Lloyds TSB JUL 02 FX Strategy Weekly

8/9/2019 Lloyds TSB JUL 02 FX Strategy Weekly

1/15

FX Strategy Weekly

Friday, 2nd July 2010

Kenneth BrouxSenior Market Economist

0207 158 1750

[email protected]

Market Strategy

Lloyds TSB Corporate Markets Economic Research, 10 Gresham Street, London, EC2V 7AE, Switchboard: 0207 626 1500.

1

Market Outlook

Tactical view:

= USD still on the back foot

The Swiss franc has replaced the USD as preferred store of refuge in the G10 as the USeconomy clouds over and global equity benchmarks sink to the lowest levels for the year.With risk aversion stepped up and US short-term yields sinking to new historic lows, welook for the USD to stay under pressure over the coming week and the dollar index toclose in on key support in the 83.19 area. The aggressive unwinding of short EUR and GBPpositions is likely to slow ahead of the BoE and ECB meetings though no policy changes areanticipated. The ECB weekly refinancing operation is set to attract close scrutiny after theexpiry of the one-year tender and the smooth transition to 3-month funding. We look to theRBA and Canadian jobs data for guidance on AUD and CAD, though feel defensivestrategies are advised as the CRB and S&P eye pivotal support levels.

Recap

A broad-based retreat in global equities and an unrelenting run of weak US macro databoosted demand for the Swiss Franc and the JPY, propelling both currencies to the top ofthe weekly G10 rankings. USD/CHF has now extended its slump to 10 big figures sincemid-June, sliding below 1.06. GBP enjoyed a mixed week, posting gains vs the highyielding and commodity currencies, but losing ground vs the Franc, EUR and SEK. The USemployment report for June the June 17 SNB meeting, and progressed to below 1.35 vsthe EUR. USD/CHF slipped below 1.10.

UK macro data brought news of slowing housing market activity and confirmation of arebound in business investment in Q1 (+7.8% q/q). The latest credit conditions survey fromthe BoE presented a sobering picture for Q3, with credit availability of secured credit to

households set to decline, but to increase slightly to corporates. The manufacturing andconstruction PMI were steady in June, holding at 57.5 and 58.4, respectively vs May. MPCmembers Miles and Posen made no judgement on whether further asset purchases will benecessary and reiterated that credit developments in the euro zone pose a challenge for theUK economy. The US unemployment rate fell to 9.5% in June from 9.7% in May.

UK rates extended their bullish run backed by flight-from-risk and weak US macro data.10y yields hit a 3.30% low, supporting the bullish flattening influence in 2s/10s (255bp). 5yswaps fell to a 2.41% low but ended the week at 2.48%. Trendline resistance runs at2.55%. The 3mth Libor/Ois spread held steady at 24bp in contrast to the widening in EUR(+6bp to 33bp). The ECB switched successfully from a one-year to a 3-month tender,attracting bids of only 132bln eur. The special 6-day fine tuning operation attracted bid of111.2bln eur, leaving the ECB with excess liquidity of 289bln eur. Gilt sales (IL 2047) and thesyndicated 2040 deal attracted very solid demand.

Contents Page

Market Outlook, IMF Cofer reserve comment ................................................................. 2

Quantitative Market Analysis................. ............................................................................. 4

FX & commodity futures positioning ............................................................... 5

FX options: Risk reversal skews ...................................................................... 6

FX options: Implied volatility ............................................................................ 7

Economic data surprises ................................................................................. 8

Interest rate spreads vs. FX............................................................................. 9

S&P500 vs. FX ................................................................................................ 10

Commodities vs. FX ........................................................................................ 11

Market Review ............................................................................................................. ..... 12

Disclaimer ........................................................................................................ ................. 15

Close

Weekly

Change

FX %

GBP/EUR 1.2156 1.60%

GBP/USD 1.4985 1.09%

GBP/JPY 133.86 -0.45%

GBP/CHF 1.6398 -0.21%

GBP/AUD 1.7268 1.57%

GBP/NZD 2.1106 0.62%

GBP/CAD 1.5550 2.64%

GBP/NOK 9.6862 2.70%

GBP/SEK 11.60 1.30%

EUR/USD 1.2328 -0. 48%

USD/JPY 89.33 -1.52%

AUD/USD 0.8678 -0. 48%

NZD/USD 0.7100 0.44%

USD/CAD 1.0377 1.56%

USD/SEK 7.7440 0.21%

USD/NOK 6.4643 1.62%

USD/CHF 1.0943 -1. 28%

Swaps % bp

2yr 1.439 -7.9

5yr 2.472 -14.3

10yr 3.418 -13.3

Equities %

FTSE100 5046.47 -3.89%


2/15

G10 FX - Q1 currency reserves: EUR below 30% in EM, others gain

Market StrategyJuly 2010

Kenneth Broux - Senior Market Economistcontact: +44 207 158 1750

The IMF earlier this week published its latest quarterly update of the composition of official foreign exchange reserves (Cofer

data). Concentrating on the allocated reserves at the World level, the share of the USD fell marginally to 61.55% in Q1-10 from

62.17% in Q4-09. The share of EUR edged lower to 27.2% from 27.3%. Gains were noted for GBP (4.34% vs 4.29%), the JPY (3.14%vs 3.01%) and the Swiss Franc (0.12% vs 0.11%). The biggest increase, however, was recorded for the so-called others . These

include G10 currencies like the NOK, SEK CAD, AUD and NZD, which saw their share climb to 3.65% from 3.12%. In dollar terms,

this is equivalent to a rise of roughly $24bln.

The picture at the World level is representative of the changes in Emerging and developing economies where most of theinternational reserves are currently managed. Though the share of unallocated reserves rose by approx. $50bln to $3.305trln,

changes in the individual composition in emerging markets have a major influence at the global level simply because emerging

markets currently hold 66% of the worlds total currency holdings. Whereas the share of EUR in Emerging economies rose in Q1 to

25.15% from 24.81% (+$13bln), the contribution of the EUR fell back below the 30% threshold to 29.5%. Though swings on this scale

are hardly alarming, they are significant in the context of and back up the bearish price action in EUR crosses over Q1.

How the EU debt crisis plays out, the outcome of the EU bank stress tests, and the shift to a mindset where the USD is no longerconsidered an attractive safe-haven play as the economy slows (see separate note: safe haven flows desert the USD) will be

instructive as to how reserves are managed during the second half of 2010. A fading of risk appetite and growing doubts over

the pace of the US and euro zone economic recoveries y may thwart demand for non-G3 currencies, with GBP potentially set to

increase its appeal in the wake of the fiscal policy objectives set out in the June 22 Budget. A stalling of rate hike expectations in

Sweden, Norway, Canada and Australia may also temper diversification flows into the other currencies, though this should be

offset by unrelenting growth rate in Chinese exports (+48.5% y/y in May).

A further sell-off in EUR crosses in Q2 implies that EUR holdings were probably cut back further in Q2. The weak performance of

the EUR and commodity and high yield currencies in Q2 (AUD, CAD, NOK) as a result of sovereign debt jitters in the euro zone and

the rotation out of risk assets into government bonds implies that the USD probably saw its account in global reserves improve

from the 61.5% rate at the World level and 58% in Emerging markets. The explosion in SNB currency reserves to SwF232bln

between April and May implies that greater swings should transpire in the Q2 data, especially with regard of the EUR. The

substitution of the USD as the safe-haven by the Swiss franc means that the allocation of the latter at the World level to 2008 highs.

Allocated reserves - Developing economies

Allocated reserves - World Allocated reserves - Advanced economies

Rise in unallocated reserves is stabilising

0

10

2 0

3 0

4 0

5 0

6 0

7 0

U SD G B P JP Y C H F E U R O T H ER S

Q 4 -0 9 Q 1- 10%

0

1 0

2 0

3 0

4 0

5 0

6 0

7 0

U SD G B P J P Y C H F E U R O T H E R S

Q 4 - 0 9 Q 1 - 10%

0

10

20

30

40

50

60

7 0

USD GB P JPY C HF EUR O THER S

Q 4-09 Q 1-10%

0

2 0

4 0

6 0

8 0

1 0 0

1995

1998

2001

2004

2007

2010

-q1

A llo ca te d re se rv es U n a llo ca te d re se rv e s


3/15

Allocated reserves - World, % Allocated reserves - Advanced economies, %

Q4-09 Q1-10

USD 65.39 64.66

GBP 2.83 2.79

JPY 4.10 4.28

CHF 0.17 0.17

EUR 24.81 25.15

OTHERS 2.69 2.96

Q4-09 Q1-10

USD 58.51 58.04

GBP 5.93 6.10

JPY 1.78 1.86

CHF 0.03 0.05

EUR 30.13 29.51OTHERS 3.61 4.43

Allocated reserves - Emerging economies, %

Q4-09 Q1-10

USD 62.17 61.55

GBP 4.29 4.34

JPY 3.01 3.14

CHF 0.11 0.12

EUR 27.30 27.20

OTHERS 3.12 3.65


4/15

Quantitative Market Analysis

GBP/USD correlation slumps with stocks, commodities

EUR/CHF 1y vol hits new high

4

Table 1: 1-month rolling correlations

Contrarian Indicators

Risk Reversal Skews (based on options prices, see page 7)

and IMM data (highlighting speculative positioning, see page

6) are used to analyse foreign exchange to understand how

stretched currencies may have become.

Market participants reduced speculative short GBP positions

to -62,100 contracts over the past week to the lowest level

since April 20. By contrast, short EUR positions were boosted

to -81,200, causing the short EUR/GBP spread to widen to -

19,100 contracts. An unwinding of EUR short contracts is likely

to have taken place over the last trading sessions as EUR/

GBP firmed back over 0.82. Separately, the impressive rally

in GBP/USD through 1.52 points to a further reduction in GBP

short positions to below 60,000 contracts.

The fading in USD safe haven flows has been reflected in a

shift in IMM positions for most currencies, with changes in JPY

positioning standing out. Short JPY positions were reduced to

-4,000 (+12,800 net change) and probably moved into positive

territory as USD/JPY revisits sub 88.0 territory. Momentum

also favours the CHF, backed by a slide in USD/CHF below

1.08 to a 1.0583 low. Short CHF positions remain significant

though at -17,700, but should be subject to a further shortcovering when the next set of IMM data are published. Long

CAD and AUD positions stabilised at 47,600 and 15,600

contracts respectively, showing no major variation vs the USD.

The RBA rate decision and Canadian employment stats are

due next week and may cause momentum to shift, though

we suspect that equity markets and commodity prices remain

pivotal to near-term direction as central banks in both regions

may choose to pause their tightening strategies.

The US DXY remains under pressure as clouds continue to

gather over the US economy and investors abandon the

USD as a safe haven destination. A break below 85.0 clearedthe way for a decline towards trendline support in the 83.13

area, a level that may come under scrutiny next week as

markets take stock of mixed June employment report and

the S&P gravitates closer towards 1,000.

Risk reversals moved quite sharply this week illustrating the

swing in sentiment away from the USD. Moves in USD/CHF

and USD/JPY specifically are venturing into extreme levels

and point to the danger of a counter-trend move as percentile

ranks of 20% or lower are reached. EUR/USD and GBP/USD

reversals moved further into territory last seen in late April

and early May. Both risk reversals for EUR/USD and GBP/

USD broke above -2.0. Implied 1mth/1y vol curves stayed

within tight ranges observed since mid-June for EUR/GBP

and EUR/USD. Volatility perked up in dramatic fashion across

the curve for EUR/CHF crosses, reaching new all time-highs

in the 1-year maturity (10.43).

FX correlationsMarket correlations are shown on pages 10-12. 1-month rolling

correlations are plotted for G-10 FX against interest rate

spreads, S&P 500 and commodities (represented through the

CRB index).

G10 correlations with 2y interest rate differentials stayed at

statistically significant levels for AUD/JPY and USD/CAD and

rose markedly for AUD/USD. The fall in US 2y yields to new

historic lows below 0.60% is weighing on the USD. With the

exception of AUD/JPY, 10y spreads are statistically irrelevant.

The correlation of GBP/USD with the S&P sank below zero to

-0.28, but stayed elevated for EUR/JPY and AUD/JPY. A declinein the correlation of GBP/USD with the CRB index has also

been observed and is a key development to bear in mind as

we weigh up the market and macro factors for short-term

direction of the cross. The downtrend for the CRB index was

re-established and puts a test of 250 on the radar next week,

potentially diverting flows from AUD/USD.

We saw confirmation of our observation here last week that

the USD is showing increased sensitivity to weak macro

data. Plunging home sales, weak consumer confidence

and factory orders point to a stalling of economic

momentum in late Q2, a development that has left the

USD bruised against some of its main G10 peers, and

sparking an unwinding of long speculat ive USD

positions. Next week brings the ISM non-manufacturing

index for June, forecast at 55.0 vs 55.4 last.

AUDUSD USDCAD EURUSD GBPUSD USDJPY AUDJPY EURJPY

2 YR SPD 0.89 0.86 0.69 0.43 0.87 0.89 -0.22

10 YR SPD 0.32 -0.18 0.65 0.50 0.70 0.85 0.18

S&P500 0.51 -0.89 0.11 -0.28 0.61 0.90 0.85

Gold 0.45 -0.34 0.01 0.07 -0.04 0.39 -0.03

Oil 0.91 -0.65 0.51 0.51 -0.22 0.71 0.23

Relative Yield Curve 0.88 0.87 0.18 -0.29 -0.15 0.49 -0.64

CRB 0.94 -0.63 0.70 0.59 -0.28 0.69 0.33


5/15

FX & Commodity Futures Positioning

Data from the major US futures & options exchanges are released each Friday evening and report positions up to

the close of business on the previous Tuesday. Traders are classified as either commercial or non-commercial. The

positioning of the non-commercial traders can be used as a proxy for the speculative side of the market. Extreme

net long or net short positions are taken as an indication of the markets vulnerability to a sharp reversal. For a

squeeze to occur, however, a separate catalyst such as a piece of fundamental news or a breach of a key technical

level is usually required.

5

EUR/USD

-140,000-120,000

-100,000-80,000

-60,000-40,000-20,000

020,000

40,00060,000

06-1003-1012-0909-09

contracts

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

$

Net-Long Non-Commercial Posit ions (CME) Spot Rate

GBP/USD

-100,000

-80,000

-60,000

-40,000

-20,000

0

06-1003-1012-0909-09

contracts

1.30

1.40

1.50

1.60

1.70

1.80

$


USD/CHF

-30,000

-20,000

-10,000

0

10,000

20,000

06-1003-1012-0909-09

contracts

1.00

1.05

1.10

1.15

1.20

SFr


USD/JPY

-80,000

-40,000

0

40,000

80,000

06-1003-1012-0909-09

contracts

85

90

95

100

JPY


USD/CAD

-80,000

-70,000

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

06-1003-1012-0909-09

contracts

0.90

0.95

1.00

1.05

1.10

1.15

1.20

C$


AUD/USD

0

20,000

40,000

60,000

80,000

100,000

06-1003-1012-0909-09

contracts

0.75

0.80

0.85

0.90

0.95

$


GOLD

0

50,000

100,000

150,000

200,000

250,000

300,000

06-1003-1012-0909-09

contracts

800

900

1000

1100

1200

1300

$


SILVER

0

10,000

20,000

30,000

40,000

50,000

60,000

06-1003-1012-0909-09

contracts

12

13

14

15

16

17

18

19

20

$


OIL (NYMEX WTI)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

06-1003-1012-0909-09

contracts

50

55

60

65

70

75

80

85

90

$


10-YR TREASURY NOTES

-300,000

-250,000

-200,000

-150,000

-100,000

-50,000

0

06-1003-1012-0909-09

contracts

112

114

116

118

120

122

124


3-month Eurodollar Future

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

06-1003-1012-0909-09

contracts

99.1

99.2

99.3

99.4

99.5

99.6

99.7

99.8


EUR/GBP (derived)

-40,000

0

40,000

80,000

120,000

160,000

06-1003-1012-0909-09

contracts

0.82

0.84

0.86

0.88

0.90

0.92

0.94


EUR/CHF (derived)

-150,000

-100,000

-50,000

0

50,000

06-1003-1012-0909-09

contracts

1.40

1.42

1.44

1.46

1.48

1.50

1.52

1.54

SFr


USD POSITIONING

-40

-20

0

20

40

06-07 12-07 06-08 12-08 06-09 12-09 06-10

$ bn

70

75

80

85

90

SUM (INDIVUAL CURRENCY PAIRS) - LHS

DXY - spot ( RHS)

S&P 500 Future

-80,000

-60,000

-40,000

-20,000

0

20,000

06-1003-1012-0909-09

contracts

800

900

1000

1100

1200

1300



6/15

FX Options: Risk Reversal Skews

The risk reversal skew is the difference in volatility between similar out-of-the-money call and out-of-the-money put

options. A positive risk reversal means that the implied volatility (used for pricing) of the call is greater than that of

the put. In this section, the skew is based on 1-month 25 delta call and put options. The skew has been analysed over

a one-year period, with the positioning ranked and charted (in red) underneath the skew. If the skew and positioning

are towards an extreme (we use above 75% or below 25% for the percentile rank), the risk of a contra-trend move

in the underlying spot rate is high.

6

0%

20%

40%

60%

80%

100%

percentilerank

EURUSD

-4.0

-3.0

-2.0

-1.0

0.0

1.0

01Sep09

01Nov09

01Jan10

01Mar10

01May10

01Jul10

25deltaskew

GBPUSD

-4.0

-3.0

-2.0

-1.0

0.0

01Sep09

01Nov09

01Jan10

01Mar10

01May10

01Jul10

25d

eltaskew

AUDUSD

-8.0

-6.0

-4.0

-2.0

0.0

01Sep09

01Nov09

01Jan10

01Mar10

01May10

01Jul10

25d

eltaskew

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank

USDSEK

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

01Sep09

01Nov09

01Jan10

01Mar10

01May10

01Jul10

25deltaskew

USDNOK

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

01Sep09

01Nov09

01Jan10

01Mar10

01May10

01Jul10

25deltaskew

USDJPY

-4

-4

-3

-3

-2

-2

-1

-1

0

01Sep09

01Nov09

01Jan10

01Mar10

01May10

01Jul10

25deltaskew

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank

NZDUSD

-8.00

-6.00

-4.00

-2.00

0.00

01Sep09

01Nov09

01Jan10

01Mar10

01May10

01Jul10

25deltaskew

USDCAD

-1.00

0.00

1.00

2.00

3.00

4.00

01Sep09

01Nov09

01Jan10

01Mar10

01May10

01Jul10

25deltaskew

USDCHF

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

01Sep09

01Nov09

01Jan10

01Mar10

01May10

01Jul10

25deltaskew

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank


7/15

FX Options: Implied volatility

Implied volati lity is an input that is required when an option has to be priced. A higher implied volatili ty would result

in a higher option price, if other factors were unchanged. Implied volatility is traded in the markets and is therefore

also dependent upon supply and demand for options. In periods of uncertainty or illiquidity, implied volatility will climb

higher. One-month and one-year implied volatility is shown in the charts below.

7

EURUSD

9

11

13

15

17

19

21

02

Jul09

02

O

ct09

02

Jan

10

02

Apr10

02

Jul10

%

1-month 1-yr

GBPUSD

9

11

13

15

17

19

21

02

Jul09

02

O

ct09

02

Jan

10

02

Apr10

02

Jul10

%

1-month 1-yr

AUDUSD

8

10

12

14

16

18

20

22

24

26

28

02

Jul09

02

O

ct09

02

Jan

10

02

Apr10

02

Jul10

%

1-month 1-yr

NZDUSD

11

13

15

17

19

2123

25

27

29

02

Jul09

02

O

ct09

02

Jan

10

02

Apr10

02

Jul10

%

1-month 1-yr

USDCAD

9

11

13

15

17

19

21

02

Jul09

02

O

ct09

02

Jan

10

02

Apr10

02

Jul10

%

1-month 1-yr

USDCHF

9

10

11

12

13

14

15

16

02

Jul09

02

O

ct09

02

Jan

10

02

Apr10

02

Jul10

%

1-month 1-yr

USDSEK

10

12

14

16

18

20

22

2426

02

Jul09

02

O

ct09

02

Jan

10

02

Apr10

02

Jul10

%

1-month 1-yr

USDNOK

11

12

13

14

15

16

17

18

1920

02

Jul09

02

O

ct09

02

Jan

10

02

Apr10

02

Jul10

%

1-month 1-yr

USDJPY

9

10

11

12

13

14

15

16

17

1819

02

Jul09

02

O

ct09

02

Jan

10

02

Apr10

02

Jul10

%

1-month 1-yr


8/15

Economic Data Surprises

The charts below show relative economic data surprises against historical FX spot rates. The economic data surprises

indice are provided by Citigroup. They are defined as weighted standard deviations of data surprises actual

releases vs. Bloomberg survey median. Relative data surprises between two countries have been calculated and

graphed below.

8

EURUSD

-150

-100

-50

0

50

100

150

02Jul10

05May10

08Mar10

07Jan10

10Nov09

11Sep09

15Jul09

SurpriseIndex

1.18

1.23

1.28

1.33

1.38

1.43

1.48

SpotRate

Economic Data Surprise Spread (RHS) Spot Rate (LHS)

USDJPY

-250

-200

-150

-100

-50

0

50

100

150

200

250

02Jul10

05May10

08Mar10

07Jan10

10Nov09

11Sep09

15Jul09

SurpriseIndex

85

87

89

91

93

95

97

99

SpotRate


GBPUSD

-100

-50

0

50

100

150

200

02J

ul10

05M

ay10

08M

ar10

07J

an10

10N

ov09

11S

ep09

15J

ul09

SurpriseIndex

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

1.80

SpotRate


USDCAD

-250

-200

-150

-100

-50

0

50

100

150

200

250

02Jul1

0

05May

10

08Mar

10

07Jan10

10Nov

09

11Sep

09

15Jul0

9

SurpriseIndex

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18

SpotRate


USDSEK

-200

-150

-100

-50

0

50

100

150

02/07/10

05/05/10

08/03/10

07/01/10

10/11/09

11/09/09

15/07/09

SurpriseIndex

6.0

6.5

7.0

7.5

8.0

8.5

SpotRate


USDCHF

-250

-200

-150

-100

-50

0

50

100

02Jul1

0

05May

10

08Mar

10

07Jan

10

10Nov

09

11Sep

09

15Jul0

9

SurpriseIndex

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18

SpotRate


AUDUSD

-100

-50

0

50

100

150

200

250

02J

ul10

05M

ay10

08M

ar10

07J

an10

10N

ov09

11S

ep09

15J

ul09

SurpriseIndex

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

SpotRate


NZDUSD

-150

-100

-50

0

50

100

150

02Jul1

0

05May

10

08Mar

10

07Jan10

10Nov

09

11Sep

09

15Jul0

9

SurpriseIndex

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

SpotRate


USDNOK

-100

-50

0

50

100

150

02/07/10

05/05/10

08/03/10

07/01/10

10/11/09

11/09/09

15/07/09

SurpriseIndex

5.5

5.7

5.9

6.1

6.3

6.5

6.7

6.9

SpotRate



9/15

Interest Rate Spreads vs. FX

The charts below show interest rate spreads plotted against historical FX spot rates. The spreads are calculated

using two-year interest rate swaps. A one-month rolling correlation (between the spot rate and the interest rate

spread) is shown to identify time periods when interest rate spreads are driving FX movements.

9

EURUSD

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

2Y

RateSpread

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

SpotRate

2Y Rate Spread (RHS)

Spot Rate (LHS)

USDJPY

0.0

0.2

0.4

0.6

0.8

1.0

1.2

02

Jul10

21

Apr10

08

Feb10

26

Nov09

15

Sep09

03

Jul09

2Y

RateSpread

85

87

89

91

93

95

97

99

SpotRate


Spot Rate (LHS)

1

GBPUSD

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

2Y

RateSpread

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

SpotRate


Spot Rate (LHS)

USDCAD

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

2Y

RateSpread

0.90

0.95

1.00

1.05

1.10

1.15

1.20

SpotRate


Spot Rate (RHS)

USDSEK

-0.9-0.8

-0.7-0.6-0.5

-0.4

-0.3-0.2

-0.10.0

0.10.2

02

Jul10

21

Apr10

08

Feb10

26

Nov09

15

Sep09

03

Jul09

2Y

RateSpread

5.5

6.0

6.5

7.0

7.5

8.0

8.5

SpotRate


Spot Rate (LHS)

USDCHF

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

02Jul10

21Apr10

08Feb10

26Nov0

9

15Sep09

03Jul09

2Y

RateSpread

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

SpotRate


Spot Rate (LHS)

AUDUSD

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

2Y

RateSpread

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

SpotRate


Spot Rate (LHS)

NZDUSD

1.0

1.5

2.0

2.5

3.0

3.5

4.0

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

2Y

RateSpread

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

SpotRate


Spot Rate (LHS)

Correlation-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation-1

0

1

Correlation-1

0

1

Correlation-1

0

1

Correlation-1

0

1

USDNOK

-2.6

-2.4

-2.2

-2.0

-1.8

-1.6

-1.4

-1.2

-1.0

02

Jul10

21

Apr10

08

Feb10

26

Nov09

15

Sep09

03

Jul09

2Y

RateSpread

4.5

5.0

5.5

6.0

6.5

7.0

7.5

SpotRate


Spot Rate (LHS)

Correlation-1

0

1


10/15

S&P500 vs. FX

The charts below show the S&P500 plotted against historical FX spot rates. A one-month rolling correlation (between

the spot rate and equity index) is shown to identify time periods when the two series are moving in tandem.

10

EURUSD

600

700

800

900

1000

1100

1200

1300

01Jul10

20Apr10

05Feb10

25Nov09

14Sep09

02Jul09

S&P500

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

SpotRate

S&P500

Spot Rate (LHS)

USDJPY

600

700

800

900

1000

1100

1200

1300

01Jul10

20Apr10

05Feb10

25Nov09

14Sep09

02Jul09

S&P500inverted

85

87

89

91

93

95

97

99

S

potRate

S&P500

Spot Rate (LHS)

GBPUSD

600

700

800

900

1000

1100

1200

1300

01Jul10

20Apr10

05Feb10

25Nov09

14Sep09

02Jul09

S&P500

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

SpotRate

S&P500

Spot Rate (LHS)

USDCAD

600

700

800

900

1000

1100

1200

1300

01Jul10

20Apr10

05Feb10

25Nov09

14Sep09

02Jul09

S&P500inverted

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18

SpotRate

S&P500

Spot Rate (RHS)

USDSEK

600

700

800

900

1000

1100

1200

1300

01Jul10

20Apr10

05Feb10

25Nov09

14Sep09

02Jul09

S&P500inverted

5.5

6.0

6.5

7.0

7.5

8.0

8.5

SpotRate

S&P500

Spot Rate (LHS)

USDCHF

600

700

800

900

1000

1100

1200

1300

01Jul10

20Apr10

05Feb10

25Nov09

14Sep09

02Jul09

S&P500inverted

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

SpotRate

S&P500

Spot Rate (LHS)

AUDUSD

600

700

800

900

1000

1100

1200

1300

01Jul10

20Apr10

05Feb10

25Nov09

14Sep09

02Jul09

S&P500

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

SpotRate

S&P500

Spot Rate (LHS)

NZDUSD

600

700

800

900

1000

1100

1200

1300

01Jul10

20Apr1

0

05Feb1

0

25Nov0

9

14Sep0

9

02Jul09

S&P500

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

SpotRate

S&P500

Spot Rate (LHS)

Correlation-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation-1

0

1

USDNOK

600

700

800

900

1000

1100

1200

1300

01Jul10

20Apr10

05Feb10

25Nov09

14Sep09

02Jul09

S&P50

0inverted

5.0

5.5

6.0

6.5

7.0

7.5

SpotRate

S&P500

Spot Rate (LHS)

Correlation

-1

0

1


11/15

Commodities vs. FX

The charts below show oil prices plotted against historical FX spot rates. A one-month rolling correlation (between

the spot rate and the commodity series) is shown to identify time periods when the two series are moving in tandem.

*All charts are sourced to Lloyds TSB Corporate Markets Research, Bloomberg, Datastream and Citigroup.

11

EURUSD

20

30

40

50

60

70

80

90

100

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

OIL

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

SpotRate

Oil (RHS)

Spot Rate (LHS)

USDJPY

20

30

40

50

6070

80

90

100

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

O

IL

85

87

89

91

93

95

97

99

SpotRate

Oil (RHS)

Spot Rate (LHS)

GBPUSD

20

30

40

50

60

70

80

90

100

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

OIL

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

SpotRate

Oil (RHS)

Spot Rate (LHS)

USDCAD

20

30

40

50

60

70

80

90

100

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

OIL

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18

SpotRate

Oil (RHS)

Spot Rate (RHS)

USDSEK

20

30

40

50

6070

80

90

100

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

OIL

6.5

6.7

6.9

7.1

7.3

7.5

7.7

7.9

8.1

8.3

Spot

Rate

Oil (RHS)

Spot Rate (LHS)

USDCHF

20

30

40

50

60

70

80

90100

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

OIL

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

SpotRate

Oil (RHS)

Spot Rate (LHS)

AUDUSD

20

30

40

50

60

70

80

90

100

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

OIL

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

SpotRate

Oil (RHS)

Spot Rate (LHS)

NZDUSD

20

30

40

50

60

70

80

90

100

02Ju

l10

21Ap

r10

08Fe

b10

26No

v09

15Se

p09

03Ju

l09

OIL

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

SpotRate

Oil (RHS)

Spot Rate (LHS)

Correlation-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation-1

0

1

USDNOK

20

30

40

50

6070

80

90

100

02Jul10

21Apr10

08Feb10

26Nov09

15Sep09

03Jul09

OIL

5.0

5.5

6.0

6.5

7.0

7.5

SpotR

ate

Oil (RHS)

Spot Rate (LHS)

Correlation

-1

0

1


12/15

Market Review

Short-term G-10 FX Charts

12

GBP/USD

1.42

1.44

1.46

1.48

1.50

1.52

1.54

0 1/0 6 /1 0 0 8/0 6 /1 0 1 5/0 6/1 0 2 2/0 6 /1 0 2 9/0 6/1 0

EUR/USD

1.19

1.20

1.21

1.22

1.23

1.24

1.25

1.26

0 1/0 6/1 0 0 8/ 06 /1 0 1 5 /0 6/1 0 2 2/0 6/ 10 2 9/0 6 /1 0

EUR/GBP

0.80

0.81

0.81

0.82

0.82

0.83

0.83

0.84

0.84

0 1/ 06 /1 0 0 8 /0 6/1 0 1 5/0 6/ 10 2 2/0 6 /1 0 2 9/0 6/1 0

USD/JPY

87

88

89

90

91

92

93

0 1/0 6/1 0 0 8/0 6/1 0 1 5/0 6/1 0 2 2/0 6/1 0 2 9/0 6 /1 0

AUD/USD

0.80

0.81

0.82

0.83

0.84

0.85

0.86

0.87

0.88

0.89

0 1/ 06 /1 0 0 8 /0 6/1 0 1 5/0 6/1 0 2 2/ 06 /1 0 2 9/0 6/1 0

NZD/USD

0.66

0.67

0.68

0.69

0.70

0.71

0.72

0 1/0 6/1 0 0 8/0 6 /1 0 1 5 /0 6 /1 0 2 2/0 6/1 0 2 9 /0 6/1 0

USD/NOK

6.28

6.33

6.38

6.43

6.48

6.53

6.58

6.63

6.68

6.73

0 1/0 6/1 0 0 8 /0 6/1 0 1 5/0 6/ 10 2 2/ 06 /1 0 2 9/0 6/1 0

USD/SEK

7.60

7.65

7.70

7.75

7.80

7.85

7.90

7.95

8.00

8.05

8.10

0 1/0 6/1 0 0 8/0 6/ 10 1 5/0 6/1 0 2 2/0 6/ 10 2 9/ 06 /1 0

USD/CHF

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18

0 1/0 6/1 0 0 8 /0 6/1 0 1 5/0 6/1 0 2 2/0 6 /1 0 2 9/0 6/1 0

USD/CAD

1.01

1.02

1.03

1.04

1.05

1.06

1.07

0 1/0 6/1 0 0 8/0 6/ 10 1 5 /0 6/1 0 2 2/0 6/1 0 2 9/0 6 /1 0


13/15

Medium-term G-10 FX Charts

13

GBP/USD

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

J u l- 09 S ep - 09 N o v- 0 9 J a n- 10 Ma r -1 0 Ma y- 1 0 J u l- 1 0

EUR/USD

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

J ul - 09 S ep - 09 N o v- 0 9 J a n- 1 0 Ma r -1 0 Ma y- 1 0 J u l- 10

EUR/GBP

0.80

0.82

0.84

0.86

0.88

0.90

0.92

0.94

0.96

J u l- 0 9 S e p- 0 9 N o v- 09 J an -1 0 Ma r- 1 0 Ma y- 1 0 J u l- 1 0

USD/JPY

85

87

89

91

93

95

97

99

101

J ul -0 9 S ep -0 9 N ov- 09 J an -1 0 Ma r- 10 Ma y- 10 J ul -1 0

AUD/USD

0.75

0.77

0.79

0.81

0.83

0.85

0.87

0.89

0.91

0.93

0.95


NZD/USD

0.60

0.62

0.64

0.66

0.68

0.70

0.72

0.74

0.76

0.78


USD/NOK

5.45

5.65

5.85

6.05

6.25

6.45

6.65

6.85


USD/SEK

6.50

6.70

6.90

7.10

7.30

7.50

7.70

7.90

8.10


USD/CHF

0.98

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18


USD/CAD

0.95

1.00

1.05

1.10

1.15

1.20



14/15

FX Snapshot

Currency performance vs. USD

Currency performance vs. GBP

Currency performance vs. EUR

14

Weekly Currency Performance vs. USD

-2.61

-2.47

-2.12

0.01

0.83

1.27

1.34

1.55

2.50

-3 -2 -1 0 1 2 3

AUD

NZD

CAD

NOK

SEK

EUR

GBP

JPY

CHF

%

Monthly Currency Performance vs. USD

-0.06

0.96

1.73

1.85

1.88

3.52

3.55

7.52

-0.97

-2 0 2 4 6 8

CAD

NOK

AUD

SEK

EUR

NZD

JPY

GBP

CHF

%

12month Currency Performance vs. USD

-10.77

-7.38

-0.58

1.25

1.55

6.65

8.45

8.83

10.23

-15 -10 -5 0 5 10 15

EUR

GBP

NOK

SEK

CHF

AUD

JPY

CAD

NZD

%

Weekly Currency Performance vs. GBP

-4.05

-3.89

-3.47

-1.34

-1.33

-0.45

-0.07

0.23

1.22

-5 -4 -3 -2 -1 0 1 2

AUD

NZD

CAD

USD

NOK

SEK

EUR

JPY

CHF

%

Monthly Currency Performance vs. GBP

-4.54

-3.61

-3.55

-2.55

-1.72

-1.63

-1.61

0.10

4.26

-6 -4 -2 0 2 4 6

CAD

NOK

USD

AUD

SEK

NZD

EUR

JPY

CHF

%

12 month Currency Performance vs. GBP

-3.66

6.86

7.38

8.51

8.82

13.16

15.20

15.56

15.99

-5 0 5 10 15 20

EUR

NOK

USD

SEK

CHF

AUD

JPY

CAD

NZD

%

Weekly Currency Performance vs. EUR

-3.97

-3.82

-3.40

-1.27

-1.26

-0.44

0.07

0.31

1.29

-5 -4 -3 -2 -1 0 1 2

AUD

NZD

CAD

USD

NOK

SEK

GBP

JPY

CHF

%

Monthly Currency Performance vs. EUR

-2.83

-1.91

-1.85

-0.87

-0.10

0.04

1.61

1.75

5.82

-4 -2 0 2 4 6 8

CAD

NOK

USD

AUD

SEK

NZD

GBP

JPY

CHF

%

12 month Currency Performanc e vs. EUR

3.66

10.28

10.77

11.87

12.17

16.35

18.32

18.65

19.06

0 5 10 15 20 25

GBP

NOK

USD

SEK

CHF

AUD

JPY

CAD

NZD

%


15/15

IMPORTANT NOTICE

This document, its contents and any related communication (altogether, the Communication) does not constitute or formpart of any offer to sell or an invitation to subscribe for, hold or purchase any securities or any other investment. ThisCommunication shall not form the basis of or be relied on in connection with any contract or commitment whatsoever.

This Communication is not intended to form, and should not form, the basis of any investment decision. This Communicationis not and should not be treated as investment research, a research recommendation, an opinion or advice. Recipientsshould conduct their own independent enquiries and obtain their own professional legal, regulatory, tax or accountingadvice as appropriate. Any transaction which a recipient of this Communication may subsequently enter into may only be

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Whilst Lloyds TSB has exercised reasonable care in preparing this Communication, no representation or warranty,express or implied, is made as to the accuracy, reliability or completeness of the facts and date contained herein by LloydsTSB, its group companies and its or their directors, officers, employees, associates and agents (altogether, Lloyds TSBPersons). The information contained in this Communication has not been independently verified by Lloyds TSB. Theinformation and any opinions in this Communication are subject to change at any time and Lloyds is under no obligationto inform any person of any such change. This Communication may refer to future events which may or may not be within

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Lloyds TSB JUL 02 FX Strategy Weekly