GLOBAL FX STRATEGY

DAILY FX UPDATE

Eric Theoret, CFA, CMT Currency Strategist

(416) 863-7030 Eric.Theoret@scotiabank.com Friday, June 5, 2015

FX RISK HIGH ON NONFARM, OPEC, DUDLEY USD strengthening into NA open; payroll consensus is 225K.

CAD is flat, vulnerable heading into dual employment and OPEC.

USDCAD technicalsbullish with risk of fresh highs for June.

EUR is soft, fading prior data-driven gains; focus turns to U.S. payrolls.

GBP is weak, vulnerable ahead of U.S. employment.

NOK underperform, down over 1.5% as weak industrial production weighs ahead of June 18 Norges Bank meeting.

USDJPY rises, testing resistance above 124.80. Risk of fresh highs.

AUD consolidates, signals weak following bearish evening star candles.

USDCNY is flat; weekend risk lies in trade data. FX Market Update - The USD is strong, its gains accelerating into the NA open with a focus on the 8:30am EST payrolls release (discussed below), the 10:00am EST OPEC press conference, as well as NY Fed President Dudleys speech. OPEC is widely expected to maintain its 30MM bpd production target (headline rumors are confirming a hold). Greece risk has passed for now, with the bundling of IMF obligations shifting the focus to the month-end payment datecoinciding with the current pro-grammes end. The broader market tone highlights concerns over the Fed outlook and the looming normalization as we note broad pressure across global bond and equity markets, with gold also showing signs of weakness. Oil prices are showing tentative signs of a recovery in re-sponse to the OPEC rumors (middle chart). E.T. NONFARM The Fed is looking to normalize policy on the back of con-tinued labor market gains and increasing confidence in its ability to reach the 2% inflation target. Consensus is looking to a 225K nonfarm print (top chart), and the distribution of expectations is fairly wide, rang-ing from 140K to 205K. The USD impact is likely to be fairly limited be-tween 200K and 250K, however a number outside this range would be expected to generate a material USD reaction. The unemployment rate is expected to remain flat at 5.4% with a secondary focus on average hourly earnings (exp. flat 2.2% y/y), hours (exp. flat 34.5), as well as un-deremployment (10.8%) and the participation rate (62.8%). E.T. USDCAD (1.2495) CAD is flat, fading its decline on rumors of an OPEC hold with broader risk centered on the dual employment release. Falling oil prices have weighed on CAD over the past three sessions (bottom chart), and vulnerability is high ahead of the official 10:00am EST OPEC press conference. We see added downside risk for CAD in the employ-ment releases, given their implications for relative policy expectations and the 2Y U.S.-Canada yield spread. Domestic employment is expected to rise 10K. E.T. USDCAD short-term technicals: bullishsignals are in broad agree-ment, as we note a renewed upswing off support at the 100 day MA 1.2411. USDCAD has broken Tuesdays open 1.2522, shifting the focus to the June 1 high at 1.2563. E.T.

OIL (WTI) APPEARS VULNERABLE ON OPEC DECIS.

USDCAD TIE TO OIL PRICES (WTI) CONTINUES

NONFARM225K EXPECTED, BELOW 6&12M MA

Source: Bloomberg & Scotiabank FX Strategy

Source: Bloomberg & Scotiabank FX Strategy

Source: Bloomberg & Scotiabank FX Strategy

Friday, June 05, 2015

2

GLOBAL FX STRATEGY

EURUSD (1.1236) EUR is flat, its prior data-driven gains softening as we approach the NA open and the U.S. employment data. Releases have been supportive, with upside surprises to German factor orders and Spains industrial output providing for modest support to EUR. Greek risk has been deferred with the bundling of IMF payments into month end, coinciding with the end of the current programme. Greece appears to be no closer to an agreement with its creditors, with near-term headline risk centered on PM Tsipras parliamentary address at 11:00am EST. We maintain a bearish, medium-term view on EUR and look to downside into year end with a target of 1.0500. E.T. EURUSD short-term technicals: mixedEURs three-session rally ended on Thursday with the formation of a bearish shooting star doji. EUR appears unable to break above Thursdays open at 1.1275. Signals are conflicted, and we look to renewed downside on a break of the 21 day MA at 1.1142. E.T. GBPUSD (1.5321) GBP is down 0.3%, having weakened steadily through the European session with market participants looking to the U.S. employment release. GBP appears vulnerable to near term downside as we consider the ongoing erosion in support from relative policy with the 2Y U.S.-U.K. yield spread widening back toward Mondays low. E.T. GBPUSD short-term technicals: bearishrenewed decline following three session rally that ended with a bearish shooting star doji candle. Focus is on Tuesdays low around 1.5300 with risk of a test to 1.5250 and 1.5200 as we see considerable vulnerability on a break below 1.5180. E.T. USDJPY (124.72) JPY is soft, down 0.3% ahead of the NA session and softening in response to broad USD strength. Risk lies with the U.S. em-ployment data and market sentiment, as JPY falls back toward the lower end of its one-week range. Fundamentals hint to further upside in USDJPY, however we see the potential for risk in the event of a material deterioration in the broader market tone. E.T. USDJPY short-term technicals: bullishsignals biased to further gains with candles hinting to upside risk following two sessions of consolida-tion. Gains above 124.80 have been limited, and we look to a potential break of the recent multi-year high around 125.00. E.T.

TECHNICALS: BUY/SELL SIGNALS AND PIVOT LEVELS

30 Day

Hist VolSpot MACD

9 & 21-

day MADMI RSI

Pivot 1st

Support

Pivot 1st

Resist.

USDCAD 8.3 1.2520 buy buy buy 64 1.2461 1.2554

EURUSD 13.7 1.1225 buy sell buy 58 1.1143 1.1343

GBPUSD 10.2 1.5310 sell sell buy 48 1.5260 1.5400

USDCHF 12.1 0.9331 buy buy sell 45 0.9282 0.9376

USDJPY 6.3 124.79 buy buy buy 75 124.11 125.14

AUDUSD 15.3 0.7702 sell sell sell 43 0.7648 0.7771

USDMXN 10.4 15.58 buy buy buy 64 15.52 15.61

DXY (USD index) 11.2 95.71 buy na sell 46 94.98 96.10

EURCAD 10.8 1.4054 buy buy buy 74 1.3970 1.4151

GBPCAD 7.2 1.9168 buy buy buy 66 1.9089 1.9234

AUDCAD 10.6 0.9643 buy sell buy 53 0.9573 0.9705

CADMXN 9.1 12.44 sell sell buy 50 12.39 12.51

BoC Noon Rate 1.2477 Source: Scotiabank & Bloomberg

Jun 05, 2015

Friday, June 05, 2015 GLOBAL FX STRATEGY

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CONTACTS - GLOBAL FX STRATEGY Please contact authors directly to be added to distribution lists

Camilla Sutton, CFA, CMT Chief FX Strategist, Managing Director T.416.866.5470 camilla.sutton@scotiabank.com Eric Theoret, CFA, CMT FX Strategist (G10), Associate Director T.416.863.7030 eric.theoret@scotiabank.com

Eduardo Suarez Senior FX Strategist (LATAM), Director T.416.945.4538 eduardo.suarez@scotiabank.com Sacha Tihanyi Senior FX Strategist (ASIA ex Japan), Director T. 852.2861.4770 sacha.tihanyi@scotiabank.com

CONFERENCE CALLFX OUTLOOK Please join us for our FX outlook, presented by Camilla Sutton, Chief FX Strategist on April 2nd. This presentation is now available at your convenience. The pre-recorded webcast is available at: https://sbonlinemeetings.webex.com/sbonlinemeetings/lsr.php?RCID=2df4190477fe46b1968106180010a48c The presentation is available at: http://www.gfx.gbm.scotiabank.com/Market_Reports/FX_Strategy_Presentation.html

TODAY'S CALENDAR

Time

(EST)Country Type Release Period Consensus Last Significance

08:30 US EMPL. Change in Nonfarm Payrolls May 225K 223K HIGH

08:30 US EMPL. Unemployment Rate May 5.4% 5.4% HIGH

08:30 US EMPL. Average Hourly Earnings MoM May 0.2% 0.1% med-high

08:30 US EMPL. Average Weekly Hours All Employees May 34.5 34.5 med-high

08:30 US EMPL. Underemployment Rate May -- 10.8% med-high

08:30 US EMPL. Labor Force Participation Rate May -- 62.8% med-high

08:30 CA EMPL. Net Change in Employment May 10.0K -19.7K HIGH

08:30 CA EMPL. Unemployment Rate May 6.8% 6.8% HIGH

08:30 CA EMPL. Labor Productivity QoQ 1Q -0.2% -0.1% low

10:00 US OIL OPEC press conference HIGH

12:40 US FED Fed's Dudley (voting dove) speaks on economy and policy; Q&A HIGH

15:00 US DATA Consumer Credit Apr $16.000B $20.523B low