fx strategy - Standard Chartered Bank

fx strategy
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 | 14 April 2014
USD oversold, rebound likely
Contents

The USD fell sharply against major currencies as FOMC minutes
sought to emphasise interest rate hikes were not imminent.
USD oversold, rebound likely
1
EUR/USD
2
The recent pullback in the USD is an opportunity, in our view, to
increase exposure to the USD, particularly against the EUR
where recent ECB comments signalled concern on the strong
currency.
USD/JPY
3
AUD/USD
4
USD/SGD
5

EUR/USD
GBP/USD
6

XAU/USD
7
SUPPLEMENTARY PAIRS
8
We turn bearish on the EUR/USD pair (from neutral earlier) as the
foundation of the current uptrend looks increasingly vulnerable.
USD/JPY
Interest Rate Differentials
10

FX Implied Volatility
10
Disclosure Appendix
12
We remain bullish on the USD/JPY pair as it currently trades near
multi-week supports.
AUD/USD

We remain neutral on the AUD/USD pair as the current rally is
likely to run into strong resistance, in our view.
USD/SGD

We remain bullish on the USD/SGD pair and expect it to rebound
due to oversold conditions.
Weekly performance of pairs
4 April 2014 to 11 April 2014
EUR/USD
USD/JPY
GBP/USD
AUD/USD

USD/SGD
We remain bearish on the GBP/USD pair as it appears vulnerable
to a decline in momentum, in our view.
XAU/USD

We remain bearish on the XAU/USD pair as the current rebound
is likely to face resistance near 1350, in our view.
1.31
-1.62
1.13
-0.81
GBP/USD
0.95
XAU/USD
1.14
-2.50
-1.50
-0.50
0.50
1.50
2.50
%
Source: Bloomberg, Standard Chartered
Pairs
Outlook (2-4 wk)
EUR/USD
USD/JPY
AUD/USD
USD/SGD
GBP/USD
XAU/USD
USD/CNH*
USD/ZAR*
NZD/USD*
USD/CHF*
USD/SEK*
USD/CAD*
Bearish
Bullish
Neutral
Bullish
Bearish
Bearish
Neutral
Bullish
Neutral
Bullish
Bullish
Bullish
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
Tariq Ali, CFA
Investment Strategist
Secondary Sup
Primary Sup
Spot
Primary Res
Secondary Res
1.360
100.00
0.910
1.234
1.625
1,200
6.172
10.350
0.834
0.855
6.350
1.080
1.374
101.30
0.930
1.245
1.650
1,270
6.192
10.402
0.848
0.867
6.438
1.092
1.385
101.59
0.940
1.251
1.674
1,327
6.214
10.523
0.867
0.877
6.544
1.098
1.398
103.20
0.950
1.256
1.685
1,350
6.230
10.670
0.880
0.897
6.623
1.108
1.406
104.50
0.968
1.262
1.700
1,400
6.244
11.780
0.900
0.908
6.690
1.120
*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. This is not a research report and has
not been produced by a research unit. Important disclosures can be found in the Disclosures Appendix.
1
fx strategy | 14 April 2014
Key technical indicators and forecast*
EUR/USD
We turn bearish on the EUR/USD pair (from neutral earlier) as the
foundation of the current uptrend looks increasingly vulnerable.
Technical Indicator
Action
RSI (14)
Buy
Oscillator (5,10)
Neutral
Performance
MACD (12,26,9)
Buy

ADX (14)
Buy
Momentum (14)
Neutral

The EUR/USD was up (1.31%) over the previous week after ECB
policymakers’ comments signalled reluctance to add easing
measures to address worryingly slow inflation.
Separately, German inflation held steady. The latest Fed minutes
also sought to play down concerns of imminent Fed rate hikes.
Technical Analysis



Major technical indicators, on balance, are neutral to bullish.
However, we turn bearish on the EUR/USD pair (from neutral
earlier). Although the pair has been in an uptrend since the start
of the year, taking support along the 100 DMA, the pace of the
rise has been relatively feeble. Against the backdrop of ECB
Governor Draghi’s latest comments (where he stated
“strengthening of the exchange rate requires further monetary
stimulus”), the pair seems set for a downturn, in our view. A fall
below key moving averages would further support our view.
We would review our outlook if it moves above 1.398.

Europe – Industrial production (14 April), ZEW economic
sentiment survey, trade balance (15 April), consumer price
inflation (16 April) and current account (17 April) are the key
economic releases for the week.
US – Retail sales (14 April), consumer price inflation, Fed
Chairperson speaks at the Financial Markets Conference, NAHB
housing market index (15 April), housing report, industrial
production (16 April), initial jobless claims and the Fed beige book
(17 April) are the key releases this week.
Level
Importance
Secondary Resistance
1.406
High
Primary Resistance
1.398
Medium
Spot
1.385
–
Primary Support
1.374
Medium
Secondary Support
1.360
High
Forecast
Key Signposts

Key Levels
Consensus
Q2 2014
1.36
Q3 2014
1.33
Q4 2014
1.30
Q5 2015
1.30
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
EUR/USD may face downward pressure following Draghi’s comments
Technical Analysis Chart: EUR/USD (Daily)
1.41
1.398
1.39
1.37
1.374
EUR/USD
1.35
1.33
1.31
1.29
1.27
50 dma
1.3764
1.25
1.23
Feb-13
Apr-13
EUR/USD
Jun-13
Aug-13
50 dma
Oct-13
100 dma
1.3709
Dec-13
100 dma
200 dma
1.3554
Feb-14
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
This reflects the views of the Wealth Management Group
2
fx strategy | 14 April 2014
Key technical indicators and forecast*
USD/JPY
Technical Indicator
Action
We remain bullish on the USD/JPY pair as it currently trades near
multi-week supports.
RSI (14)
Neutral
Oscillator (5,10)
Neutral
Performance
MACD (12,26,9)
Neutral

ADX (14)
Buy
Momentum (14)
Neutral
USD/JPY ended down (-1.62%) over the previous week as the
BOJ left policy unchanged and indicated the recent sales tax
increase was unlikely to have a significant impact on the
economy. Increased risk aversion in developed equity markets
further supported the JPY.
Key Levels
Technical Analysis

Major technical indicators, on balance, are neutral to bullish.

We are bullish on the USD/JPY pair. The downside risk in the
form of BOJ inaction materialised last week, leading to a sharp
drop. However, despite this disappointment, the pair closed just
above the multi–week horizontal support line of 101.30. We
believe the pair can rebound from here given it is trading closer to
the lower end of an expanding triangle pattern.

We would review our outlook if the pair falls below 100.
Level
Importance
Secondary Resistance
104.50
Low
Primary Resistance
103.20
Medium
Spot
101.59
–
Primary Support
101.30
High
Secondary Support
100.00
High
Forecast
Consensus
Key Signposts
Q2 2014
105.0

Q3 2014
107.0
Q4 2014
109.5
Q1 2015
110.0
Industrial production, BOJ Governor Kuroda’s speech (16 April),
foreign stocks and bond buying, consumer confidence index (17 April)
and the tertiary industry index (18 April) are key economic releases for
the week.
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
USD/JPY downside looks capped
Technical Analysis Chart: USD/JPY (Daily)
110
106
103.20
USD/JPY
102
101.30
98
50 dma
102.34
94
90
Feb-13
Apr-13
USD/JPY
Jun-13
Aug-13
50 dma
Oct-13
100 dma
102.95
Dec-13
100 dma
200 dma
100.81
Feb-14
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
This reflects the views of the Wealth Management Group
3
fx strategy | 14 April 2014
Key technical indicators and forecast*
AUD/USD
Technical Indicator
Action
We remain neutral on the AUD/USD pair as the current rally is likely to
run into strong resistance, in our view.
RSI (14)
Overbought
Oscillator (5,10)
Neutral
Performance
MACD (12,26,9)
Neutral

ADX (14)
Buy
Momentum (14)
Buy
AUD/USD was up (1.13 %) over the previous week in sync with a
rebound in iron ore prices and expectations of a Chinese
stimulus. Australian employment also beat expectations, but
China’s exports decelerated sharply.
Technical Analysis
Key Levels
Level
Importance

Major technical indicators, on balance, are neutral to bullish.
Secondary Resistance
0.968
High

We remain neutral on the AUD/USD pair. Its recent strong rally
has almost achieved the target of 0.95 implied by the inverse
head-and-shoulders pattern we highlighted last week. The daily
chart momentum indicator also looks stretched, though the
weekly indicator still has some room on the upside. The 0.95 level
is likely to be a critical resistance level considering this converges
with the likely target of the head-and-shoulders pattern, the
Fibonacci retracement level and short-term overbought
conditions.
Primary Resistance
0.950
High
Spot
0.940
–
Primary Support
0.930
Medium
Secondary Support
0.910
Medium
We would review our outlook if the pair moves above 0.95 or falls
below 0.93.
Q2 2014
0.88
Q3 2014
0.88
Q4 2014
0.87
Q1 2015
0.88

Forecast
Key Signposts


Australia – RBA minutes of the April meeting (14 April), Westpac
consumer sentiment, home loans (9 April) and the employment
report (10 April).
Consensus
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
China – Foreign direct investment (14 April), consumer price
inflation and GDP (6 April) are the key economic data due for
release this week.
AUD/USD is retracing some of its earlier losses
Technical Analysis Chart: AUD/USD (Daily)
1.11
50 dma
0.9095
1.06
100 dma
0.9011
200 dma
0.9145
AUD/USD
1.01
0.950
0.96
0.91
0.86
Feb-13
0.930
Apr-13
AUD/USD
Jun-13
Aug-13
50 dma
Oct-13
Dec-13
100 dma
Feb-14
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
This reflects the views of the Wealth Management Group
4
fx strategy | 14 April 2014
Key technical indicators and forecast*
USD/SGD
We remain bullish on the USD/SGD pair and expect it to rebound due
to oversold conditions.
Technical Indicator
Action
RSI (14)
Oversold
Oscillator (5,10)
Neutral
Performance
MACD (12,26,9)
Sell

ADX (14)
Sell
Momentum (14)
Oversold
USD/SGD was down (-0.81%) over the previous week as risk
appetite helped most major Asian currencies rebound.
Technical Analysis

Major technical indicators are divergent.

We remain bullish on the USD/SGD pair. It surprisingly dropped
sharply from last week’s primary support level of 1.26 and settled
along a crucial medium-term trendline connecting the December
2012 lows. We expect the significantly oversold nature of the
market to trigger a rebound this week.

We would review our outlook if the pair falls further below 1.243.
Key Levels
Level
Importance
Secondary Resistance
1.262
Medium
Primary Resistance
1.256
Low
Spot
1.251
–
Primary Support
1.245
High
Secondary Support
1.234
Medium
Key Signposts

GDP (14 April) and retail sales (15 April) are economic data to be
watched this week.
Forecast
Consensus
Q2 2014
1.27
Q3 2014
1.28
Q4 2014
1.28
Q1 2015
1.28
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
USD/SGD has gradually weakened
Technical Analysis Chart: USD/SGD (Daily)
1.30
50 dma
1.2642
1.29
100 dma
1.2648
200 dma
1.2615
1.28
USD/SGD
1.27
1.26
1.256
1.25
1.24
1.245
1.23
1.22
1.21
Feb-13
Apr-13
USD/SGD
Jun-13
Aug-13
50 dma
Oct-13
Dec-13
100 dma
Feb-14
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
This reflects the views of the Wealth Management Group
5
fx strategy | 14 April 2014
Key technical indicators and forecast*
GBP/USD
We remain bearish on the GBP/USD pair as it appears vulnerable to a
decline in momentum, in our view.
Technical Indicator
Action
RSI (14)
Neutral
Oscillator (5,10)
Sell
Performance
MACD (12,26,9)
Buy

ADX (14)
Neutral
Momentum (14)
Sell
GBP/USD was up (0.95%) over the previous week as the BOE
maintained policy rates and left the QE asset purchase
programme unchanged.
Technical Analysis



Major technical indicators are neutral-to-bearish, on balance.
Key Levels
Level
Importance
We remain bearish on the GBP/USD pair. It rebounded mainly
due to USD weakness, which has pushed it back up again to a
high of 1.68. Though the pair has maintained an upward
trajectory, it remains vulnerable to a decline in momentum and a
pending retracement, in our view.
Secondary Resistance
1.700
Medium
Primary Resistance
1.685
Medium
Spot
1.674
–
Primary Support
1.650
Medium
Secondary Support
1.625
High
We would review our outlook if the pair moves above 1.685.
Key Signposts

Consumer price inflation (8 April) and the jobless claims report
(16 April) are the main releases this week.
Forecast
Consensus
Q2 2014
1.65
Q3 2014
1.65
Q4 2014
1.63
Q1 2015
1.65
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
GBP/USD has had a sizeable upmove
Technical Analysis Chart: GBP/USD (Daily)
1.70
1.685
1.68
1.66
1.650
1.64
GBP/USD
1.62
1.60
1.58
1.56
1.54
50 dma
1.6615
1.52
100 dma
1.6516
200 dma
1.614
1.50
1.48
Feb-13
Apr-13
GBP/USD
Jun-13
Aug-13
50 dma
Oct-13
Dec-13
100 dma
Feb-14
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
This reflects the views of the Wealth Management Group
6
fx strategy | 14 April 2014
Key technical indicators and forecast*
XAU/USD
We remain bearish on the XAU/USD pair as the current rebound is
likely to face resistance near 1350, in our view.
Technical Indicator
Action
RSI (14)
Neutral
Oscillator (5,10)
Sell
Performance
MACD (12,26,9)
Sell

ADX (14)
Neutral
Momentum (14)
Buy
XAU/USD was up (1.14%) over the previous week as tensions in
Ukraine resurfaced and the Fed FOMC minutes softened the US
Dollar.
Technical Analysis



Major technical indicators, on balance, are neutral to bearish.
Key Levels
Level
Importance
We remain bearish on the XAU/USD pair. There are multiple
strong resistances around 1,350 which are likely to restrict the
current rebound, in our view. We expect prices to soften gradually
as the broader price action appears negative.
Secondary Resistance
1,400
High
Primary Resistance
1,350
Medium
Spot
1,327
–
Primary Support
1,270
Medium
Secondary Support
1,200
High
We would review our outlook if the pair rallies above 1,350.
Key Signposts


This short-term view should be viewed within the context of our
longer-term Underweight view on gold. Continued tapering of Fed
asset purchases and rising opportunity costs provided by equity
market resilience and higher yields are likely to continue working
against gold, in our view.
Forecast
Global central bank purchases, retail demand and geo-political
tensions pose risks to our view.
Consensus
Q2 2014
1,222.5
Q3 2014
1,200.0
Q4 2014
1,220.0
Q1 2015
1,198.0
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
Gold has tapered from 1,400 levels
Technical Analysis Chart: XAU/USD (Daily)
1,800
50 dma
1326.08
1,700
100 dma
1317.33
200 dma
1275.9
XAU/USD
1,600
1,500
1,400
1,350
1,300
1,270
1,200
1,100
Feb-13
Apr-13
XAU/USD
Jun-13
Aug-13
50 dma
Oct-13
Dec-13
100 dma
Feb-14
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
This reflects the views of the Wealth Management Group
7
fx strategy | 14 April 2014
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 the USD/CNH
Technical Analysis: USD/CNH
6.40
50 dma
6.1328
6.35
6.30
200 dma
6.101
6.23
6.25
USD/CNH
100 dma
6.0941
6.20
6.192
6.15
6.10
6.05
6.00
5.95
Feb-13
Apr-13
Jun-13
USD/CNH
Aug-13
Oct-13
50 dma
Dec-13
Feb-14
100 dma
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
We remain bullish on the USD/ZAR
Technical Analysis: USD/ZAR
11.8
11.4
11.0
10.670
USD/ZAR
10.6
10.2
10.402
9.8
9.4
9.0
50 dma
10.7725
8.6
100 dma
10.6896
200 dma
10.3485
8.2
7.8
Feb-13
Apr-13
Jun-13
USD/ZAR
Aug-13
Oct-13
50 dma
Dec-13
Feb-14
100 dma
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
We remain neutral on the NZD/USD
Technical Analysis: NZD/USD
0.89
0.880
0.87
0.848
NZD/USD
0.85
0.83
0.81
0.79
50 dma
0.847
0.77
0.75
0.73
Feb-12
Jun-12
NZD/USD
Oct-12
100 dma
0.8353
Jan-13
50 dma
200 dma
0.8241
May-13
Sep-13
100 dma
Dec-13
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
This reflects the views of the Wealth Management Group
8
fx strategy | 14 April 2014
We remain bullish on the USD/CHF
Technical Analysis: USD/CHF
1.01
50 dma
0.8859
0.99
100 dma
0.8926
200 dma
0.9066
0.97
USD/CHF
0.95
0.93
0.91
0.89
0.897
0.87
0.85
Jun-12
0.867
Sep-12
Dec-12
Mar-13
USD/CHF
Jun-13
50 dma
Oct-13
Jan-14
100 dma
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
We turn bullish on the USD/SEK (from neutral earlier)
Technical Analysis: USD/SEK
7.2
7.1
50 dma
6.4609
7.0
100 dma
6.4883
200 dma
6.5006
USD/SEK
6.9
6.8
6.7
6.623
6.6
6.5
6.4
6.438
6.3
6.2
Jun-12
Sep-12
USD/SEK
Dec-12
Mar-13
50 dma
Jun-13
Oct-13
100 dma
Jan-14
200 dma
Apr-14
Source: Bloomberg, Standard Chartered
We remain bullish on the USD/CAD
Technical Analysis: USD/CAD
1.14
1.12
1.108
1.10
1.092
USD/CAD
1.08
50 dma
1.1059
1.06
1.04
100 dma
1.0919
200 dma
1.0653
1.02
1.00
0.98
0.96
Jan-12
May-12
USD/CAD
Sep-12
Jan-13
50 dma
May-13
Aug-13
100 dma
Dec-13
Apr-14
200 dma
Source: Bloomberg, Standard Chartered
This reflects the views of the Wealth Management Group
9
fx strategy | 14 April 2014
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
2.0
1.6
19
1.5
1.5
17
1.4
1.0
1.3
0.5
1.2
0.0
EUR/USD
%
Interest Rate Differentials
Jan-10
Jun-11
Nov-12
Difference between EUR and USD 2 yr swap
5
Jan-11
1.5
115
25
105
20
95
1.0
85
0.5
Jan-10
Jun-11
Nov-12
Difference between USD and JPY 2 yr swap
USD/JPY
%
2.0
75
Apr-14
Jun-13
Apr-14
Jun-13
Apr-14
Jun-13
Apr-14
Jun-13
Apr-14
Jun-13
Apr-14
15
10
5
Jan-11
Oct-11
USD/JPY (RHS)
Aug-12
2W Implied Volatility
AUD/USD
AUD/USD
6
1.2
5
1.1
25
21
0.9
3
0.8
2
0.7
1
AUD/USD
1.0
4
%
Aug-12
2W Implied Volatility
USD/JPY
2.5
Jan-10
Jun-11
Nov-12
17
13
9
0.6
Difference between AUD and USD 2 yr swap
0.5
Apr-14
5
Jan-11
Oct-11
AUD/USD (RHS)
Aug-12
2W Implied Volatility
USD/SGD
USD/SGD
1.5
17
1.65
1.45
0.5
1.35
0.0
USD/SGD
1.55
1.0
%
Oct-11
EUR/USD (RHS)
3.0
0
Aug-08
11
7
1.0
Apr-14
USD/JPY
0.0
Aug-08
13
9
1.1
-0.5
Aug-08
15
12
7
1.25
-0.5
Aug-08
Jan-10
Jun-11
Nov-12
Difference between USD and SGD 2 yr swap
1.15
Apr-14
2
Jan-11
Oct-11
USD/SGD (RHS)
Aug-12
2W Implied Volatility
GBP/USD
GBP/USD
2.5
1.4
14
12
2.0
%
1.5
1.8
1.0
0.5
0.0
Aug-08
2.0
Jan-10
Jun-11
Difference between GBP and USD 2 yr swap
Nov-12
Apr-14
GBP/USD
1.6
10
8
6
4
Jan-11
Oct-11
GBP/USD (RHS)
Aug-12
2W Implied Volatility
Source: Bloomberg, Standard Chartered
This reflects the views of the Wealth Management Group
10
fx strategy | 14 April 2014
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.
This reflects the views of the Wealth Management Group
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fx strategy | 14 April 2014
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