edited fx strat 18 5 2015 pvb - standard chartered · 5/18/2015 · key levels level importance...

This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. Important disclosures can be found in the Disclosures Appendix.

1

fx strategyfx | 18 May 2015

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

USD approaching key support

The USD ended the week lower against most major peers after disappointing retail sales data. However, the USD is now approaching important technical levels against most peers. Given we believe most negative US data may already be incorporated by the market, the USD pullback may be close to running its course.

The week ahead is data heavy, with meeting minutes due from four major central banks (Fed, ECB, BoE, RBA). Furthermore, EU and US CPI data are key for the USD.

EUR/USD

We turn bearish on the EUR/USD pair (from neutral earlier) as the rebound appears to be increasingly stretched, in our opinion.

USD/JPY

We remain neutral on the USD/JPY pair and expect it to continue to consolidate within a 118.50-121.50 range.

AUD/USD

We remain bearish on the AUD/USD pair and expect the rally to fade given weakening technical indicators.

USD/SGD

We remain neutral on USD/SGD. Moderating momentum highlights the risk of a trend reversal, but directional signals remain weak.

GBP/USD

We turn bearish on the GBP/USD pair (from neutral earlier) as technical indicators point to the possibility of a short-term pullback.

XAU/USD

We remain neutral on XAU/USD and expect the pair to continue to trade in a broad sideways range.

Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res

EUR/USD Bearish 1.080 1.100 1.143 1.150 1.180

USD/JPY Neutral 116.00 118.50 119.62 121.50 124.00

AUD/USD Bearish 0.745 0.770 0.802 0.825 0.850

USD/SGD Neutral 1.295 1.315 1.322 1.340 1.356

GBP/USD Bearish 1.540 1.560 1.573 1.585 1.620

XAU/USD Neutral 1140 1180 1,225 1250 1280

USD/CNH* Neutral 6.147 6.185 6.204 6.230 6.282

USD/ZAR* Neutral 10.625 11.342 11.826 12.562 13.500

NZD/USD* Neutral 0.700 0.730 0.744 0.780 0.790

USD/CHF* Bullish 0.885 0.908 0.917 0.936 0.960

USD/SEK* Neutral 7.800 8.150 0.821 9.000 9.465

USD/CAD* Bullish 1.160 1.190 1.203 1.240 1.280

*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

Contents

USD approaching key support 1 EUR/USD 2 USD/JPY 3 AUD/USD 4 USD/SGD 5 GBP/USD 6 XAU/USD (Gold) 7 SUPPLEMENTARY PAIRS 8 Interest Rate Differentials 10 FX Implied Volatility 10 Disclosure Appendix 12

Weekly performance of pairs

8 May 2015 to 15 May 2015

Source: Bloomberg, Standard Chartered

Steve Brice Chief Investment Strategist

Clive McDonnell 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

Tariq Ali, CFA Investment Strategist

Abhilash Narayan Investment Strategist

3.06

1.76

-0.59

1.29

-0.43

2.25

-1.00 -0.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

XAU/USD

GBP/USD

USD/SGD

AUD/USD

USD/JPY

EUR/USD

%

18 May 2015 | fx strategy

This reflects the views of the Wealth Management Group 2

EUR/USD

We turn bearish on the EUR/USD pair (from neutral earlier) as the rebound appears to be increasingly stretched, in our opinion.

Performance

EUR/USD ended up (2.25%) over the previous week. Greece received continued ECB emergency support after Euro area members welcomed progress on reforms. However, a final agreement still remains elusive. Q1 growth expanded 0.4%, outpacing the US and UK.

In the US, retail sales remained unchanged in April, which was weaker than consensus estimates. Job creation picked up after last year’s winter lull and pushed unemployment to a seven-year low of 5.4%. Subdued wage growth is likely to delay the Fed’s rate hike until September.

Technical Analysis

Major technical indicators, on balance, are neutral.

However, we turn bearish on EUR/USD pair (from neutral earlier). The pair had a surprisingly strong session last week, which saw it settle just below the previous swing high of 1.150. Short-term technicals are in overbought territory. Also, the presence of key resistance levels nearby may lead to profit booking around current levels.

We would review our outlook if the pair moves above 1.150.

Key Signposts

Euro area – ZEW survey expectations, CPI (19 May), Markit manufacturing, services, composite PMI, consumer confidence and the ECB account of the monetary policy meeting (21 May).

US – NAHB housing market index (18 May), housing starts and building permits (19 May), FOMC meeting minutes, Chicago Fed national activity, existing home sales and claims (21 May), CPI (22 May).

EUR/USD continues to consolidate following its earlier sharp sell-off

Technical Analysis Chart: EUR/USD (Daily)


1.100

1.150

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Apr-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15

EU

R/U

SD

EUR/USD 50 dma 100 dma 200 dma

Key technical indicators and forecast*

Technical Indicator Action

RSI (14) Neutral

Oscillator (5,10) Neutral

MACD (12,26,9) Buy

ADX (14) Neutral

Momentum (14) Buy

Key Levels Level Importance

Secondary Resistance 1.180 High

Primary Resistance 1.150 Low

Spot 1.143 –

Primary Support 1.100 High

Secondary Support 1.080 Medium

Forecast Consensus

Q2 2015 1.12

Q3 2015 1.08

Q4 2015 1.05

Q1 2016 1.05

* Please see Appendix on Pg 11 for explanation on technical


50 dma 100 dma 200 dma1.0908 1.1188 1.1941



USD/JPY

We remain neutral on the USD/JPY pair and expect it to continue to consolidate within a 118.50-121.50 range.

Performance

USD/JPY ended down (-0.43%) over the previous week. The current account surplus jumped to a seven-year high, as higher exports, investment returns and tourists and lower energy bills boosted the surplus.

Technical Analysis


We remain neutral on the USD/JPY pair. The pair continued to hover within the broad consolidation range established since the start of March (between 121.5 and 118.5). We prefer to wait until clearer technical signals emerge as they currently remain directionless.

We would review our outlook if the pair moves above 121.50 or below 118.50.

Key Signposts

Machine orders, industrial productions (18 May), nationwide department sales y/y (19 May), GDP, machine order sales and convenience store sales (20 May), manufacturing PMI (21 May), BoJ’s annual rise in the monetary base (22 May).

USD/JPY continues to oscillate within its broader post-December range

Technical Analysis Chart: USD/JPY (Daily)


118.50

121.50

98

102

106

110

114

118

122


US

D/J

PY

USD/JPY 50 dma 100 dma 200 dma



RSI (14) Neutral


MACD (12,26,9) Neutral

ADX (14) Neutral

Momentum (14) Neutral



Primary Resistance 121.50 High

Spot 119.62 –

Primary Support 118.50 Medium

Secondary Support 116.00 High

Forecast Consensus

Q2 2015 120

Q3 2015 121

Q4 2015 123

Q1 2016 125



50 dma 100 dma 200 dma119.84 119.32 115.3



AUD/USD

We remain bearish on the AUD/USD pair and expect the rally to fade given weakening technical indicators.

Performance

AUD/USD ended up (1.29%) over the previous week. Q1 wage inflation continued to decline and was weaker than expected.

In China, the central bank cut its benchmark rates for the third time since November as the economy slowed further. Industrial production and fixed asset investment was higher than last year but weaker than expectations.

Technical Analysis

Major technical indicators are divergent.

We remain bearish on the AUD/USD pair. We view the recent recovery as a corrective retracement of the previous decline and expect the pair to soon find resistance in the 0.825-0.850 range. We prefer to use the current recovery to accumulate short positions as we expect the rally to fade on weakening momentum and directional indicators.

We would review our outlook if it moves above 0.825.

Key Signposts

Australia – RBA’s May meeting minutes (19 May), Westpac consumer confidence m/m (20 May), consumer inflation expectations (21 May).

China – HSBC manufacturing PMI (21 May).

AUD/USD rebound likely to fade, in our view

Technical Analysis Chart: AUD/USD (Daily)


0.770

0.825

0.70

0.75

0.80

0.85

0.90

0.95

1.00


AU

D/U

SD

AUD/USD 50 dma 100 dma 200 dma



RSI (14) Neutral


MACD (12,26,9) Buy

ADX (14) Buy

Momentum (14) Sell




Spot 0.802 –



Forecast Consensus

Q2 2015 0.77

Q3 2015 0.76

Q4 2015 0.75

Q1 2016 0.73



50 dma 100 dma 200 dma0.7784 0.7855 0.8313



USD/SGD

We remain neutral on USD/SGD. Moderating momentum highlights the risk of a trend reversal, but directional signals remain weak.

Performance

USD/SGD ended down (-0.59%) over the previous week. The recent weak US economic data continued to weigh on the pair.

Technical Analysis


We turn neutral on the USD/SGD pair (from bearish earlier). It currently trades close to a key retracement level while technical indicators are showing slightly positive divergence. This highlights the risk of a reversal, although we prefer to remain on the sidelines for further directional evidence.

We would review our outlook if the pair moves below 1.315.

Key Signposts

No key economic releases for the week.

The pair is beginning to consolidate following the recent downtrend

Technical Analysis Chart: USD/SGD (Daily)


1.315

1.340

1.21

1.23

1.25

1.27

1.29

1.31

1.33

1.35

1.37

1.39

1.41


US

D/S

GD

USD/SGD 50 dma 100 dma 200 dma



RSI (14) Neutral

Oscillator (5,10) Sell

MACD (12,26,9) Neutral

ADX (14) Buy

Momentum (14) Neutral


Secondary Resistance 1.356 Medium

Primary Resistance 1.340 Medium

Spot 1.322 –

Primary Support 1.315 High

Secondary Support 1.295 Medium

Forecast Consensus

Q2 2015 1.36

Q3 2015 1.36

Q4 2015 1.38

Q1 2016 1.38



50 dma 100 dma 200 dma1.3535 1.3507 1.3162



GBP/USD

We turn bearish on the GBP/USD pair (from neutral earlier) as technical indicators point to the possibility of a short-term pullback.

Performance

GBP/USD ended up (1.76%) over the previous week. The BoE cut its growth forecasts and warned about the impact of a strong pound on the outlook for interest rates. The unemployment rate for March was in line with expectations, while industrial production was stronger than anticipated.

Technical Analysis

Major technical indicators, on balance, are bearish.

We turn bearish on the GBP/USD pair (from neutral earlier). The pair has seen a significant upmove from the lows of April and appears increasingly stretched. The negative divergence on the charts poses the threat the pair is creating an immediate top.

We would review our outlook if the pair ends above 1.585.

Key Signposts

Rightmove house price index (18 May), CPI and PPI (19 May), BoE MPC meeting minutes (20 May), retail sales (21 May).

The GBP/USD upmove, triggered by the election outcome, appears to be fading

Technical Analysis Chart: GBP/USD (Daily)


1.560

1.585

1.46

1.50

1.54

1.58

1.62

1.66

1.70

1.74


GB

P/U

SD

GBP/USD 50 dma 100 dma 200 dma



RSI (14) Sell

Oscillator (5,10) Sell

MACD (12,26,9) Buy

ADX (14) Buy

Momentum (14) Sell




Spot 1.573 –



Forecast Consensus

Q2 2015 1.51

Q3 2015 1.49

Q4 2015 1.48

Q1 2016 1.49



50 dma 100 dma 200 dma1.5054 1.5154 1.5603



XAU/USD (Gold)

We remain neutral on XAU/USD and expect the pair to continue to trade in a broad sideways range.

Performance

XAU/USD ended up (3.06%) over the previous week as weak US data pushed back expectations of a rate hike.

Technical Analysis

Major technical indicators are divergent.

We remain neutral on the XAU/USD pair. Despite last week’s surge in gold prices, the pair continued to trade in a broad sideways range (1,180-1250). Technical indicators also remain divergent. The pair has not been able sustain below 1,180 for long either. A convincing break out of this range would likely be required to create a strong directional indicator.

We would review our outlook if the pair moves back above 1,250 or falls below 1,180.

Key Signposts

Any news on Greek debt talks during the week will have implications for gold prices. Also, any strong statement from the FOMC minutes due this week and/or a pickup in US and EU CPI may move gold.

Gold continues to trade in a broad range

Technical Analysis Chart: XAU/USD (Daily)


1,180

1,250

1,100

1,150

1,200

1,250

1,300

1,350

1,400


XA

U/U

SD

XAU/USD 50 dma 100 dma 200 dma



RSI (14) Sell

Oscillator (5,10) Buy

MACD (12,26,9) Buy

ADX (14) Neutral

Momentum (14) Sell


Secondary Resistance 1,280 High

Primary Resistance 1,250 High

Spot 1,225 –

Primary Support 1,180 High

Secondary Support 1,140 Medium

Forecast Consensus

Q2 2015 1,220

Q3 2015 1,190

Q4 2015 1,190

Q1 2016 1,220



50 dma 100 dma 200 dma1223.16 1191.91 1211.97



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 neutral on USD/CNH

Technical Analysis: USD/CNH


We remain neutral on USD/ZAR

Technical Analysis: USD/ZAR


We remain neutral on the NZD/USD

Technical Analysis: NZD/USD


6.185

6.230

5.95

6.00

6.05

6.10

6.15

6.20

6.25

6.30


US

D/C

NH

USD/CNH 50 dma 100 dma 200 dma

11.342

12.562

9.2

9.6

10.0

10.4

10.8

11.2

11.6

12.0

12.4

12.8


US

D/Z

AR

USD/ZAR 50 dma 100 dma 200 dma

0.730

0.780

0.69

0.74

0.79

0.84

0.89

0.94

Jun-13 Sep-13 Dec-13 Apr-14 Jul-14 Oct-14 Feb-15 May-15

NZ

D/U

SD

NZD/USD 50 dma 100 dma 200 dma

50 dma 100 dma 200 dma6.2142 6.231 6.1919

50 dma 100 dma 200 dma12.0337 11.8215 11.4536

50 dma 100 dma 200 dma0.7524 0.7537 0.7756



We remain bullish on USD/CHF

Technical Analysis: USD/CHF


We turn neutral on the SEK (from bearish earlier)

Technical Analysis: USD/SEK


We remain bullish on USD/CAD

Technical Analysis: USD/CAD


0.908

0.936

0.85

0.90

0.95

1.00

1.05

1.10

Jul-13 Oct-13 Jan-14 Apr-14 Aug-14 Nov-14 Feb-15 May-15

US

D/C

HF

USD/CHF 50 dma 100 dma 200 dma

8.150

9.000

5.2

5.7

6.2

6.7

7.2

7.7

8.2

8.7

9.2

Jul-13 Oct-13 Jan-14 Apr-14 Aug-14 Nov-14 Feb-15 May-15

US

D/S

EK

USD/SEK 50 dma 100 dma 200 dma

1.190

1.240

0.96

1.01

1.06

1.11

1.16

1.21

1.26

1.31

Jun-13 Sep-13 Dec-13 Apr-14 Jul-14 Oct-14 Feb-15 May-15

US

D/C

AD

USD/CAD 50 dma 100 dma 200 dma

50 dma 100 dma 200 dma8.5403 8.3845 7.836

50 dma 100 dma 200 dma1.2368 1.2331 1.1775

50 dma 100 dma 200 dma0.9586 0.952 0.9512



Interest Rate Differentials FX Implied Volatility

Measures the yield of holding the foreign currency relative to the base currency

An appropriate indicator used to gauge future expectations of price movements based on FX options market pricing

EUR/USD EUR/USD

USD/JPY USD/JPY

AUD/USD AUD/USD

USD/SGD USD/SGD

GBP/USD GBP/USD


1.0

1.1

1.2

1.3

1.4

1.5

1.6

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Sep-09 Feb-11 Jul-12 Dec-13 May-15

EU

R/U

SD

%

Difference between EUR and USD 2 yr swap EUR/USD (RHS)

0

4

8

12

16

20

Jan-11 Feb-12 Mar-13 Apr-14 May-15

2W Implied Volatility

75

85

95

105

115

125

0.0

0.2

0.4

0.6

0.8

1.0

1.2


US

D/J

PY

%

Difference between USD and JPY 2 yr swap USD/JPY (RHS)

0

5

10

15

20

25



0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

0

1

2

3

4

5

6


AU

D/U

SD

%

Difference between AUD and USD 2 yr swap AUD/USD (RHS)

0

5

10

15

20

25



1.15

1.20

1.25

1.30

1.35

1.40

1.45

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6


US

D/S

GD

%

Difference between USD and SGD 2 yr swap USD/SGD (RHS)

0

5

10

15

20



1.4

1.5

1.6

1.7

1.8

-0.2

0.3

0.8

1.3

1.8

2.3


GB

P/U

SD

%

Difference between GBP and USD 2 yr swap GBP/USD (RHS)

0

4

8

12

16

20





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.


12

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 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 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.

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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).

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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.

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Copyright: Standard Chartered Bank 2015. 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 2015.

THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT.

edited fx strat 18 5 2015 pvb - standard chartered · 5/18/2015 · key levels level importance...

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