FX Strategy
FX STRATEGY
7 May 2012
Risk-aversion returns
Contents
EUR – USD
Pg 2
USD – JPY
Pg 3
AUD – USD
Pg 4
the impact of political uncertainty in the Euro area are the two main
USD – SGD
Pg 5
factors that will set the context for FX markets
GBP – USD
Pg 6
Interest rate differentials and FX implied
volatility
Central Bank Monetary Policy Schedule
Pg 7
Disclaimer
Pg 9


Varying expectations of monetary easing in Developed Markets and
The increase in global risk aversion arising from the impact of
political uncertainty in the Euro area is expected weigh on
emerging market currencies while at the same time providing
Pg 8
support for safe haven currencies like the USD, JPY and CHF.
EUR-USD
•
Any USD weakness likely to be temporary
DXY and ADXY Indices
support of 1.30. We expect it to correct further to 1.293. Resistance
is expected to hold
82
121
USD-JPY
120
80
•
119
118
78
117
76
We are bearish on USD-JPY due to stronger safe-haven demand for
currencies in the midst of global risk aversion. USD-JPY expected
Index
Index
We are bearish on EUR-USD after the pair broke through strong
to test 79 with key resistance at 80.50
116
74
115
AUD-USD
114
Jun-11
72
Aug-11
Oct-11
ADXY Index
Dec-11
Feb-12
•
Apr-12
DXY Curncy (RHS)
We are bearish on the AUD-USD after critical support level of 1.024
was broken through quite sharply. A test of 1.00 is expected
Source: Bloomberg, Standard Chartered
USD-SGD
•
We are bullish on USD-SGD provided it stays below 1.24. The 1.24
level is key support and we expect a test of 1.264
GBP-USD
Suren Chelliah
Investment Strategist
Steve Brice
Rob Aspin, CFA
Manpreet Gill
Chief Investment Strategist
Head, Equity Investment Strategy
Head, FICC Investment Strategy
Technicals*
EUR-USD
USD-JPY
AUD-USD
USD-SGD
GBP-USD
Short term
(2-4 weeks)
Bearish
Bearish
Bearish
Bullish
Bearish
•
We are bearish on GBP-USD as leading technical indicators have
already signalled a reversal. The 1.605 level is our new target
Secondary
Support
1.285
79.00
0.970
1.221
1.605
Primary
Support
1.292
79.50
1.000
1.233
1.615
Spot
1.298
79.90
1.012
1.249
1.622
Primary
Resistance
1.304
80.00
1.017
1.254
1.628
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank.
The comments represented in this publication are made on the basis of a 2 – 4 week outlook.
Secondary
Resistance
1.312
80.60
1.024
1.264
1.650
FX Strategy
EUR - USD
Euro area risks not going away
Spain 5 yr credit default swaps
We are bearish on EUR-USD after the pair broke through strong
support of 1.30. We expect it to correct further to 1.293. Resistance
600
is expected to hold
500
Index
400
Performance
300
•
200
EUR-USD declined 1.29% last week on rising concerns over political
uncertainty in France and Greece as well as deteriorating growth in the
100
Euro area.
0
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Technical analysis
Source: Bloomberg, Standard Chartered
•
The markets broke below the crucial 1.30 support, which held for the
last few months.
Markets still short the EUR
CFTC EUR net long contracts
•
expect it to test new lows. In the short term, however, a pullback cannot
150
be ruled out due to oversold indicator readings with primary resistance
100
no of contracts
This should reinforce our bearish bias in the coming months and we
at 1.304. The next level of support is at 1.292.
50
•
0
We expect it to weaken further to 1.292 with primary resistance of 1.304
expected to hold.
-50
-100
Key signposts
-150
-200
Jan-10
•
Jul-10
Jan-11
Jul-11
Jan-12
Parliamentary elections in France and the government formation in
Greece are likely to add to further risks to the EUR.
Source: Bloomberg, Standard Chartered
FORECAST*
Q2-12
Q3 -12
Q4-12
Q1-13
SCB
1.25
1.28
1.32
1.30
Consensus
1.29
1.29
1.30
1.28
Source: Bloomberg, Standard Chartered
* Data as of 4 May 2012
EUR finally broke strong support
Technical Analysis: EUR-USD
1.50
1.45
EUR - USD
1.40
1.35
1.304
1.30
1.292
1.25
1.20
1.15
Feb-10
May-10
Aug-10
Nov-10
EUR-USD
Feb-11
50 dma
May-11
100 dma
50 dma
100 dma
200 dma
1.3191
1.312
1.3443
Aug-11
Nov-11
Feb-12
200 dma
Source: Bloomberg, Standard Chartered
2
FX Strategy
USD - JPY
US Fed expanding balance sheet at faster pace than
BoJ
We are bearish on USD-JPY due to stronger safe-haven demand for
currencies in the midst of global risk aversion. USD-JPY expected
US Fed Assets less BOJ Total Assets vs USD-JPY
1500
70
80
90
500
100
0
110
USD-JPY
USD mln
1000
120
-500
-1000
Feb-00
to test 79 with key resistance at 80.50
60
Performance
•
140
Feb-04
Feb-08
Feb-12
US Fed Total Assets less BoJ Total Assets
USD JPY (RHS) Inverted
the Bank of Japan (BoJ).
Technical Analysis
•
Source: Bloomberg, Standard Chartered
The JPY had a minor pullback after touching 80.60. We expect it to slip
lower in the next few weeks towards the 79.00 level before we can
Current account balance a major factor for the JPY
expect a pullback again.
Japan current account balance vs USD-JPY
130
120
Key signposts
110
•
90
80
USD-JPY
100
JPY bln
3500
3000
2500
2000
1500
1000
500
0
-500
-1000
Feb-05
USD-JPY declined by 0.52% last week on rising expectations that the
US Fed will continue to expand its balance sheet at a faster rate than
130
Current account balance data will be released on May 10. The decline
seen at the last release was negative for the JPY.
70
60
50
Feb-07
Feb-09
Feb-11
Japan current account balance
USD-JPY
Source: Bloomberg, Standard Chartered
FORECAST*
Q2-12
Q3 -12
Q4-12
Q1-13
SCB
80
79
77
80
Consensus
80
80
80
79
Source: Bloomberg, Standard Chartered
* Data as of 4 May 2012
USD-JPY expected to be bearish in the short term
Technical Analysis: USD-JPY
95.00
USD - JPY
90.00
50 dma
100 dma
200 dma
81.69
79.67
78.4
85.00
80.00
80.00
79.50
75.00
Feb-10
May-10
USD-JPY
Aug-10
50 dma
Nov-10
100 dma
Feb-11
200 dma
May-11
USD-JPY
Aug-11
50 dma
Nov-11
100 dma
Feb-12
200 dma
Source: Bloomberg, Standard Chartered
3
FX Strategy
AUD - USD
Declining commodity prices to weigh on AUD
We are bearish on the AUD-USD after critical support level of 1.024
RBA Commodities Price Index vs AUD-USD
1.1
140
1
Index
120
0.9
100
0.8
80
60
0.7
40
Feb-05
0.6
Feb-07
Feb-09
RBA Commodity Index
was broken through quite sharply. A test of 1.00 is expected
AUD-USD
160
Performance
•
AUD-USD declined 2.76% last week on lower demand for higher
yielding currencies after disappointing economic data from the US and
Euro area. The larger than expected 50bps rate cut by the Reserve
Bank of Australia also weighed heavily on the currency.
Feb-11
AUD-USD (RHS)
Technical Analysis
Source(s): Bloomberg, Standard Chartered
•
The AUD completed its consolidation much quicker than we anticipated.
As we broke below the crucial support of 1.024, the pair declined
rapidly.
AUD impacted by cut in benchmark rates
•
RBA Cash Rate vs. AUD-USD
close to parity.
8
1.05
•
7
AUD-USD
0.85
5
Any pullback is likely to face strong resistance at 1.017 and 1.024. Only
a sustained strong close above 1.024 will cause us to review the view.
0.95
6
%
We expect further downside in the coming weeks with support seen
Key signposts
4
0.75
3
0.65
industrial production) releases at the end of this week or possible further
2
Jan-05
0.55
monetary policy easing in China could provide some support for the
Jan-07
Jan-09
RBA Cash Rate
•
Jan-11
Positive China economic data (lower CPI, improving retail sales and
AUD.
AUD-USD
•
Source: Bloomberg, Standard Chartered
Political uncertainty in the Euro area is expected to continue to fuel risk
aversion.
FORECAST*
Q2-12
Q3 -12
Q4-12
Q1-13
SCB
1.03
1.06
1.10
1.10
Consensus
1.03
1.03
1.04
1.06
Source: Bloomberg, Standard Chartered
* Data as of 4 May 2012
AUD-USD to face further down side
Technical Analysis: AUD-USD
1.10
AUD - USD
1.05
1.00
1.017
1.000
0.95
0.90
50 dma
100 dma
200 dma
1.0437
1.046
1.0343
0.85
0.80
Feb-10
May-10
Aug-10
Nov-10
AUD-USD
Source: Bloomberg, Standard Chartered
Feb-11
50 dma
May-11
100 dma
Aug-11
Nov-11
Feb-12
200 dma
4
FX Strategy
USD - SGD
Elevated inflation levels are a concern
We are bullish on USD-SGD provided it stays below 1.24. The 1.24
%
Singapore CPI y/y %
8
7
6
5
4
3
2
1
0
-1
-2
Feb-07
level is key support and we expect a test of 1.264
Performance
•
USD-SGD rose 0.43% over the week as gains were trimmed ahead of
key US labour market data and disappointing Singapore Purchasing
Managers Index.
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Technical Analysis
•
Source: Bloomberg, Standard Chartered
The SGD had broken the two month long consolidation support line at
1.245 and slipped sharply lower before rising again.
SGD appreciation picking up
Standard Chartered SGD NEER
125
•
We are likely to see upticks in the week ahead towards the 1.25 level.
•
We see key support at 1.233 and resistance at 1.254.
•
A break below 1.240 would cause us to review our short term bullish
outlook.
123
121
Key signposts
117
•
Index
119
115
Being an open economy, Singapore’ non-oil exports growth data out on
May 20 will be key. A contraction in the data would likely cause the pair
113
to rise.
111
109
107
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Source: Bloomberg, Standard Chartered
FORECAST*
Q2-12
Q3 -12
Q4-12
Q1-13
SCB
1.26
1.24
1.20
1.18
Consensus
1.25
1.24
1.22
1.22
Source: Bloomberg, Standard Chartered
* Data as of 4 May 2012
USD-SGD signalling bullish signs
Technical Analysis: USD-SGD
1.45
1.40
50 dma
100 dma
200 dma
1.2537
1.2631
1.2625
USD - SGD
1.35
1.30
1.25
1.20
1.15
Feb-10
1.254
1.233
May-10
Aug-10
Nov-10
USD-SGD
Feb-11
50 dma
May-11
100 dma
Aug-11
Nov-11
Feb-12
200 dma
Source: Bloomberg, Standard Chartered
5
FX Strategy
GBP-USD
UK economic data sharply surprised to the downside
We are bearish on GBP-USD as leading technical indicators have
UK Economic Surprise Index
already signalled a reversal. The 1.605 level is our new target
Performance
Index
120
100
80
60
40
20
0
-20
-40
-60
-80
-100
Jan-11
•
GBP-USD declined 0.7% on higher expectations of further quantitative
easing by the BoE after both UK manufacturing and services PMI data
disappointed.
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Technical Analysis
•
Source: Citi, Bloomberg, Standard Chartered
The GBP appears to have completed a short term move up to 1.628.
Some of the leading indicators have already signalled a reversal while
the price volume trend shows exhaustion.
•
Inflation remains uncomfortably high
UK Retail Price Index
We expect weakness in the coming weeks with a sharper fall below
intermediate support of 1.615 towards the secondary support of 1.605.
6
•
A strong weekly close above 1.630 would cause us to review our
bearish outlook.
5
%
4
Key signpost
3
•
2
program at its monetary policy meeting on May 10. We do not expect
1
0
Feb-05
The Bank of England is not expected to expand its quantitative easing
this to have a significant impact on the GBP.
Feb-07
Feb-09
Feb-11
Source: Bloomberg, Standard Chartered
FORECAST*
Q2-12
Q3 -12
Q4-12
Q1-13
SCB
1.55
1.59
1.62
1.60
Consensus
1.58
1.58
1.59
1.59
Source: Bloomberg, Standard Chartered
*Data as of 4 May 2012
GBP-USD looking exhausted
Technical Analysis: GBP-USD
1.70
1.65
1.628
1.615
GBP - USD
1.60
1.55
1.50
1.45
1.40
Feb-10
May-10
Aug-10
Nov-10
GBP-USD
Feb-11
50 dma
May-11
100 dma
50 dma
100 dma
200 dma
1.5943
1.5791
1.5838
Aug-11
Nov-11
Feb-12
200 dma
Source: Bloomberg, Standard Chartered
6
FX Strategy
Interest rate differentials
FX Implied Volatility
An approximate indicator used to gauge future expectations of price
movements based on FX options market pricing
Measures the yield of holding a foreign currency relative to the base
currency
EUR-USD – ECB hints holding back for now
EUR-USD – Euro area risk rising
20
1.7
2
1
1.6
18
1.5
16
EUR-USD
3
%
1.4
1.3
0
1.2
-1
8
Jan-11
1
Feb-08
Feb-09
Feb-10
3 mth EUR LIBOR less 3 mth USD LIBOR
Feb-11
Feb-12
5
125
17
115
15
%
3
105
2
95
1
7
75
5
Jan-11
Feb-11
Feb-12
5
1.1
0.9
3
0.8
2
0.7
1
AUD-USD
%
23
1
4
0.6
Feb-10
Apr-11
Jul-11
Oct-11
Apr-12
2W Implied Volatility
USD-SGD (RHS)
GBP-USD – Sudden change in QE expectations
2.5
1.6
2
1.7
1.5
1.8
1
1.9
0.5
2
Feb-11
GBP-USD (RHS)
2.1
Feb-12
GBP-USD
%
Jan-12
8
4
Jan-11
Feb-12
1.5
3mth GBP LIBOR less 3mth USD LIBOR
Apr-12
10
6
3
Feb-10
Jan-12
14
1.15
1.4
Feb-09
Apr-12
12
1.25
3.5
Feb-08
Jan-12
16
USD-SGD
1.35
Feb-11
Oct-11
18
GBP-USD – BoE may hold back on further QE
0
Feb-07
Jul-11
USD-SGD – SGD impacted by external events
1.45
3mth USD LIBOR less 3mth SGD SIBOR
Apr-11
2W Implied Volatility
1.55
Feb-10
13
AUD-USD (RHS)
1.65
Feb-09
18
8
Jan-11
0.5
Feb-12
Feb-11
USD-SGD – significantly low rates in both countries
Feb-08
Oct-11
AUD-USD – Risk aversion in Euro area influencing AUD
1.2
3.5
3
2.5
2
1.5
1
0.5
0
-0.5
-1
Feb-07
Jul-11
2W Implied Volatility
6
3mth AUD LIBOR less 3mth USD LIBOR
Apr-11
USD-JPY (RHS)
AUD-USD – Differentials supportive of carry trades
Feb-09
Apr-12
9
-1
Feb-07
Feb-08
Jan-12
11
85
0
Feb-07
Apr-12
13
0
3mth USD LIBOR less 3mth JPY LIBOR
Jan-12
19
USD-JPY
4
Feb-10
Oct-11
USD-JPY – Consensus highlights bearishness
135
Feb-09
Jul-11
EUR-USD (RHS)
6
Feb-08
Apr-11
2W Implied Volatility
USD-JPY – Both CBs implementing monetary easing
%
12
10
1.1
-2
Feb-07
14
14
13
12
11
10
9
8
7
6
Jan-11
Apr-11
Jul-11
Oct-11
2W Implied Volatility
Source: Bloomberg, Standard Chartered
7
FX Strategy
Central Bank Monetary Policy Meeting Schedules 2012*
Policy rate**
Jan
Feb
Mar
Apr
May
Jun
Jul
20
31
Aug
Sep
Oct
12
24
Nov
Dec
Majors
US
0.25
25
UK
0.5
12
1
Japan
0.1
Australia
4.25
New Zealand
2.5
Canada
1
Switzerland
0
Euro area
13
25
9
8
5
10
7
5
2
6
4
8
6
12
9
8
4
3
6
5
2
6
4
8
6
24
14
13
10,27
23
15
12
9
19
5,30
20
20
7
6
3
1
5
3
7
4
2
6
4
26
8
26
14
26
13
25
6
17
8
17
5
17
5
23
4
15
14
11
13
13
Asia ex-Japan
China
6.56
India
8.5
South Korea
3.25
Taiwan
1.875
13
9
8
13
10
22
Singapore
8
13
9
28
13
3
31
Indonesia
5.75
12
Thailand
3
25
21
Philippines
4
19
1
* Subject to change ** Data as of 13 April 2012
9
9
8
19
13
27
Expected
3
12
8
27
Expected
Malaysia
11
5
10
12
12
2
13
14
6
9
8
13
11
8
25
5
17
28
26
13
25
11
13
Source: Bloomberg, Standard Chartered
FX Strategy
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