This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. Important disclosures can be found in the Disclosures Appendix. This document is provided for general circulation and information purposes only, it does not take into account the specific investment objectives, needs or financial situation of any particular person or class of persons and it has not been prepared as investment advice for any such person(s). Prospective investors should seek advice from a financial adviser on the suitability of an investment, taking into account these factors before making a commitment to invest in an investment. 1 fx strategy fx | 14 September 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 Fed move key to USD outlook The USD declined against most major peers, while gaining against the JPY and gold, amid a fall in risk-aversion during the week. US data during the outgoing week was largely disappointing. The outcome from this week’s Fed meeting is key for the USD near term. Markets are pricing in about a 25% chance of a Fed rate hike. We expect a rate hike to be USD supportive. EUR/USD We remain neutral on EUR/USD, a view we expect to hold as long as the pair remains below key resistance levels. USD/JPY We remain bullish on the USD/JPY pair. Proximity to strong support and supportive technicals signal the potential for a recovery. AUD/USD We remain bearish on the AUD/USD pair as the downtrend remains firmly in place. USD/SGD We remain bullish on the USD/SGD pair and expect the upmove to extend further. GBP/USD We remain bullish on the GBP/USD pair following its strong rebound from a key support region. XAU/USD We remain neutral on the XAU/USD pair as short-term technical signals remain mixed. Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res EUR/USD Neutral 1.060 1.110 1.344 1.140 1.180 USD/JPY Bullish 117.00 118.50 120.40 122.00 124.50 AUD/USD Bearish 0.655 0.690 0.709 0.735 0.750 USD/SGD Bullish 1.365 1.380 1.411 1.435 1.462 GBP/USD Bullish 1.500 1.520 1.544 1.555 1.570 XAU/USD Neutral 1040 1080 1108 1160 1200 USD/CNH* Neutral 6.342 6.400 6.404 6.480 6.530 USD/ZAR* Bullish 12.400 12.850 13.560 14.000 15.000 NZD/USD* Bearish 0.596 0.615 0.632 0.650 0.675 USD/CHF* Neutral 0.935 0.950 0.968 0.990 1.010 USD/SEK* Neutral 8.000 8.245 8.226 8.860 8.880 USD/CAD* Neural 1.282 1.302 1.324 1.340 1.375 *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 Fed move key to USD outlook 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 4 September 2015 to 11 September 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 Director, Portfolio Solutions Victor Teo, CFA Investment Strategist Tariq Ali, CFA Investment Strategist Abhilash Narayan Investment Strategist -1.24 1.71 -0.98 2.66 1.34 1.70 -1.50 -1.00 -0.50 0.00 0. 50 1. 00 1. 50 2. 00 2. 50 3. 00 XAU/USD GBP/USD USD/SGD AUD/USD USD/JPY EUR/USD %
Transcript
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. Important disclosures can be found in the Disclosures Appendix. This document is provided for general circulation and information purposes only, it does not take into account the specific investment objectives, needs or financial situation of any particular person or class of persons and it has not been prepared as investment advice for any such person(s). Prospective investors should seek advice from a financial adviser on the suitability of an investment, taking into account
these factors before making a commitment to invest in an investment.
1
fx strategyfx | 14 September 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
Fed move key to USD outlook
The USD declined against most major peers, while gaining against the JPY and gold, amid a fall in risk-aversion during the week. US data during the outgoing week was largely disappointing.
The outcome from this week’s Fed meeting is key for the USD near term. Markets are pricing in about a 25% chance of a Fed rate hike. We expect a rate hike to be USD supportive.
EUR/USD
We remain neutral on EUR/USD, a view we expect to hold as long as the pair remains below key resistance levels.
USD/JPY
We remain bullish on the USD/JPY pair. Proximity to strong support and supportive technicals signal the potential for a recovery.
AUD/USD
We remain bearish on the AUD/USD pair as the downtrend remains firmly in place.
USD/SGD
We remain bullish on the USD/SGD pair and expect the upmove to extend further.
GBP/USD
We remain bullish on the GBP/USD pair following its strong rebound from a key support region.
XAU/USD
We remain neutral on the XAU/USD pair as short-term technical signals remain mixed.
Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res
*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
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 2
EUR/USD
We remain neutral on EUR/USD, a view we expect to hold as long as the pair remains below key resistance levels.
Performance
EUR/USD ended up (1.70%) over the previous week. Q2 GDP growth was revised up as Italy grew faster than expected. However, investor confidence deteriorated more than expected in September.
In the US, mortgage home applications fell last week. A fall in jobless claims pointed to firmer labour markets. Wholesale inventories fell for the first time since 2013. Producer prices remained unchanged in August. The consumer sentiment index dropped to its lowest level since last September.
Technical Analysis
Major technical indicators, on balance, are bullish.
However, we remain neutral on EUR/USD. Since March, the pair has been trading in a broad upward slanting channel. We view this move has a countertrend retracement of the previous bigger downleg. However, we prefer to remain neutral as long as the key resistance region around 1.140 holds. A failure to break above this level would signal, in our opinion, limited further upside in the pair.
We would review our outlook if the pair moves above 1.14 or falls below 1.11.
Key Signposts
Euro area – Industrial production (14 September), trade balance and employment (15 September), CPI, labour costs (16 September), current account (11 September).
US – Retail sales, industrial production, capacity utilisation, business inventories and empire manufacturing (15 September), CPI (16 September), housing starts, building permits, current account and Phil. business outlook (17 September), the FOMC meeting (18 September).
EUR/USD countertrend rebound unlikely to sustain over the longer term, in our view
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1.1101 1.1142 1.1245
14 September 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 3
USD/JPY
We remain bullish on the USD/JPY pair. Proximity to strong support and supportive technicals signal the potential for a recovery.
Performance
USD/JPY ended up (1.34%) over the previous week. Q2 GDP shrank 1.2% annualised, beating consensus, while bank lending rose 2.7% in August from the previous year. The current account surplus was up for the thirteenth straight month. Consumer confidence improved in August amid lower gasoline prices. Core inflation rose at an accelerated pace in July. A survey indicated that big manufacturers’ sentiment improved in Q3.
Technical Analysis
Major technical indicators, on balance, are neutral to bullish.
We remain bullish on USD/JPY. The pair appears to have stabilised after the previous week’s fall to 118. A cluster of support levels below the 118 mark are likely to limit downside. Furthermore, the positive divergence developing on the daily charts is also likely to aid a recovery. We view the recent correction as an opportunity to add to bullish exposure.
We would review our outlook if the pair moves below 117.
Key Signposts
Industrial production and capacity utilisation (14 September), the BoJ’s monetary policy statement (15 September), the BoJ’s monthly economic report and machine tool orders (16 September), trade balance, exports and imports (17 September), nationwide department sales (18 September).
USD/JPY downside limited near the key support region
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma122.58 122.37 120.82
14 September 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 4
AUD/USD
We remain bearish on the AUD/USD pair as the downtrend remains firmly in place.
Performance
AUD/USD ended up (2.66%) over the previous week. Business conditions improved in August, but confidence declined. August employment rose to beat expectations, while the jobless rate dipped to 6.2%, in line with expectations.
In China, August inflation edged higher, more than expected from a year earlier, but producer prices tumbled to a six-year low. Data from the Ministry of Commerce revealed that foreign direct investment (FDI) rose 22% in August. Vehicle sales declined 3% and new Yuan loans fell in August, missing forecasts.
Technical Analysis
Major technical indicators, on balance, are bearish.
We remain bearish on AUD/USD. The pair has fallen to a six-year low and seems to have established a firm downtrend. Notwithstanding any temporary countertrend rebounds, we expect the pair to gradually drift to 2008 lows.
We would review our outlook if the pair rebounds above 0.735.
Key Signposts
Australia – RBA September meeting minutes and new motor vehicle sales (15 September).
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma0.727 0.7533 0.771
14 September 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 5
USD/SGD
We remain bullish on the USD/SGD pair and expect the upmove to extend further.
Performance
USD/SGD ended down (-0.98%) over the previous week. Ratings agency S&P lowered growth forecasts owing to disappointing trade data and fears regarding China’s market stability. Foreign exchange reserves rose to USD 250bn in August.
Technical Analysis
Major technical indicators are divergent.
However, we remain bullish on USD/SGD. The pair has broken out to the upside and is exhibiting firm momentum. We believe any correction is likely to be short lived, provided the pair does not slip back below 1.380.
We would review our outlook if the pair moves below 1.380.
Key Signposts
The unemployment rate and retail sales (15 September), non-oil exports (17 September).
USD/SGD has likely resumed its longer-term uptrend
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1.3889 1.3642 1.3567
14 September 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 6
GBP/USD
We remain bullish on the GBP/USD pair following its strong rebound from a key support region.
Performance
GBP/USD ended up (1.71%) over the previous week. Construction output unexpectedly dipped in July, reversing June’s rebound. Retail sales stagnated last month due to mixed weather and a public holiday. July industrial output fell 0.4% m/m, hit by weak exports, and the trade deficit widened. House prices rose strongly in August as supply shrank.
The BoE left interest rates unchanged at record lows and did not see China’s stock market slump impacting the local economy.
Technical Analysis
Major technical indicators, on balance, are bullish.
We remain bullish on GBP/USD. The pair recovered from key support of 1.520, supporting the case for limited downside. We believe there is room for further upside towards the higher end of the broader range to 1.570. A breach of resistance at 1.555 would likely accelerate this move.
We would review our outlook if the pair falls below 1.520.
Key Signposts
Economic survey and CPI (15 September), average weekly earnings, the unemployment rate and employment change (16 September), retail sales (17 September).
GBP/USD has been trading in a broad consolidation band
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1.552 1.552 1.5351
14 September 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 7
XAU/USD (Gold)
We remain neutral on the XAU/USD pair as short-term technical signals remain mixed.
Performance
XAU/USD ended down (-1.24%) over the previous week. India’s cabinet approved the launch of sovereign gold bonds, seeking to trim demand for the metal. In addition, risk appetite gradually increased as investors looked to add exposure to equities.
Technical Analysis
Major technical indicators are divergent.
We remain neutral on the XAU/USD pair. Gold eased for the third week in a row since it turned around from the resistance line connecting the November 2014 and March 2015 lows. Short-term signals are mixed at present, although the longer-term trend remains bearish.
We would review our outlook if the pair moves above 1,160 or falls below 1,080.
Key Signposts
The Fed FOMC statement remains key to gold outlook later this week. A surprise Fed rate hike is likely to further weaken the metal. In the interim, the focus is likely to be on US economic data.
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 10
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
Source: Bloomberg, Standard Chartered
1.0
1.1
1.2
1.3
1.4
1.5
1.6
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Jan-10 Jun-11 Nov-12 Apr-14 Sep-15
EU
R/U
SD
%
Difference between EUR and USD 2 yr swap EUR/USD (RHS)
3
6
9
12
15
18
Jan-11 Mar-12 May-13 Jul-14 Sep-15
2W Implied Volatility
75
85
95
105
115
125
135
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Jan-10 Jun-11 Nov-12 Apr-14 Sep-15
US
D/J
PY
%
Difference between USD and JPY 2 yr swap USD/JPY (RHS)
2
5
8
11
14
17
20
Jan-11 Mar-12 May-13 Jul-14 Sep-15
2W Implied Volatility
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
0
1
2
3
4
5
6
Jan-10 Jun-11 Nov-12 Apr-14 Sep-15
AU
D/U
SD
%
Difference between AUD and USD 2 yr swap AUD/USD (RHS)
3
7
11
15
19
23
Jan-11 Mar-12 May-13 Jul-14 Sep-15
2W Implied Volatility
1.15
1.20
1.25
1.30
1.35
1.40
1.45
-1.5
-1.0
-0.5
0.0
0.5
Jan-10 Jun-11 Nov-12 Apr-14 Sep-15
US
D/S
GD
%
Difference between USD and SGD 2 yr swap USD/SGD (RHS)
2
4
6
8
10
12
14
16
Jan-11 Mar-12 May-13 Jul-14 Sep-15
2W Implied Volatility
1.4
1.5
1.6
1.7
1.8
-0.2
0.3
0.8
1.3
1.8
2.3
Jan-10 Jun-11 Nov-12 Apr-14 Sep-15
GB
P/U
SD
%
Difference between GBP and USD 2 yr swap GBP/USD (RHS)
3
5
7
9
11
13
15
17
Jan-11 Mar-12 May-13 Jul-14 Sep-15
2W Implied Volatility
14 September 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 11
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.
14 September 2015 | fx strategy
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