0.933 0.9858 0.950 0.95 0.86 AUD-USD 4
USD - SGD Key technical indicators and forecasts* TECHNICAL INDICATORS VIEW We turn bullish on USD-SGD (from neutral earlier) as the recent correction appears to be overdone and the pair is likely to rebound. RSI Stochastic MACD ADX Momentum Performance USD-SGD fell (-.4%) over the previous week mainly due to US dollar weakness. Singapore s August inflation rate rose for the 4 th straight month and Chinese economic data continued to recover. Recent measures aimed at stabilising EM currencies helped improve sentiment on Asian currencies more generally. KEY LEVELS Levels Importance.78 Strong.60 Strong Spot.50 FORECASTS.40 Strong.4 Strong Consensus Q4 03.8 Q 04.8 Technical Analysis Major technical indicators, on balance, are bullish. However, we turn bullish on USD-SGD (from neutral earlier). Last week s correction has once again pushed prices towards the key area around.4, which coincides with a rising trendline connecting December May 3 lows (see chart below). We would review our outlook if the pair fell decisively below.4. Key signposts We believe the MAS will 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. The performance of the Renminbi is also important for the pair from a trade competitiveness perspective. Q 04.8 Q3 04.6 *Please see Appendix on Pg 0 for explanation on technical indicators USD-SGD appears oversold Technical Analysis: USD-SGD USD - SGD.30.9.8.7.6.5.4.3..683.64.498. USD-SGD.6.40 5
ingapore s manufacturing PMI GBP - USD Key technical indicators and forecasts* TECHNICAL INDICATORS RSI VIEW We remain bearish on GBP-USD as technical indicators argue a reversal down is in the offing. Stochastic MACD ADX Momentum KEY LEVELS Levels Importance.65 Strong.60 Strong Spot.60.586.57 Strong Performance GBP-USD gained (0.8%) over the last week on the back of the Fed s decision to defer asset purchase tapering. August retail sales data disappointed relative to market expectations.. Technical Analysis Major technical indicators, on balance, are bearish. We remain bearish on GBP-USD and expect it to retreat lower after approaching at.60 (see chart below). Cyclical and momentum indicators argue the pair is overbought. We would review our outlook if we get a close above.60. Key signposts GDP data (6 Sep) will be a key economic data point to watch. Any further efforts at interest rate guidance by the BoE will also be critical for the pair. FORECASTS Consensus Q4 03.53 Q 04.5 Q 04.5 Q3 04.5 *Please see Appendix on Pg 0 for explanation on technical indicators GBP-USD pair testing a key trend line Technical Analysis: GBP-USD.64.6.60.60 GBP - USD.58.56.54.5.50.586.5549.547.5485.48 GBP-USD 6
Key technical indicators and forecasts* Inflation XAU - USD TECHNICAL INDICATORS RSI VIEW We remain bearish on gold. We believe the pair is likely to correct further on the back of weak price action and poor fundamentals. Stochastic MACD ADX Momentum KEY LEVELS Levels Importance 40 Strong 380 Spot 37 85 30 Strong Consensus Q4 03 95 Q 04 75 Q 04 7 Performance XAU-USD ended largely flat (-0.0%) last week, though it exhibited a significant amount of volatility within the week. The Fed s decision to leave its stimulus program unchanged sparked a rally, but it rapidly came to an end after St. Louis Fed President Bullard suggested tapering remained possible in October. Technical Analysis Major technical indicators, on balance, are neutral to bearish. We remain bearish on gold on the back of recent negative price action. A fall below 80 would confirm the start of a fresh downtrend. We are hesitant to change our broader negative view unless the pair finds a firm bottom or technical indicators turn more ive 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 tapering 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 geo-political tensions pose some risks to our view. Q3 04 4 *Please see Appendix on Pg 0 for explanation on technical indicators sentiment continues to prevail Technical Analysis: XAU-USD,800,700 XAU-USD,600,500,400,300,00 346 347 47 380 85,00 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 are bearish on USD-CNH Technical Analysis: USD CNH USD - CNH 6.40 6.35 6.30 6.5 6.0 6.5 6.0 6. 6.05 6.05 USD-CNH 6.98 6.84 6.663 We turn bullish on USD-ZAR (from neutral earlier) Technical Analysis: USD ZAR 0.0 9.80 0.03 USD - ZAR 9.40 9.00 8.60 8.0 9.57 9.99 9.90 9.4 7.80 USD-ZAR We remain neutral on NZD-USD Technical Analysis: NZD-USD NZD -USD 0.89 0.87 0.85 0.83 0.8 0.79 0.77 0.75 0.799 0.7988 0.88 0.73 Aug- Nov- Feb- May- NZD-USD 0.845 0.86 8
We turn bearish on USD-CHF (from neutral earlier) after it breaches key Technical Analysis: USD CHF 0.99 0.97 USD-CHF 0.95 0.93 0.9 0.94 0.89 0.87 0.85 Nov- Feb- May- 0.985 0.9385 0.9345 USD-CHF 0.903 We turn bearish USD-SEK (from neutral earlier) as downside momentum is building Technical Analysis: USD-SEK 7.40 7.0 USD-CHF 7.00 6.80 6.60 6.537 6.5756 6.585 6.8 6.40 6.36 6.0 Nov- Feb- May- USD-SEK We turn bearish on USD-CAD (from neutral earlier) as it is on the verge of breaching the rising trendline Technical Analysis: USD-CAD.08 USD - CAD.06.04.0.00 0.98 0.96.04.07.0373.0348.07 0.94 Jul- Oct- Jan- Apr- Jul- Oct- Jan-3 Apr-3 Jul-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 05.5 95 90 85 0.5 80 0 75 Jan-08 Jan-09 Jan-0 Jan- Jan- Jan-3 Difference between USD and JPY yr swap USD-JPY (RHS) 00 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 8 30 8 UK 0.50 0 7 7 4 9 6 4 5 0 7 5 Euro area 0.50 0 7 7 4 6 4 7 5 Japan 0.0 4 7 4 8 3 5 3 Australia.50 5 5 7 4 6 3 5 3 New Zealand.50 30 4 4 8 3 5 3 Canada.00 3 6 7 9 7 4 3 4 Switzerland 0.5 4 0 9 Asia ex Japan China 6.00 India 7.50 9 South Korea.50 4 4 9 3 8 0 4 Taiwan.875 Singapore Expected Expected Malaysia 3.00 30 7 9 5 7 Indonesia 7.5 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 3 September 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.
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