fx strategy - usd bounces back - 2 september 2013 - pvb › privatebank › en › resources ›...

FX Strategy

*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

The USD strengthened broadly against major currencies as we

approach the key September Fed meeting. We continue to expect

modest USD strength over time.

The Indian Rupee and Indonesian Rupiah rebounded following

policy measures aimed at stemming currency weakness.

EUR-USD

We remain bearish on EUR-USD as technical indicators argue the

recent rebound is likely to reverse.

USD-JPY

We remain neutral on USD-JPY and expect sideways consolidation

to continue in the near term.

AUD-USD

We turn bearish on AUD-USD as we expect negative momentum to

resume.

USD-SGD

We remain neutral on USD-SGD, though a minor consolidation

could temporarily correct prices lower.

GBP-USD

We remain bearish on GBP-USD as technical indicators argue

further weakness is in the offing.

XAU-USD

We remain bearish on gold as the medium term trend remains to

the downside. The recent rebound is likely to be temporary.

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 volatility

Pg 10

Central Bank Monetary Policy Schedule Pg 11 Appendix Pg 12 Disclaimer Pg 13

Weekly performance of pairs

16 August to 23 August 2013

Source: Bloomberg, Standard Chartered

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 Investment Strategist

Victor Teo, CFA Investment Strategist

CORE PAIRS Short term (2‐4 weeks)

Secondary Support

Primary Support

Spot Primary

Resistance Secondary Resistance

EUR‐USD Bearish 1.285 1.308 1.320 1.345 1.385 USD‐JPY Neutral 93.00 95.50 98.62 99.50 101.5 AUD‐USD Bearish 0.855 0.878 0.897 0.930 0.945 USD‐SGD Neutral 1.240 1.254 1.274 1.286 1.300 GBP‐USD Bearish 1.500 1.532 1.553 1.575 1.595 XAU‐USD Bearish 1280 1360 1392 1420 1480

SUPPLEMENTARY PAIRS* Short term (2‐4 weeks)

Secondary Support

Primary Support

Spot Primary

Resistance Secondary Resistance

USD‐CNH Bearish 6.080 6.095 6.115 6.115 6.145 USD‐ZAR Neutral 9.600 9.965 10.230 10.45 10.70 NZD‐USD Bearish 0.725 0.760 0.772 0.818 0.846 USD‐CHF Bullish 0.896 0.910 0.930 0.945 0.960 USD‐SEK Bullish 6.380 6.500 6.619 6.720 6.850 USD‐CAD Bullish 1.020 1.035 1.053 1.065 1.080

‐0.18

‐0.42

‐0.31

‐1.43

‐0.56

‐1.20

‐2.5 ‐1.5 ‐0.5 0.5

XAU‐USD

GBP‐USD

USD‐SGD

AUD‐USD

USD‐JPY

EUR‐USD

%

USD bounces back

FX STRATEGY

2 September 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.

FX Strategy

2

Performance

EUR-USD dropped -1.2% over the last week, approaching a fresh four

week low, as annualised US Q2 GDP of 2.5% beat street expectations

and US jobless claims fell to their lowest levels since 2007. This

bolstered market expectations the Fed may begin winding down QE

stimulus later this month, leading to USD strength against the EUR.

European economic data, meanwhile, remained mixed. German Q2

GDP and Ifo business sentiment were strong, but consumer confidence

remained weak.

Technical analysis

Major technical indicators are, on balance, neutral to bearish.

We remain bearish on EUR-USD due to unfavourable technicals. Major

resistance lines above 1.345 are likely to prevent a move higher, in our

view. We expect last week’s strong bearish reversal pattern to lead to

weakness in the pair in the coming weeks.

We would review our outlook if the pair breaks above 1.345.

Key signposts

The ISM manufacturing index (3-Sep) and the employment report

(6-Sep) are key upcoming data points.

The ECB is unlikely to change its stance at its upcoming monetary

policy meeting (Sep 5). The possibility of Greece requiring another

bailout remains a risk.

Key technical indicators and forecasts*

TECHNICAL INDICATORS

VIEW

RSI Bearish

Stochastic Neutral

MACD Neutral

ADX Bearish

Momentum Bearish

KEY LEVELS Levels Importance

Secondary resistance

1.385 Strong

Primary resistance

1.345 Strong

Spot 1.320

Primary support

1.308 Neutral

Secondary support

1.285 Strong

FORECASTS Consensus

Q3 2013 1.30

Q4 2013 1.27

Q1 2014 1.26

Q2 2014 1.26

*Please see Appendix on Pg 10 for explanation on technical

indicators


Pair is likely to continue to weaken further

Technical Analysis: EUR-USD


1.308

1.345

1.20

1.22

1.24

1.26

1.28

1.30

1.32

1.34

1.36

1.38

Jul‐12 Oct‐12 Jan‐13 Apr‐13 Jul‐13

EUR ‐USD

EUR‐USD 50 dma 100 dma 200 dma

EUR - USD

We remain bearish on EUR-USD as technical indicators argue the

recent rebound is likely to reverse.

50 dma 100 dma 200 dma

1.3191 1.3136 1.3144

FX Strategy

3

Performance

USD-JPY ended marginally lower (-0.6%) over the previous week.

Japan’s inflation rate accelerated in July and factory output rebounded

smartly (though disappointed relative to expectations). Concerns remain

whether these trends remain sustainable.

Technical Analysis

Major technical indicators are, on balance, neutral to bullish.

We are neutral on USD-JPY at current levels. We expect the pair to

consolidate within a 95.5 – 99.5 range in the near term.

We believe the longer term trend is still bullish, a view we expect to hold

unless key support is breached.

We would review our outlook if the pair closes below 95.5 or above 99.5.

Key signposts

The Bank of Japan’s monetary policy meeting (Sep 5) is key. We do not

expect any change in the policy stance.

The debate around the sales tax hike decision remains key.



VIEW

RSI Neutral

Stochastics Bullish

MACD Bullish

ADX Neutral

Momentum Neutral



101.5 Strong

Primary resistance

99.50 Strong

Spot 98.62

Primary support

95.50 Strong

Secondary support

93.00 Strong

FORECASTS Consensus

Q3 2013 100

Q4 2013 103

Q1 2014 106

Q2 2014 107


indicators


USD-JPY likely to continue consolidating in the near term.

Technical Analysis: USD-JPY


95.50

99.50

75.00

79.00

83.00

87.00

91.00

95.00

99.00

103.00


USD

‐JPY

USD‐JPY 50 dma 100 dma 200 dma

USD - JPY

We remain neutral on USD-JPY and expect sideways consolidation

to continue in the near term.


98.7 98.95 94.78

FX Strategy

4

Performance

AUD-USD declined (-1.4%) over last week due to a stronger USD and

renewed expectations of further rate cuts by the Reserve Bank of

Australia (RBA).

Technical Analysis


We turn bearish (from neutral earlier) on the AUD-USD pair as we see

negative momentum resuming once again. The pair appears to be

breaking down following the last few weeks’ consolidation pattern. We

expect the pair to move lower in line with the broader negative

downtrend.

The longer term trend continues to remains down.

We would review our outlook if the pair ends the week above 0.930 or

below 0.878.

Key signposts

The RBA’s interest rate decision (Sep 3) & GDP data (Sep 4) will be

key. We continue to expect the central bank to signal its comfort with

further weakness in the currency.



VIEW

RSI Neutral

Stochastic Bearish

MACD Neutral

ADX Bearish

Momentum Bearish



0.945 Strong

Primary resistance

0.930 Strong

Spot 0.897

Primary support

0.878 Strong

Secondary support

0.855 Strong

FORECASTS Consensus

Q3 2013 0.90

Q4 2013 0.89

Q1 2014 0.89

Q2 2014 0.88


indicators


We expect short term negative momentum to resume

Technical Analysis: AUD-USD


0.878

0.930

0.86

0.91

0.96

1.01

1.06


AUD ‐USD

AUD‐USD 50 dma 100 dma 200 dma

AUD - USD

We turn bearish on AUD-USD as we expect negative momentum to

resume.


0.9109 0.9481 0.9948

FX Strategy

5

Performance

USD-SGD was down marginally (-0.3%) over the last week as July

industrial output growth disappointed.

Technical Analysis

Major technical indicators are, on balance, neutral to bullish.

We remain neutral on USD-SGD. The longer-term trend remains to the

upside within the upward-sloping trend channel. However, we believe a

temporary correction is likely in the interim, which may also offer more

attractive levels to turn bullish. We prefer to remain neutral at this time

until the risk-reward trade-off improves.

We would review our outlook if the pair ends the week below 1.254 or

above 1.286.

Key signposts

We believe the MAS will likely maintain its current monetary policy

stance at its October 2013 monetary policy meeting so as to provide an

accommodative growth environment while maintaining downward

pressure on inflation expectations.

Positive economic data from China would likely be bullish for the SGD

and vice versa. The performance of the Renminbi is also important for

the pair from a trade competitiveness perspective.



VIEW

RSI Neutral

Stochastic Bullish

MACD Neutral

ADX Bullish

Momentum Neutral



1.300 Strong

Primary resistance

1.286 Neutral

Spot 1.274

Primary support

1.254 Strong

Secondary support

1.240 Strong

FORECASTS Consensus

Q3 2013 1.27

Q4 2013 1.28

Q1 2014 1.28

Q2 2014 1.27


indicators


USD-SGD likely to retreat temporarily within the band

Technical Analysis: USD-SGD


1.254

1.286

1.21

1.22

1.23

1.24

1.25

1.26

1.27

1.28

1.29

1.30


USD

‐SG

D

USD‐SGD 50 dma 100 dma 200 dma

USD - SGD

We remain neutral on USD-SGD, though a minor consolidation

could temporarily correct prices lower.


1.2701 1.2598 1.2466

FX Strategy

6

ingapore’s manufacturing PMI

Performance

GBP-USD fell marginally (-0.4%) over the last week, largely driven by

USD gains.

Technical Analysis


We remain bearish on GBP-USD as we expect it to retreat lower after

testing key resistance at 1.575. Many technical indicators are also

bearish, arguing the case for a correction.

We would review our outlook if we get a weekly close above 1.575.

Key signposts

The BoE’s forward guidance strategy of keeping rates low as long as

unemployment stays above 7% is likely to mean (a) the GBP will

become more sensitive to labour market data, and (b) further

quantitative easing is more likely.

Services PMI (Sep 4) and the Bank of England’s policy meeting (Sep 5)

will be key.



VIEW

RSI Bearish

Stochastic Bearish

MACD Neutral

ADX Bearish

Momentum Neutral



1.595 Strong

Primary resistance

1.575 Strong

Spot 1.553

Primary support

1.532 Neutral

Secondary support

1.500 Strong

FORECASTS Consensus

Q3 2013 1.51

Q4 2013 1.50

Q1 2014 1.50

Q2 2014 1.50


indicators


A corrective retracement within the broader downtrend

Technical Analysis: GBP-USD


1.532

1.575

1.48

1.50

1.52

1.54

1.56

1.58

1.60

1.62

1.64


GBP ‐USD

GBP‐USD 50 dma 100 dma 200 dma

GBP - USD

We remain bearish on GBP-USD as technical indicators argue

further weakness is in the offing.


1.5344 1.5364 1.5505

FX Strategy

7

Inflation

Performance

XAU-USD was largely flat (-0.07%) over the last week as the probability

of an immediate U.S strike on Syria faded, easing safe haven demand.

Technical Analysis


We remain bearish on gold. The recent rebound is likely temporary due

to extremely oversold conditions.

The medium term trend remains to the downside.

We would review our outlook if the pair rallies above 1420.

Key signpost

This short-term view should be viewed within the context of our longer

term Underweight view on Gold. Rising expectations of an end 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 higher inflation

expectations pose some risks to our view.


TECHNICAL INDICATORS VIEW

RSI Neutral

Stochastic Bearish

MACD Neutral

ADX Bearish

Momentum Bullish

KEY LEVELS

Levels Importance


1480 Strong

Primary resistance

1420 Neutral

Spot 1392

Primary support

1360 Neutral

Secondary support

1280 Strong

Consensus

Q3 2013 1300

Q4 2013 1300

Q1 2014 1287

Q2 2014 1230


indicators


Current rebound is likely temporary

Technical Analysis: XAU-USD


1360

1420

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800


XAU‐USD

XAU‐USD 50 dma 100 dma 200 dma

XAU - USD

We remain bearish on gold as prices as the medium term trend

remains to the downside. The recent rebound is likely to be

temporary.


1315 1359 1498

FX Strategy

8

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 turn bearish on NZD-USD (from neutral earlier)

Technical Analysis: NZD-USD


We turn neutral on USD-ZAR (from bullish earlier) Technical Analysis: USD – ZAR


We are bearish on USD-CNH Technical Analysis: USD – CNH


0.76

0.818

0.73

0.75

0.77

0.79

0.81

0.83

0.85

0.87

0.89

Jul‐11 Oct‐11 Jan‐12 Apr‐12 Jul‐12 Oct‐12 Jan‐13 Apr‐13 Jul‐13

NZD

‐USD

NZD‐USD 50 dma 100 dma 200 dma

9.97

10.45

7.80

8.20

8.60

9.00

9.40

9.80

10.20


USD

‐ZA

R

USD‐ZAR 50 dma 100 dma 200 dma

6.095

6.115

6.05

6.10

6.15

6.20

6.25

6.30

6.35

6.40


USD

‐CNH

USD‐CNH 50 dma 100 dma 200 dma


10.01 9.77 9.33


0.7889 0.8041 0.8196


6.1278 6.1374 6.1743

FX Strategy

9

We are bullish on USD-CHF Technical Analysis: USD – CHF


We turn bullish on USD-SEK (from neutral earlier) Technical Analysis: USD-SEK


We are bullish on USD-CAD Technical Analysis: USD-CAD


0.91

0.945

0.85

0.87

0.89

0.91

0.93

0.95

0.97

0.99

Oct‐11 Jan‐12 Apr‐12 Jul‐12 Oct‐12 Jan‐13 Apr‐13 Jul‐13

USD

‐CHF

USD‐CHF 50 dma 100 dma 200 dma

6.50

6.72

6.20

6.40

6.60

6.80

7.00

7.20

7.40

Oct‐11 Jan‐12 Apr‐12 Jul‐12 Oct‐12 Jan‐13 Apr‐13 Jul‐13

USD

‐CHF

USD‐SEK 50 dma 100 dma 200 dma

1.035

1.065

0.94

0.96

0.98

1.00

1.02

1.04

1.06

1.08

Jun‐11 Sep‐11 Dec‐11 Mar‐12 Jun‐12 Sep‐12 Dec‐12 Mar‐13 Jun‐13

USD

‐CAD

USD‐CAD 50 dma 100 dma 200 dma


0.9357 0.9398 0.9345


6.5862 6.5796 6.5294


1.0413 1.0321 1.0182

FX Strategy

10

Interest rate differentials FX Implied Volatility

EUR-USD

USD-JPY

AUD-USD

USD-SGD

GBP-USD


1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

‐0.5

0

0.5

1

1.5

2

2.5

Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13

EUR‐USD

%

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

6

8

10

12

14

16

18

20

Jan‐11 Jul‐11 Jan‐12 Jul‐12 Jan‐13 Jul‐13

2W Implied Volatility

75

80

85

90

95

100

105

110

115

0

0.5

1

1.5

2

2.5

3


USD

‐JPY

%

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

5

7

9

11

13

15

17

19



0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

0

1

2

3

4

5

6


AUD‐USD

%

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

5

9

13

17

21



1.15

1.25

1.35

1.45

1.55

1.65

‐0.5

0

0.5

1

1.5


USD

‐SGD

%

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

2

4

6

8

10

12

14

16

18



1.4

1.5

1.6

1.7

1.8

1.9

2

2.10

0.5

1

1.5

2

2.5

3


GBP‐USD

%

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

4

6

8

10

12

14



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

FX Strategy

Central Bank Monetary Policy Meeting Schedules 2013*

Policy rate** Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Majors

US 0.25 30 20 1 31 30 18

UK 0.50 10 7 7 4 9 6 4 1 10 3 5

Euro area 0.50 10 7 7 4 2 6 4 1 2 7 5

Japan 0.10 22 14 7 4 22 11 11 8 5 31 20 19

Australia 2.50 5 5 2 7 4 2 6 3 1 5 3

New Zealand 2.50 30 14 24 8 13 25 12 30 11

Canada 1.00 23 6 17 29 17 4 23 4

Switzerland 0.25 14 20 19 12

Asia ex‐Japan

China 6.00

India 7.25

South Korea 2.50 11 14 14 11 9 13 11 8 12 10 14 12

Taiwan 1.875

Singapore ‐ Expected Expected

Malaysia 3.00 30 7 9 11 5 7

Indonesia 7.00 10 12 7 11 14 13 11 15 12 8 12 12

Thailand 2.50 9 20 3 29 10 21 16 27

Philippines 3.50 24 8 14 25 10 13 25 7 12 24 12

Source: Bloomberg, Standard Chartered * Subject to change ** Data as of 26 August 2013

FX Strategy

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.

FX Strategy

13

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. Banking activities may be carried out internationally by different Standard Chartered Bank branches, subsidiaries and affiliates (collectively “SCB”) according to local regulatory requirements. With respect to any jurisdiction in which there is a SCB entity, this document is distributed in such jurisdiction by, and is attributable to, such local SCB entity. Recipients in any jurisdiction should contact the local SCB entity in relation to any matters arising from, or in connection with, this document. Not all products and services are provided by all SCB entities. 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). This document has not and will not be registered as a prospectus in any jurisdiction and it is not authorised by any regulatory authority under any regulations. SCB makes no representation or warranty of any kind, express, implied or statutory regarding, but not limited to, the accuracy of this document or the completeness of any information contained or referred to in this document. This document is distributed on the express understanding that, whilst the information in it is believed to be reliable, it has not been independently verified by us. SCB accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents. 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. This document must not be forwarded or otherwise made available to any other person without the express written consent of SCB. Copyright: Standard Chartered Bank 2013. 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 2013.

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

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