Renminbi and financial market volatility are the main themes€¦ · GBP/USD Bullish Likely to rebound from key support region of 1.45 1.425 1.450 1.452 1.500 1.520 ... 14 January

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 such person(s). ‘Person’ includes a corporation, co-operative society, trade union, sole proprietorship, partnership, limited liability partnership and any other business entity. 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 This reflects the views of the Wealth Management Groupfx | 11 January 2016

Renminbi and financial market volatility are the main themes Financial market volatility in recent days has resulted in a stronger USD against most emerging market currencies. Safe-haven currencies,

including JPY, CHF and gold, were also key beneficiaries. There have been significant concerns Chinese authorities could devalue the CNY. However, we believe recent CNY weakness against the

USD is a side-effect of China shifting away from a soft USD peg towards targeting a basket of trade partner currencies. Hence, we expect heavily oversold currencies over the last week to rebound. In this regard, GBP, CAD and the CNH stand out.

In the upcoming week, US retail sales, China trade data, Australian employment data and BOE policy statement are key events.

Pairs Outlook (2-4 wk) Summary comments Support 2 Support 1 Spot Resistance 1 Resistance 2EUR/USD Bearish Downward trending price channel intact 1.050 1.080 1.091 1.100 1.125USD/JPY Bullish Likely to undergo an oversold rebound 115.00 116.00 117.21 118.50 120.00AUD/USD Neutral Some consolidation likely at key support 0.670 0.690 0.697 0.725 0.740USD/SGD Neutral Near term resistance to limit short term upside 1.400 1.425 1.438 1.450 1.460GBP/USD Bullish Likely to rebound from key support region of 1.45 1.425 1.450 1.452 1.500 1.520XAU/USD Neutral Failed to breach key resistance 1050 1080 1105 1110 1150NZD/USD Neutral Consolidation likely amid oversold technicals 0.625 0.650 0.653 0.685 0.720EUR/GBP Neutral Price action signals a period of consolidation near term 0.700 0.720 0.750 0.760 0.780USD/CNH Bearish Overbought correction likely 6.400 6.500 6.659 6.700 6.750USD/CHF Neutral Consolidation possible before resumption of uptrend 0.950 0.980 0.994 1.000 1.030USD/CAD Bearish Overbought in the short term, correction likely 1.380 1.400 1.417 1.420 1.440AUD/NZD Bullish Likely to see consolidation falling sharp drop 1.03 1.050 1.067 1.080 1.100

*Darker shade indicates more important technical level

11 January 2016 | fx strategy

This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 2

Contents Renminbi and financial market volatility are the main themes 1 3 and 12 month outlook 3 2-4 week outlook 3 FX trade notes 3 Week in Review 4 EUR/USD 5 USD/JPY 6 AUD/USD 7 USD/SGD 8 GBP/USD 9 XAU/USD 10 NZD/USD 11 Interest Rate Differentials 15 FX Implied Volatility 16 Consensus forecasts and forwards 17 Disclosure Appendix 19

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, Asset Allocation

Rajat Bhattacharya Investment Strategist

Victor Teo, CFA Investment Strategist

Tariq Ali, CFA Investment Strategist

Abhilash Narayan Investment Strategist



3 and 12 month outlook 2-4 week outlook

Pairs Outlook (2-4 wk) EUR/USD Bearish USD/JPY Bullish AUD/USD Neutral USD/SGD Neutral GBP/USD Bullish XAU/USD Neutral NZD/USD Neutral EUR/GBP Neutral USD/CNH Bearish USD/CHF Neutral USD/CAD Bearish AUD/NZD Bullish

FX trade notes

Initiation date Pairs Position Entry price

Current price Target Stop

NO TRADES

THIS WEEK

Currency 3 month 12 month

EUR JPY GBP AUD NZD CAD CHF CNY TWD KRW SGD MYR IDR INR THB PHP

Bullish Neutral Bearish

Source: Bloomberg, Standard Chartered



Week in Review

Weekly performance of core pairs 1January 2016 to 8 January 2016

Weekly performance of supplementary pairs 1January 2016 to 8 January 2016


Pairs Week in Review

EUR/USD EUR/USD ended up (0.61%) over the previous week. Repatriation of capital from emerging markets back to the Euro area likely supported the EUR. However, core inflation data disappointed consensus expectations. The strong US jobs report, however, failed to push EUR lower.

USD/JPY USD/JPY ended down (-2.73%) over the previous week. The yen gained strongly vs. most major peers amid heightened safe-haven demand following a major pull-back in global equity markets.

AUD/USD AUD/USD ended down (-4.79%) over the previous week. Heightened financial market volatility and a major sell-off in commodities saw the AUD fall sharply lower.

USD/SGD USD/SGD was up (2.17%) over the previous week. A stronger USD amid heightened financial market volatility, as well as a strong US jobs report, likely resulted in a weaker SGD.

GBP/USD GBP/USD was down (-1.55%) over the previous week. In addition to heightened financial market volatility, weaker UK trade data may have also weakened sentiment on the pair.

XAU/USD XAU/USD was up (4.02%) over the previous week. Risk-off sentiment likely supported the uptick in gold.

NZD/USD NZD/USD ended down (-4.91%) over the previous week. Heightened financial market volatility and a major sell-off in commodities likely dampened sentiment in the pair.

-4.91%

4.02%

-1.55%

2.17%

-4.79%

-2.73%

0.61%

-6.50% -3.50% -0.50% 2.50%

NZD/USD

XAU/USD

GBP/USD

USD/SGD

AUD/USD

USD/JPY

EUR/USD

%

0.08%

2.29%

-0.66%

1.73%

2.05%

-2.00% -1.00% 0.00% 1.00% 2.00% 3.00%

AUD/NZD

USD/CAD

USD/CHF

USD/CNH

EUR/GBP

%



EUR/USD We are bearish on EUR/USD as it continues to follow the downward trend channel.

Bearish Key technical indicators*

Technical Indicator Action RSI (14) Neutral

Oscillator (5,10) Neutral

MACD (12,26,9) Neutral

ADX (14) Sell

Momentum (14) Sell Key Levels Level ImportanceResistance 2 1.125 HighResistance1 1.100 MediumSpot 1.091 –Support 1 1.080 MediumSupport 2 1.050 High

Key Signposts ECB policy meeting minutes 14 January

US retail sales 15 January

* Please see Appendix on Pg 18 for explanation on technical Source: Bloomberg, Standard Chartered

Fundamental Overview Renewed weakness in oil prices is likely to further exacerbate declining long-term inflation

expectations in the Euro area. Expectations of further ECB policy action while the Fed hikes rates are likely to keep the EUR under pressure. Repatriation of capital back into the Euro area amid market volatility may, however, support the EUR in the short term.

Technical Analysis The recent rebound in the EUR failed to breach the 1.10 resistance region, suggesting weak

sentiment in the pair. We expect the pair to follow its downward sloping trend channel. We believe a break below 1.05 would, however, significantly strengthen the downtrend.

The EUR/USD downtrend remains intact


1.080

1.100

1.03

1.06

1.09

1.12

1.15

1.18

Mar-15 Apr-15 May-15 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16

EUR

/USD

EUR/USD 50DMA 100DMA 200DMA



USD/JPY We expect the pair to rebound given oversold technical indicators and a strong support cluster.

Bullish Key technical indicators*

Technical Indicator Action RSI (14) Buy


MACD (12,26,9) Sell

ADX (14) Sell

Momentum (14) Sell Key Levels Level ImportanceResistance 2 120.00 HighResistance1 118.50 MediumSpot 117.21 –Support 1 116.00 HighSupport 2 115.00 Medium

Key Signposts Japan current account bal. 12 January

US retail sales 15 January


Fundamental Overview The JPY has largely been supported as risk-off sentiment prevailed following concerns

regarding China’s currency weakness. However, we do not believe last week’s price action is indicative of a change in broader JPY fundamentals. We believe Japanese authorities are unlikely to tolerate JPY strength and may accelerate easing, should the JPY continue to rally.

Technical Analysis Technical indicators suggest the pair is oversold in the short term. A rebound of the RSI

above 30 indicates a potential change in short-term trend. The strong support cluster in the 115-116 regions may also limit downside in the short term.

The USD/JPY likely to find support


116.00

118.50

109111113115117119121123125127


USD

/JPY

USD/JPY 50DMA 100DMA 200DMA



AUD/USD We are neutral on AUD/USD amid expectations of consolidation following the sell-off.

Neutral Key technical indicators*



MACD (12,26,9) Sell

ADX (14) Sell

Momentum (14) Sell Key Levels Level ImportanceResistance 2 0.740 HighResistance1 0.725 MediumSpot 0.697Support 1 0.690 MediumSupport 2 0.670 Low

Key Signposts China trade data 13 JanuaryAustralia employment data 14 January


Fundamental Overview The AUD has largely followed the sell-off in commodity prices into the New Year. We expect

the AUD to continue its downtrend in 2016, barring any significant positive economic surprises in China. While some domestic economic data has shown signs of improvement, it is unlikely to drastically change the AUD outlook, as external balances remain weak.

Technical Analysis The strong break below the key support of 0.70 is likely to accelerate downside, in our view.

Nonetheless, the sharp decline may lead to some consolidation in the pair in the short term, Hence, we prefer to remain on the sidelines until clearer directional indicators emerge.

AUD/USD may find support following sharp sell-off


0.690

0.725

0.65

0.68

0.71

0.74

0.77

0.80

0.83


AUD

/USD

AUD/USD 50DMA 100DMA 200DMA



USD/SGD We are neutral on USD/SGD and would wait for better levels to re-initiate directional views.

Neutral Key technical indicators*

Technical Indicator Action RSI (14) Sell

Oscillator (5,10) Buy

MACD (12,26,9) Buy

ADX (14) Buy

Momentum (14) Buy Key Levels Level ImportanceResistance 2 1.460 HighResistance1 1.450 MediumSpot 1.438 –Support 1 1.425 MediumSupport 2 1.400 High

Key Signposts Singapore retail sales 15 January


Fundamental Overview Since the SGD is managed relative to a basket of currencies, we expect the pair to continue

to follow the USD. While initial estimates of Q4 Singapore GDP were higher than consensus, the overall economy continues to face major headwinds with respect to dismal export growth, low inflation and falling property prices.

Technical Analysis The breach of the 1.44 resistance suggests further upside in the short term. However, we

also highlight the pair may consolidate amid slightly overbought technical indicators. Hence, we prefer to wait for better entry levels. From a longer term perspective, the 50DMA-100DMA crossover suggests the medium term uptrend remains in place.

The USD/SGD likely overbought short term


1.425

1.450

1.30

1.35

1.40

1.45

1.50


USD

/SG

D

USD/SGD 50DMA 100DMA 200DMA



GBP/USD We are bullish on the GBP as we expect the pair to rebound from a key support region.

Bullish Key technical indicators*


Oscillator (5,10) Sell

MACD (12,26,9) Sell

ADX (14) Sell

Momentum (14) Sell Key Levels Level ImportanceResistance 2 1.520 LowResistance1 1.500 HighSpot 1.452 –Support 1 1.450 HighSupport 2 1.425 Medium

Key Signposts UK industrial production 12 JanuaryBOE policy statement 14 January


Fundamental Overview The GBP has weakened considerably following increased financial market volatility.

However, we do not see a case for significant GBP weakness as economic data, particularly with respect to the services sector and core inflation, remains constructive.

Technical Analysis The pair has sold-off sharply, which increases the possibility of an oversold rebound.

Moreover, we believe the strong support region of 1.45 (near last year’s lows) is likely to limit downside in the short term.

The GBP/USD likely to rebound from key support


1.450

1.500

1.40

1.45

1.50

1.55

1.60

1.65


GB

P/U

SD

GBP/USD 50DMA 100DMA 200DMA



XAU/USD We are neutral on gold and expect it to trade range-bound between 1080 and 1150.

Neutral Key technical indicators and forecast*


Oscillator (5,10) Buy

MACD (12,26,9) Buy

ADX (14) Neutral

Momentum (14) Buy Key Levels Level ImportanceResistance 2 1150 HighResistance1 1110 MediumSpot 1105 –Support 1 1080 MediumSupport 2 1050 High

Key Signposts US retail sales 15 January


Fundamental Overview The pick-up in financial market volatility saw some support for gold, although the stronger US

jobs report limited gains. In the absence of a major pick-up in inflation, we believe gold is likely to continue to trade sideways.

Technical Analysis The rebound in gold from recent lows was limited to the 100DMA, suggesting weak

sentiment. With weak directional indicators, we expect gold to trade range-bound between 1080 and 1150 in the short term.

XAU/USD fails to extend upside


1,080

1,110

1,000

1,050

1,100

1,150

1,200

1,250

1,300


XAU

/USD

XAU/USD 50DMA 100DMA 200DMA



NZD/USD We are neutral on the NZD as we expect some consolidation before resumption of the downtrend

Neutral Key technical indicators and forecast*


Oscillator (5,10) Sell

MACD (12,26,9) Sell

ADX (14) Sell

Momentum (14) Sell Key Levels Level ImportanceResistance 2 0.720 LowResistance1 0.685 HighSpot 0.653 –Support 1 0.650 HighSupport 2 0.625 Medium

Key Signposts China trade data 13 January


Fundamental Overview NZD is likely to remain under pressure amid a stronger USD as Fed hikes rates and

continued rebalancing in China away from fixed investments. In the near term, the CNY outlook is key. Significant weakness in the broader CNY may further weaken the NZD.

Technical Analysis The pairs sharp sell-off over the previous week increases possibility of a rebound in the short

term. In this regard, the 0.65 support is likely to be key. A breach of this level is likely to accelerate downside. We prefer to remain on the sidelines for the time being.

The NZD/USD faces strong support


0.650

0.685

0.600.620.640.660.680.700.720.740.760.780.800.82


NZD

/USD

NZD/USD 50DMA 100DMA 200DMA



SUPPLEMENTARY PAIRS

We are neutral on the EUR/GBP View

Neutral

Upcoming support region around 0.760 likely to limit upside

We are bearish on the USD/CNH View

Bearish

The pair may be heavily overbought in the short term

Concerns regarding CNH may have been overdone.

We do not believe the authorities are weakening the currency with competitive devaluation in mind


1

0.720

0.760

0.68

0.70

0.72

0.74

0.76

0.78

0.80


EUR

GB

P

EUR/GBP 50DMA 100DMA 200DMA

6.500

6.700

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8


USD

/CN

H

USD/CNH 50DMA 100DMA 200DMA



SUPPLEMENTARY PAIRS (cont’d)

We remain neutral on USD/CHF View

Neutral

Longer term uptrend remains intact, but possibility of short term consolidation

We are bearish on the USD/CAD View

Bearish

Technical rebound in oil may support the CAD in the short term


0.980

1.000

0.89

0.92

0.95

0.98

1.01

1.04


USD

/CH

F

USD/CHF 50DMA 100DMA 200DMA

1.400

1.420

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45


USD

/CAD

USD/CAD 50DMA 100DMA 200DMA



SUPPLEMENTARY PAIRS (cont’d)

We remain neutral on AUD/NZD View

Bullish

Buying pressure near key support suggests possibility of a rebound


1.050

1.080

1.00

1.05

1.10

1.15

1.20


AUD

/NZD

AUD/NZD 50DMA 100DMA 200DMA



Interest Rate Differentials

EUR/USD USD/JPY AUD/USD

GBP/USD NZD/USD USD/CAD


1.0

1.1

1.2

1.3

1.4

-1.75-1.55-1.35-1.15-0.95-0.75-0.55-0.35-0.150.050.250.45

Jan-13 Oct-13 Jul-14 Apr-15 Jan-16

EUR

/USD

%

EUR/USD 2 year interest rate differentialEUR/USD (RHS)

85

95

105

115

125

135

0.100.250.400.550.700.851.001.151.301.45


USD

/JPY

%

USD/JPY 2 year interest rate differntialUSD/JPY (RHS)

0.6

0.7

0.8

0.9

1.0

1.1

0.0

1.0

2.0

3.0


AU

D/U

SD

%

AUD/USD 2 year interest rate differntial (RHS)AUD/USD (RHS)

1.42

1.52

1.62

1.72

-0.5

0.0

0.5

1.0


GB

P/U

SD

%

GBP/USD 2 year interest rate differntial (RHS)GBP/USD (RHS)

0.6

0.7

0.8

0.9

0.0

1.0

2.0

3.0

4.0

5.0


NZD

/USD

%

NZD/USD 2 year interest rate differntial (RHS)NZD/USD (RHS)

0.8

1.0

1.2

1.4

1.6

-1.5

-1.0

-0.5

0.0

0.5

1.0


USD

/CA

D

%

USD/CAD 2 year interest rate differntial (RHS)USD/CAD (RHS)



FX Implied Volatility

EUR/USD USD/JPY AUD/USD

GBP/USD NZD/USD USD/CAD


0

5

10

15


%

EUR 1M Implied Vol

0

5

10

15

20


%

JPY 1M Implied Vol

4

6

8

10

12

14

16

18


%

AUD 1M Implied Vol

4

6

8

10

12

14


%

GBP 1M Implied Vol

4

6

8

10

12

14

16

18


%

NZD 1M Implied Vol

4

6

8

10

12

14


%

CAD 1M Implied Vol



Consensus forecasts and forwards Consensus Forecasts Q1 2016 Q2 2016 Q3 2016 Q4 2016 Forward Q1 2016 Q2 2016 Q3 2016 Q4 2016

EUR/USD 1.06 1.05 1.06 1.07 1.09 1.10 1.10 1.12

USD/JPY 123 124 124 125 118 117 117 116

AUD/USD 0.70 0.70 0.69 0.70 0.69 0.69 0.69 0.69

NZD/USD 0.64 0.63 0.65 0.64 0.65 0.65 0.65 0.64

USD/SGD 1.44 1.45 1.46 1.47 1.45 1.45 1.45 1.45

GBP/USD 1.50 1.49 1.51 1.52 1.45 1.45 1.45 1.46

USD/CAD 1.37 1.37 1.35 1.34 1.41 1.41 1.41 1.41

USD/CHF 1.08 1.09 1.10 1.10 1.08 1.08 1.08 1.08




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.


19

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 Standard Chartered Bank, (“SCB”) 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. United Kingdom: Standard Chartered Bank (trading as Standard Chartered Private Bank) is an authorised financial services provider (licence number 45747) in terms of the South African Financial Advisory and Intermediary Services Act, 2002 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 or 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 or 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.


20

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 2016. 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 2016.

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

Documents

Renminbi and financial market volatility are the main themes€¦ · GBP/USD Bullish Likely to rebound from key support region of 1.45 1.425 1.450 1.452 1.500 1.520 ... 14 January