Lloyds TSB JUN 23 FX Strategy Weekly

8/9/2019 Lloyds TSB JUN 23 FX Strategy Weekly

1/15

FX Strategy Weekly

Friday, 23rd 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:

= Carry trade sought

A decline in US 3-month libor below 0.50% coupled with solid Q2 company earnings havebuoyed demand for carry trade strategies, driving high yielding and commodity currenciesthrough key resistance levels vs the USD. It is debateable how long momentum can besustained in a context of faltering momentum in the US. The idea that additional policystimulus by the Fed could be required and would re-flate risk assets appears misplacedwhen elsewhere fiscal stimulus is withdrawn and liquidity is unwound. With the EU bankstress tests finally behind us, we look ahead to a G10 calendar next week dominated bythe MPC testimony to the TSC and the first estimates of US Q2 GDP. Month-end impliescurrency and bond portfolio rebalancing. In five of the last six months, the re-weightingresulted in EUR/USD firming an average 0.5%. In contrast, GBP/USD only gained in

month-end fixings in March and May. Recap

The recap for fx this week reads very similar to that of two weeks ago. A rally in globalequities propelled the AUD to the top of the G10 table, helping the currency to gains of3.3% vs EUR, 2.6% vs USD and 2.5% vs GBP. A 1.1% q/q jump in UK Q2 GDP boosted GBPand helped the pound to record a 1.3% gain vs the JPY and 1.2% vs the EUR. GBP/USDended the week above 1.5350, having traded as high as 1.5450. EUR/USD was equallyunable to cling on to the best levels above 1.29 as profit taking emerged on the release ofthe EU bank stress tests following earlier bidding on a 3-year high for the German IFO.

UK Q2 GDP surpassed the most bullish estimates as the ONS reported a 1.1% q/q jumpin output vs 0.3% in Q1. This still leaves the economy 4.7% below the starting pointof therecession in 2008, and will not tempt the MPC to change its view that the economy mayweaken in the second half of 2010. The MPC minutes were remarkably more dovish ongrowth and members Posen and Dale did not hold back to warn of the dangers ahead.Retail sales also beat consensus estimates by climbing 1% in June. A marked decline in theretail deflator to 1.3% and a fall in inflation expectations back below 3% will comfort the MPCabout the inflation outlook. Public finances recorded a bigger deficit in June, with borrowingreaching 14.5bln and data for May revised up to 17.0bln.

A good start to the week for UK rates reversed on Friday on the strong GDP release,causing yields to end the week on a high. 5y swaps climbed to 2.47%, up 6bp on theweek. 10y yields rose above 3.40% to a 3.43% high. A deceleration in inflation pressuresshould keep yields capped going into August, with downside risk to the US macro dataproviding better levels to buy. The 3mth Libor/Ois spread widened one bp to 24bp. The2y/10y swap spread widened 2bp to 198bp, and 10y swap spreads stayed flat at 2bp.

A disappointing 2016 gil t sale drew lower than previous cover of 1.38x (1bp tail) .

Contents Page

Market Outlook, GBP/USD update ................................................................................. 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 1.1998 1.39%

GBP/USD 1.5417 0.76%

GBP/JPY 134.67 1.71%

GBP/CHF 1.6237 0.97%

GBP/AUD 1.7257 -2.00%

GBP/NZD 2.1212 -1.47%

GBP/CAD 1.5999 -1.20%

GBP/NOK 9.5644 -0.19%

GBP/SEK 11.34 1.09%

EUR/USD 1.2865 - 0.50 %

USD/JPY 87.33 0.88%

AUD/USD 0.8934 2.82%

NZD/USD 0.7268 2.27%

USD/CAD 1.0377 -1.94%

USD/SEK 7.3572 0.32%

USD/NOK 6.2040 - 0.97 %

USD/CHF 1.0531 0.20%

Swaps % bp2yr 1.466 9.1

5yr 2.505 10.0

10yr 3.453 12.2

Equities %

FTSE100 5312.62 2.98%


2/15

G10 FX - GBP/USD, ST trend still bullish

Market Strategy23 July 2010Kenneth Broux - Senior Market Economist

contact: +44 207 158 1750

Back in June we noted that by flirting with a return to the 1.4784-

1.55 trading range in place between February and May, GBP/USD had approached a crossroads, and how an improvedtechnical picture and a rebound in correlations with equities andcommodities pointed to further upside in the short-term (1.54topside). This week we review our call and state that even thoughGBP/USD has posted impressive gains in July, there is nocompelling case to drop the bull ish near-term picture. Though thecorrelation of GBP/USD has eased back to statistically insignificantlevels since the June comment (see chart), the divergence betweenUK and US macro indicators (see chart) brings the potential offurther upside over the coming weeks before potential profittaking sets in ahead of the August MPC meeting and the InflationReport on August 11.

The retreat of USD crosses since June has been led by a netchange in speculative positioning and is marked by a net reductionin short JPY, EUR and GBP contracts. Disappointing US macrodata since June has added downside USD pressure and is fuellingtalk that the Fed may engage in a new round of policy stimulus inQ3/Q4 to prevent the economy from losing further steam. Thoughthe jury is out whether the Q2 slowdown is a blip or start of adowntrend, a decline in US 3-mth libor below 0.50% and a rallyin short-dated FF futures curve indicates that the market is takinga more pessimistic view. Additional US measures would threatento drag the USD lower vs non-QE currencies or currencies whereexceptional measures are gradually phased out.

Though strong UK Q2 GDP (+1.1% q/q) took the market off guardand lifted GBP/USD above 1.54, one cannot ignore the dovishobservations by the MPC and individual comments by membersPosen and Dale. This could lead investors to re-engage inaccumulating GBP short positions into early August. To what extentthe Budget will bear down on the Banks growth and inflationforecasts will become clear in the next Inflation Report. Minutesfrom the July MPC meeting hint that growth prospects may bescaled back. Depending on whether inflation and inflationexpectations also recede, talk of additional policy loosening (agreater than 50% probability accordng to MPC member Posen)would cloud the outlook for GBP vs other G10 currencies, especiallythose where performance is linked to positive interest rate spreads

and elevated correlation with equities and commodities.

Based on our quantitative metrics, the correlation of GBP/USDwith risk assets has receded markedly to the point that priceaction in stocks has become statistically insignificant for shortterm direction. Rate differentials between the US and the UKhave also faded as a driver for GBP/USD, offering no clear senseof direction for the cross. Though we are tracking changes incorrelations closely, this means is that markets are inclined to putmore weight at present on corporate flows and a divergencebetween US and UK macro indicators, but with confidence aboutdeficit reduction equally playing a part.

Technically, to sustain the upward short-term move GBP/USDhas to overcome 1.5454, the July 15 high. Beyond 1.55 lies a clusterof resistance at 1.5524 and 1.5578. A breakout of the February-May range would bring 1.5814 into play.

Data surprises: UK outperforming the US

Speculative GBP shorts: lowest since January

Correlation with S&P, CRB: not statistically significant

-120

-100

-80

-60

-40

-20

0

20

24-Ju

l

4-Se

p

13-Oct

17-No

v

22

-De

c

26

-Ja

n

2-Ma

r

6-Ap

r

11-Ma

y

15-Ju

n

20-Ju

l

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70GBP SHORTS, RHS GBP/USD, LHS

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1-Apr

8-Apr

15-Apr

22

-Apr

29

-Apr

6-May

13-May

20

-May

27

-May

3-Jun

10-Jun

17-Jun

24

-Jun

1-Jul

8-Ju

l

15-Ju

l

22

-Ju

l

CRB S&P 500

-50

-40

-30

-20

-10

0

10

20

30

40

23

-Apr

10-May

24-May

8

-Jun

22

-Jun

6-Ju

l

20

-Ju

l

0

20

40

60

80

100

120

140

US UK


3/15

This document, its contents and any related communication (altogether, the Communication) does not constitute or form part of any offer to sell or an invitation to subscribe for, holdor purchase any securities or any other investment. This Communication shall not form the basis of or be relied on in connection with any contract or commitment whatsoever. ThisCommunication is not intended to form, and should not form, the basis of any investment decision. This Communication is not and should not be treated as investment research, aresearch recommendation, an opinion or advice. Recipients should 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 on ly be on the basis of such enquiries and advice, and thatrecipients own knowledge and experience. This Communication has been prepared by, and is subject to the copyright of, Lloyds. This Communication may not, in whole or in part, bereproduced, transmitted, stored in a retrieval system or translated in any other language in any form, by any means without the prior written consent of Lloyds. This Communicationis provided for information purposes only, and is confidential and may not be referred to, disclosed, reproduced or redistributed, in whole or in part, to any other person. ThisCommunication is based on current public information.Whilst Lloyds has exercised reasonable care in preparing this Communication, no representation or warranty, express or implied, is made as to the accuracy, reliability orcompleteness of the facts and date contained herein by Lloyds, its group companies and its or their directors, officers, employees, associates and agents (altogether, LloydsPersons). The information contained in this Communication has not been independently verified by Lloyds. The information and any opinions in this Communication are subject tochange at any time and Lloyds is under no obligation to inform any person of any such change. This Communication may refer to future events which may or may not be within thecontrol of Lloyds Persons, and no representation or warranty, express or implied, is made as to whether or not such an event will occur. To the fullest extent permitted by applicablelaw, regulation and rule of regulatory body, Lloyds Persons accept no responsibility for and shall have no liability for any loss in relation to this Communication, however arising(including in relation to any projections, analyses, assumptions and/or opinions contained herein nor for any loss of profit or damages or any liability to a third party). Lloyds TSBCorporate Markets is a trading name of Lloyds. Lloyds TSB Bank plcs registered office is at 25 Gresham Street, London EC2V 7HN and it is registered in England and Wales under no.

2065. Lloyds is Authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange.

GBP/USD: technicals still bullish; 1.5500-1.5578 within reach

Daily QGBP= 05/11/09 - 28/07/10 (GMT)

1.5578

1.5814

1.5524

Price

USD

.1234

1.42

1.43

1.44

1.45

1.46

1.47

1.48

1.49

1.5

1.51

1.52

1.53

1.54

1.55

1.56

1.57

1.58

1.59

1.6

1.61

1.62

1.63

1.64

1.65

1.66

1.67

1.68

1.69

1.7

09 16 23 30 07 14 21 28 04 11 18 25 01 08 15 22 01 08 15 22 29 05 12 19 26 03 10 17 24 31 07 14 21 28 05 12 19 26

November 2009 December 2009 January 2010 February 2010 March 2010 April 2010 May 2010 June 2010 July 2010


4/15

Quantitative Market Analysis

Shift in CAD and AUD positioning

No key observations for GBP/USD

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.

Speculative short GBP positions fell for a 5th successive week in

the week to July 13th, with the a 4,000 drop in short reported

positions reducing the total number of shorts to -46,600

contracts. The rally in GBP/USD over 1.54 indicates that shorts

have been whittled back even further over the last few trading

sessions, potentially helping GBP positioning to catch up with

the EUR. Short EUR contracts fell in the latest week below 40,000

to -34,900 contracts, the lowest since January 19. This puts the

short EUR/GBP spread at 11,700. Drawing information from

the price action in the currency pair we infer that spread

probably stabilised around that level over the past week.

The most interesting development in the IMM data is the reversal

in CAD and AUD positioning, where a rise in long speculative

positioning marks a reversal from the trend of recent weeks.

Long CAD contracts rose by 16,300 to 42,800. Long AUD positions

more than doubled to 28,600. The bullish price action in USD/

CAD and AUD/USD this week points to a further increase inCAD ad AUD allocations, backed by sinking US Treasury yields

and a widening in respective CA/US and AU/US spreads. The

question we ask is whether the CAD and AUD but also the NOK

can sustain their bullish run as confidence in the US recovery

falters and investors price in higher probability of additional Fed

measures to ease policy. Speculative flows in to CAD and AUD

longs also draw good support from upbeat US earnings results,

but to date has not challenged the established long JPY

positioning. Interestingly, long JPY were added to the tune of

9,700 and now stand at 52,500, perhaps a indication of

underlying scepticism towards the bounce in risk.

A bounce in the USD index fell flat on Thursday and additional

selling saw the index fall back below 82.50 on Friday. We hold

out for a short-term move up to 84.0 but are a realistic and

aware of the headwinds from a deteriorating US macro

backdrop. Technical support is situated at 82.085. The Fed

Beige Book and preliminary estimate of Q2 GDP may prove

decisive for near-term direction.

Risk reversal skews remain near recent highs for GBP/USD

but have drifted lower for EUR/USD, perhaps related to

position squaring but indicative of a reduced appetite for EUR

calls. Risk reversals for AUD/USD have ticked up in line with

spot, showing greater appetite for near-term upside in the

AUD. The same applies for NZD/USD and USD/CAD (inverse

skew). Implied volatility rose in the front end for EUR/USD and

GBP/USD, causing a flatter vol curve.

FX correlations

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

correlations are plotted for G-10 FX against interest ratespreads, S&P 500 and commodities (represented through the

CRB index).

Correlation of G10 pairs with 2y spreads is holding up at

statistically significant levels for the direction in EUR/USD, EUR/

JPY and AUD/USD. The drop to a new record low for US 2y

yields and resulting return of USD weakness testify to the

significance of short-end rates in the present environment.

Correlation with equities is still insignificant for GBP/USD (0.12)

and EUR/USD (0.34) but continues to be elevated for AUD/

USD, AUD/JPY and USD/CAD (inversely correlated). With theexception of oil and the CRB index for AUD/USD, the correlation

of commodities remains fairly insignificant. The exception is the

link between gold and USD/JPY (0.83) and EUR/USD (-0.85).

Rallies in gold translate in a weaker USD vs EUR and JPY but

not dramatically so vs other G7 currencies..

We observed recently that macro data surprises have started

to play a more important role and this was certainly the case

this week as stronger UK Q2 GDP (+1.1%) and a 3-year high

for the German IFO bolstered GBP/USD and EUR/USD. The

release of the EU bank stress tests has clouded the

picture. The US releases of consumer confidence and

Q2 GDP will test our assertion next week. The dange r

of a disappointing data will boost speculation of the

Fed deploying additional policy easing and could

heighten the influence of 10y yields.

AUDUSD USDCAD EURUSD GBPUSD USDJPY AUDJPY EURJPY

2 YR SPD 0.80 0.77 0.91 0.78 0.62 0.72 0.82

10 YR SPD 0.28 0.25 0.65 0.57 0.54 0.52 0.67

S&P500 0. 93 -0. 85 0.34 0.12 0.23 0.90 0.74

G ol d - 0.17 - 0.23 -0.85 -0.71 0.83 0.31 -0.55

Oil 0.84 -0.69 0.18 0.10 0.20 0.81 0.47

Relative Yield Curve 0.81 0.76 0.64 0.20 -0.25 0.34 0.53

CRB 0.86 -0.67 0.35 0.25 0.06 0.74 0.60


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

-60,000-40,000-20,000020,000

40,00060,000

07-1004-1001-1010-09

contracts

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

$

Net-Long Non-Commercial Positions (CME) Spot Rate

GBP/USD

-100,000

-80,000

-60,000

-40,000

-20,000

0

07-1004-1001-1010-09

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

07-1004-1001-1010-09

contracts

1.00

1.05

1.10

1.15

1.20

SFr


USD/JPY

-80,000

-40,000

0

40,000

80,000

07-1004-1001-1010-09

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

07-1004-1001-1010-09

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

07-1004-1001-1010-09

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

07-1004-1001-1010-09

contracts

800

900

1000

1100

1200

1300

$


SILVER

0

10,000

20,000

30,000

40,000

50,000

60,000

07-1004-1001-1010-09

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

07-1004-1001-1010-09

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

07-1004-1001-1010-09

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

07-1004-1001-1010-09

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

07-1004-1001-1010-09

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

07-1004-1001-1010-09

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

07-07 01-08 07-08 01-09 07-09 01-10 07-10

$ 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

07-1004-1001-1010-09

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

22Sep09

22Nov09

22Jan10

22Mar10

22May10

22Jul10

25

deltaskew

GBPUSD

-4.0

-3.0

-2.0

-1.0

0.0

22Sep09

22Nov09

22Jan10

22Mar10

22May10

22Jul10

25deltaskew

AUDUSD

-8.0

-6.0

-4.0

-2.0

0.0

22Sep09

22Nov09

22Jan10

22Mar10

22May10

22Jul10

25deltaskew

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

22Sep09

22Nov09

22Jan10

22Mar10

22May10

22Jul10

25deltaskew

USDNOK

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

22Sep09

22Nov09

22Jan10

22Mar10

22May10

22Jul10

25deltaskew

USDJPY

-4

-4

-3

-3

-2

-2

-1

-1

0

22Sep09

22Nov09

22Jan10

22Mar10

22May10

22Jul10

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

22Sep09

22Nov09

22Jan10

22Mar10

22May10

22Jul10

25deltaske

w

USDCAD

-1.00

0.00

1.00

2.00

3.00

4.00

22Sep09

22Nov09

22Jan10

22Mar10

22May10

22Jul10

25deltaske

w

USDCHF

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

22Sep09

22Nov09

22Jan10

22Mar10

22May10

22Jul10

25deltaske

w

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

23

Jul09

23

O

ct09

23

Jan

10

23

Apr10

23

Jul10

%

1-month 1 -y r

GBPUSD

9

11

13

15

17

19

21

23

Jul09

23

O

ct09

23

Jan10

23

Apr10

23

Jul10

%

1-month 1 -y r

AUDUSD

8

10

12

14

1618

20

22

24

26

28

23Jul09

23O

ct09

23Jan10

23Apr10

23Jul10

%

1-month 1 -y r

NZDUSD

11

13

15

17

19

2123

25

27

29

23

Jul09

23

O

ct09

23

Jan

10

23

Apr10

23

Jul10

%

1-month 1 -y r

USDCAD

9

11

13

15

17

19

21

23

Jul09

23

O

ct09

23

Jan10

23

Apr10

23

Jul10

%

1-month 1 -y r

USDCHF

9

10

11

12

13

14

15

16

23

Jul09

23

O

ct09

23

Jan10

23

Apr10

23

Jul10

%

1-month 1 -y r

USDSEK

10

12

14

16

18

20

22

24

26

23

Jul09

23

O

ct09

23

Jan10

23

Apr10

23

Jul10

%

1-month 1 -y r

USDNOK

11

12

13

14

15

16

17

18

1920

23

Jul09

23

O

ct09

23

Jan10

23

Apr10

23

Jul10

%

1-month 1 -y r

USDJPY

9

10

11

12

13

14

15

16

17

1819

23

Jul09

23

O

ct09

23

Jan10

23

Apr10

23

Jul10

%

1-month 1 -y r


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

23

Jul1

0

26

M

ay

10

29

M

ar10

28

Jan

10

01

Dec

09

02

O

ct09

05

Aug

09

SurpriseI

ndex

1.18

1.23

1.28

1.33

1.38

1.43

1.48

SpotR

ate

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

USDJPY

-250

-200

-150

-100

-50

0

50

100

150

200

250

23

Jul10

26

May

10

29

Mar10

28

Jan

10

01

Dec

09

02

Oct09

05

Aug

09

SurpriseI

ndex

85

87

89

91

93

95

97

99

SpotR

ate


GBPUSD

-100

-50

0

50

100

150

200

23

Jul10

26

M

ay

10

29

M

ar1

0

28

Jan

1

0

01

Dec

09

02

O

ct0

9

05

Aug

0

9

SurpriseI

ndex

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

1.80

SpotR

ate


USDCAD

-250

-200

-150

-100

-50

0

50

100

150

200

250

23

Jul10

26

May

10

29

Mar10

28

Jan

10

01

Dec

09

02

Oct09

05

Aug

09

SurpriseI

ndex

1.00

1.02

1.04

1.06

1.08

1.10

1.12

SpotR

ate


USDSEK

-200

-150

-100

-50

0

50

100

150

23/07/10

26/05/10

29/03/10

28/01/10

01/12/09

02/10/09

05/08/09

SurpriseI

ndex

6.0

6.5

7.0

7.5

8.0

8.5

SpotR

ate


USDCHF

-250

-200

-150

-100

-50

0

50

100

23

Jul10

26

May

10

29

Mar10

28

Jan

10

01

Dec

09

02

Oct09

05

Aug

09

SurpriseI

ndex

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18

SpotR

ate


AUDUSD

-100

-50

0

50

100

150

200

250

23

Jul10

26

M

ay

10

29

M

ar1

0

28

Jan

1

0

01

Dec

09

02

O

ct0

9

05

Aug

0

9

SurpriseI

ndex

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

SpotR

ate


NZDUSD

-150

-100

-50

0

50

100

150

23

Jul10

26

May

10

29

Mar10

28

Jan

10

01

Dec

09

02

Oct09

05

Aug

09

Surprise

Index

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

SpotR

ate


USDNOK

-100

-50

0

50

100

150

23/07/10

26/05/10

29/03/10

28/01/10

01/12/09

02/10/09

05/08/09

SurpriseI

ndex

5.5

5.7

5.9

6.1

6.3

6.5

6.7

6.9

SpotR

ate



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

23

Jul10

12

M

ay

10

01

M

ar10

17

Dec

09

06

O

ct09

24

Jul09

2YR

ateS

pread

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

SpotR

ate

2Y Rate Spread (RHS)

Spot Rate (LHS)

USDJPY

0.0

0.2

0.4

0.6

0.8

1.0

1.2

23

Jul10

12

M

ay

10

01

M

ar10

17

Dec

09

06

O

ct09

24

Jul09

2YR

ate

Spread

85

87

89

91

93

95

97

99

SpotR

ate


Spot Rate (LHS)

GBPUSD

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

23

Jul10

12

M

ay

10

01

M

ar10

17

Dec

09

06

O

ct09

24

Jul09

2YR

ateS

pread

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

SpotR

ate


Spot Rate (LHS)

USDCAD

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

23

Jul10

12

M

ay

10

01

M

ar10

17

Dec

09

06

O

ct09

24

Jul09

2YR

ateS

pread

0.90

0.95

1.00

1.05

1.10

1.15

SpotR

ate


Spot Rate (RHS)

USDSEK

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

23

Jul10

12

M

ay

10

01

M

ar10

17

Dec

09

06

O

ct09

24

Jul09

2YR

a

te

Spread

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Sp

otRate


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

23Jul10

12M

ay

10

01M

ar10

17Dec

09

06O

ct09

24Jul09

2YR

ateS

pread

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

23

Jul10

12

M

ay

10

01

M

ar10

17

Dec

09

06

O

ct09

24

Jul09

2YR

ate

Spread

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

SpotR

ate


Spot Rate (LHS)

NZDUSD

1.0

1.5

2.0

2.5

3.0

3.5

4.0

23

Jul10

12

M

ay

10

01

M

ar10

17

Dec

09

06

O

ct09

24

Jul09

2YR

ateS

pread

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

SpotR

ate


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

23

Jul10

12

M

ay

10

01

M

ar10

17

Dec

09

06

O

ct09

24

Jul09

2YR

a

te

Spread

4.5

5.0

5.5

6.0

6.5

7.0

7.5

SpotR

ate


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

22Jul10

11May10

26Feb10

16Dec09

05Oct09

23Jul09

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

22Jul10

11May10

26Feb10

16Dec09

05Oct09

23Jul09

S&P500inverted

85

87

89

91

93

95

97

99

SpotRate

S&P500

Spot Rate (LHS)

1

GBPUSD

600

700

800

900

1000

1100

1200

1300

22Jul10

11May10

26Feb10

16Dec09

05Oct09

23Jul09

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

22Jul10

11May10

26Feb10

16Dec09

05Oct09

23Jul09

S&P500inverted

1.00

1.02

1.04

1.06

1.08

1.10

1.12

SpotRate

S&P500

Spot Rate (RHS)

USDSEK

600

700

800

900

1000

1100

1200

1300

22Jul10

11May10

26Feb10

16Dec09

05Oct09

23Jul09

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

22Jul10

11May10

26Feb10

16Dec09

05Oct09

23Jul09

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

22Jul10

11May10

26Feb10

16Dec09

05Oct09

23Jul09

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

22Jul10

11May10

26Feb10

16Dec09

05Oct09

23Jul09

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

22Jul10

11May10

26Feb10

16Dec09

05Oct09

23Jul09

S&P500inverted

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

23Jul10

12May10

01Mar10

17Dec09

06Oct09

24Jul09

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

60

70

80

90

100

23Jul10

12May10

01Mar10

17Dec09

06Oct09

24Jul09

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

23Jul10

12May10

01Mar10

17Dec09

06Oct09

24Jul09

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

90100

23Jul10

12May10

01Mar10

17Dec09

06Oct09

24Jul09

OIL

1.00

1.02

1.04

1.06

1.08

1.10

1.12

SpotRate

Oil (RHS)

Spot Rate ( RHS)

USDSEK

20

30

40

50

60

70

80

90

100

23Jul10

12May10

01Mar10

17Dec09

06Oct09

24Jul09

OIL

6.5

6.7

6.9

7.1

7.3

7.5

7.7

7.9

8.1

8.3

SpotR

ate

Oil (RHS)

Spot Rate (LHS)

USDCHF

20

30

40

50

60

70

80

90

100

23Jul10

12May10

01Mar10

17Dec09

06Oct09

24Jul09

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

23Jul10

12May10

01Mar10

17Dec09

06Oct09

24Jul09

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

23J

ul10

12M

ay10

01M

ar10

17D

ec09

06O

ct09

24J

ul09

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

60

70

80

90

100

23Jul10

12May10

01Mar10

17Dec09

06Oct09

24Jul09

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

1.56

2 2 /0 6/ 10 2 9/ 06 /1 0 0 6 /0 7/ 10 1 3/ 07 /1 0 2 0/ 07 /1 0

EUR/USD

1.19

1.21

1.23

1.25

1.27

1.29

1.31

2 2/ 06 /1 0 2 9 /0 6/ 10 0 6/ 07 /1 0 1 3/0 7/ 10 2 0/ 07 /1 0

EUR/GBP

0.80

0.81

0.82

0.83

0.84

0.85

0.86

2 2/ 06 /1 0 2 9 /0 6/ 10 0 6/ 07 /1 0 1 3/ 07 /1 0 2 0/ 07 /1 0

USD/JPY

86

87

88

89

90

91

2 2 /0 6/ 10 2 9/ 06 /1 0 0 6 /0 7/ 10 1 3/ 07 /1 0 2 0/ 07 /1 0

USD/NOK

6.13

6.18

6.23

6.28

6.33

6.38

6.43

6.48

6.53

2 2 /0 6/ 10 2 9 /0 6/ 10 0 6/ 07 /1 0 1 3/ 07 /1 0 2 0/ 07 /1 0

USD/SEK

7.20

7.30

7.40

7.50

7.60

7.70

7.80

7.90

2 2/0 6 /1 0 2 9/0 6 /1 0 0 6/0 7 /1 0 1 3/0 7 /1 0 2 0/ 07 /1 0

USD/CHF

1.04

1.05

1.06

1.07

1.08

1.09

1.10

1.11

1.12

2 2 /0 6/ 10 2 9 /0 6/ 10 0 6 /0 7/ 10 1 3/ 07 /1 0 2 0/0 7 /1 0

USD/CAD

1.01

1.02

1.03

1.04

1.05

1.06

1.07

2 2/0 6 /1 0 2 9/0 6 /1 0 0 6/ 07 /1 0 1 3/ 07 /1 0 2 0/ 07 /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

Ju l-09 Sep -09 N o v-0 9 Ja n-10 Ma r-1 0 Ma y-1 0 Ju l-1 0

EUR/USD

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

Jul -09 Sep -09 N o v-0 9 Ja n-1 0 Ma r-1 0 Ma y-1 0 Ju l-10

EUR/GBP

0.80

0.82

0.84

0.86

0.88

0.90

0.92

0.94

0.96

Ju l-0 9 Se p-0 9 N o v-09 Jan -1 0 Ma r-1 0 Ma y-1 0 Ju 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

0.97

0.99

1.01

1.03

1.05

1.07

1.09

1.11

1.13



14/15

FX Snapshot

Currency performance vs. USD

Currency performance vs. GBP

Currency performance vs. EUR

14

Weekly Currency Performance vs. USD

-0.60

0.05

0.48

0.68

0.90

1.21

1.41

2.12

2.67

-1 0 1 2 3

JPY

EUR

SEK

CHF

GBP

CAD

NOK

NZD

AUD

%

Monthly Currency Performance vs. USD

1.67

2.54

3.78

3.98

4.27

5.01

5.45

5.66

-1.93

-4 -2 0 2 4 6 8

CAD

AUD

NZD

JPY

GBP

NOK

EUR

CHF

SEK

%

12month Currency Performance vs. USD

-9.28

-6.74

1.33

1.73

2.18

4.06

8.21

9.07

9.91

-15 -10 -5 0 5 10 15

EUR

GBP

NOK

SEK

CHF

CAD

JPY

AUD

NZD

%

Weekly Currency Performance vs. GBP

-1.52

-0.90

-0.82

-0.36

-0.20

0.31

0.52

1.21

1.72

-2 -1 0 1 2

JPY

USD

EUR

SEK

CHF

CAD

NOK

NZD

AUD

%

Monthly Currency Performance vs. GBP

-5.98

-3.98

-2.26

-1.42

-0.07

0.45

0.99

1.69

1.90

-8 -6 -4 -2 0 2 4

CAD

USD

AUD

NZD

JPY

NOK

EUR

CHF

SEK

%

12 month Currency Performance vs. GBP

-2.71

6.74

7.96

8.35

8.78

10.52

14.40

14.50

15.16

-5 0 5 10 15 20

EUR

USD

NOK

SEK

CHF

CAD

JPY

AUD

NZD

%

Weekly Currency Performance vs. EUR

-0.67

-0.05

0.42

0.62

0.82

1.13

1.36

2.03

2.53

-1 0 1 2 3

JPY

USD

SEK

CHF

GBP

CAD

NOK

NZD

AUD

%

Monthly Currency Performance vs. EUR

-7.05

-5.01

-3.27

-2.41

-1.05

-0.99

-0.53

0.71

0.94

-8 -6 -4 -2 0 2

CAD

USD

AUD

NZD

JPY

GBP

NOK

CHF

SEK

%

12 month Currency Performance vs. EUR

2.71

9.28

10.49

10.85

11.25

12.94

16.72

16.81

17.47

0 5 10 15 20

GBP

USD

NOK

SEK

CHF

CAD

JPY

AUD

NZD

%


15/15

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