This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. Important disclosures can be found in the Disclosures Appendix.
1
fx strategyfx | 18 May 2015
The views expressed in this publication are made on the basis of a 2-4 week outlook and may differ from our longer term views and forecasts from the Global Research function
USD approaching key support
The USD ended the week lower against most major peers after disappointing retail sales data. However, the USD is now approaching important technical levels against most peers. Given we believe most negative US data may already be incorporated by the market, the USD pullback may be close to running its course.
The week ahead is data heavy, with meeting minutes due from four major central banks (Fed, ECB, BoE, RBA). Furthermore, EU and US CPI data are key for the USD.
EUR/USD
We turn bearish on the EUR/USD pair (from neutral earlier) as the rebound appears to be increasingly stretched, in our opinion.
USD/JPY
We remain neutral on the USD/JPY pair and expect it to continue to consolidate within a 118.50-121.50 range.
AUD/USD
We remain bearish on the AUD/USD pair and expect the rally to fade given weakening technical indicators.
USD/SGD
We remain neutral on USD/SGD. Moderating momentum highlights the risk of a trend reversal, but directional signals remain weak.
GBP/USD
We turn bearish on the GBP/USD pair (from neutral earlier) as technical indicators point to the possibility of a short-term pullback.
XAU/USD
We remain neutral on XAU/USD and expect the pair to continue to trade in a broad sideways range.
Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res
EUR/USD Bearish 1.080 1.100 1.143 1.150 1.180
USD/JPY Neutral 116.00 118.50 119.62 121.50 124.00
AUD/USD Bearish 0.745 0.770 0.802 0.825 0.850
USD/SGD Neutral 1.295 1.315 1.322 1.340 1.356
GBP/USD Bearish 1.540 1.560 1.573 1.585 1.620
XAU/USD Neutral 1140 1180 1,225 1250 1280
USD/CNH* Neutral 6.147 6.185 6.204 6.230 6.282
USD/ZAR* Neutral 10.625 11.342 11.826 12.562 13.500
NZD/USD* Neutral 0.700 0.730 0.744 0.780 0.790
USD/CHF* Bullish 0.885 0.908 0.917 0.936 0.960
USD/SEK* Neutral 7.800 8.150 0.821 9.000 9.465
USD/CAD* Bullish 1.160 1.190 1.203 1.240 1.280
*SUPPLEMENTARY PAIRS - Going forward, we will maintain the EUR, JPY, AUD, SGD, GBP and XAU outlook while adding just key technical levels for the supplementary pairs
Contents
USD approaching key support 1 EUR/USD 2 USD/JPY 3 AUD/USD 4 USD/SGD 5 GBP/USD 6 XAU/USD (Gold) 7 SUPPLEMENTARY PAIRS 8 Interest Rate Differentials 10 FX Implied Volatility 10 Disclosure Appendix 12
Weekly performance of pairs
8 May 2015 to 15 May 2015
Source: Bloomberg, Standard Chartered
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 Investment Strategist
Victor Teo, CFA Investment Strategist
Tariq Ali, CFA Investment Strategist
Abhilash Narayan Investment Strategist
3.06
1.76
-0.59
1.29
-0.43
2.25
-1.00 -0.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50
XAU/USD
GBP/USD
USD/SGD
AUD/USD
USD/JPY
EUR/USD
%
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 2
EUR/USD
We turn bearish on the EUR/USD pair (from neutral earlier) as the rebound appears to be increasingly stretched, in our opinion.
Performance
EUR/USD ended up (2.25%) over the previous week. Greece received continued ECB emergency support after Euro area members welcomed progress on reforms. However, a final agreement still remains elusive. Q1 growth expanded 0.4%, outpacing the US and UK.
In the US, retail sales remained unchanged in April, which was weaker than consensus estimates. Job creation picked up after last year’s winter lull and pushed unemployment to a seven-year low of 5.4%. Subdued wage growth is likely to delay the Fed’s rate hike until September.
Technical Analysis
Major technical indicators, on balance, are neutral.
However, we turn bearish on EUR/USD pair (from neutral earlier). The pair had a surprisingly strong session last week, which saw it settle just below the previous swing high of 1.150. Short-term technicals are in overbought territory. Also, the presence of key resistance levels nearby may lead to profit booking around current levels.
We would review our outlook if the pair moves above 1.150.
Key Signposts
Euro area – ZEW survey expectations, CPI (19 May), Markit manufacturing, services, composite PMI, consumer confidence and the ECB account of the monetary policy meeting (21 May).
US – NAHB housing market index (18 May), housing starts and building permits (19 May), FOMC meeting minutes, Chicago Fed national activity, existing home sales and claims (21 May), CPI (22 May).
EUR/USD continues to consolidate following its earlier sharp sell-off
Technical Analysis Chart: EUR/USD (Daily)
Source: Bloomberg, Standard Chartered
1.100
1.150
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
Apr-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15
EU
R/U
SD
EUR/USD 50 dma 100 dma 200 dma
Key technical indicators and forecast*
Technical Indicator Action
RSI (14) Neutral
Oscillator (5,10) Neutral
MACD (12,26,9) Buy
ADX (14) Neutral
Momentum (14) Buy
Key Levels Level Importance
Secondary Resistance 1.180 High
Primary Resistance 1.150 Low
Spot 1.143 –
Primary Support 1.100 High
Secondary Support 1.080 Medium
Forecast Consensus
Q2 2015 1.12
Q3 2015 1.08
Q4 2015 1.05
Q1 2016 1.05
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1.0908 1.1188 1.1941
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 3
USD/JPY
We remain neutral on the USD/JPY pair and expect it to continue to consolidate within a 118.50-121.50 range.
Performance
USD/JPY ended down (-0.43%) over the previous week. The current account surplus jumped to a seven-year high, as higher exports, investment returns and tourists and lower energy bills boosted the surplus.
Technical Analysis
Major technical indicators, on balance, are neutral.
We remain neutral on the USD/JPY pair. The pair continued to hover within the broad consolidation range established since the start of March (between 121.5 and 118.5). We prefer to wait until clearer technical signals emerge as they currently remain directionless.
We would review our outlook if the pair moves above 121.50 or below 118.50.
Key Signposts
Machine orders, industrial productions (18 May), nationwide department sales y/y (19 May), GDP, machine order sales and convenience store sales (20 May), manufacturing PMI (21 May), BoJ’s annual rise in the monetary base (22 May).
USD/JPY continues to oscillate within its broader post-December range
Technical Analysis Chart: USD/JPY (Daily)
Source: Bloomberg, Standard Chartered
118.50
121.50
98
102
106
110
114
118
122
Apr-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15
US
D/J
PY
USD/JPY 50 dma 100 dma 200 dma
Key technical indicators and forecast*
Technical Indicator Action
RSI (14) Neutral
Oscillator (5,10) Neutral
MACD (12,26,9) Neutral
ADX (14) Neutral
Momentum (14) Neutral
Key Levels Level Importance
Secondary Resistance 124.00 High
Primary Resistance 121.50 High
Spot 119.62 –
Primary Support 118.50 Medium
Secondary Support 116.00 High
Forecast Consensus
Q2 2015 120
Q3 2015 121
Q4 2015 123
Q1 2016 125
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma119.84 119.32 115.3
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 4
AUD/USD
We remain bearish on the AUD/USD pair and expect the rally to fade given weakening technical indicators.
Performance
AUD/USD ended up (1.29%) over the previous week. Q1 wage inflation continued to decline and was weaker than expected.
In China, the central bank cut its benchmark rates for the third time since November as the economy slowed further. Industrial production and fixed asset investment was higher than last year but weaker than expectations.
Technical Analysis
Major technical indicators are divergent.
We remain bearish on the AUD/USD pair. We view the recent recovery as a corrective retracement of the previous decline and expect the pair to soon find resistance in the 0.825-0.850 range. We prefer to use the current recovery to accumulate short positions as we expect the rally to fade on weakening momentum and directional indicators.
We would review our outlook if it moves above 0.825.
Key Signposts
Australia – RBA’s May meeting minutes (19 May), Westpac consumer confidence m/m (20 May), consumer inflation expectations (21 May).
China – HSBC manufacturing PMI (21 May).
AUD/USD rebound likely to fade, in our view
Technical Analysis Chart: AUD/USD (Daily)
Source: Bloomberg, Standard Chartered
0.770
0.825
0.70
0.75
0.80
0.85
0.90
0.95
1.00
Apr-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15
AU
D/U
SD
AUD/USD 50 dma 100 dma 200 dma
Key technical indicators and forecast*
Technical Indicator Action
RSI (14) Neutral
Oscillator (5,10) Neutral
MACD (12,26,9) Buy
ADX (14) Buy
Momentum (14) Sell
Key Levels Level Importance
Secondary Resistance 0.850 High
Primary Resistance 0.825 High
Spot 0.802 –
Primary Support 0.770 Medium
Secondary Support 0.745 High
Forecast Consensus
Q2 2015 0.77
Q3 2015 0.76
Q4 2015 0.75
Q1 2016 0.73
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma0.7784 0.7855 0.8313
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 5
USD/SGD
We remain neutral on USD/SGD. Moderating momentum highlights the risk of a trend reversal, but directional signals remain weak.
Performance
USD/SGD ended down (-0.59%) over the previous week. The recent weak US economic data continued to weigh on the pair.
Technical Analysis
Major technical indicators, on balance, are neutral.
We turn neutral on the USD/SGD pair (from bearish earlier). It currently trades close to a key retracement level while technical indicators are showing slightly positive divergence. This highlights the risk of a reversal, although we prefer to remain on the sidelines for further directional evidence.
We would review our outlook if the pair moves below 1.315.
Key Signposts
No key economic releases for the week.
The pair is beginning to consolidate following the recent downtrend
Technical Analysis Chart: USD/SGD (Daily)
Source: Bloomberg, Standard Chartered
1.315
1.340
1.21
1.23
1.25
1.27
1.29
1.31
1.33
1.35
1.37
1.39
1.41
Apr-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15
US
D/S
GD
USD/SGD 50 dma 100 dma 200 dma
Key technical indicators and forecast*
Technical Indicator Action
RSI (14) Neutral
Oscillator (5,10) Sell
MACD (12,26,9) Neutral
ADX (14) Buy
Momentum (14) Neutral
Key Levels Level Importance
Secondary Resistance 1.356 Medium
Primary Resistance 1.340 Medium
Spot 1.322 –
Primary Support 1.315 High
Secondary Support 1.295 Medium
Forecast Consensus
Q2 2015 1.36
Q3 2015 1.36
Q4 2015 1.38
Q1 2016 1.38
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1.3535 1.3507 1.3162
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 6
GBP/USD
We turn bearish on the GBP/USD pair (from neutral earlier) as technical indicators point to the possibility of a short-term pullback.
Performance
GBP/USD ended up (1.76%) over the previous week. The BoE cut its growth forecasts and warned about the impact of a strong pound on the outlook for interest rates. The unemployment rate for March was in line with expectations, while industrial production was stronger than anticipated.
Technical Analysis
Major technical indicators, on balance, are bearish.
We turn bearish on the GBP/USD pair (from neutral earlier). The pair has seen a significant upmove from the lows of April and appears increasingly stretched. The negative divergence on the charts poses the threat the pair is creating an immediate top.
We would review our outlook if the pair ends above 1.585.
Key Signposts
Rightmove house price index (18 May), CPI and PPI (19 May), BoE MPC meeting minutes (20 May), retail sales (21 May).
The GBP/USD upmove, triggered by the election outcome, appears to be fading
Technical Analysis Chart: GBP/USD (Daily)
Source: Bloomberg, Standard Chartered
1.560
1.585
1.46
1.50
1.54
1.58
1.62
1.66
1.70
1.74
Apr-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15
GB
P/U
SD
GBP/USD 50 dma 100 dma 200 dma
Key technical indicators and forecast*
Technical Indicator Action
RSI (14) Sell
Oscillator (5,10) Sell
MACD (12,26,9) Buy
ADX (14) Buy
Momentum (14) Sell
Key Levels Level Importance
Secondary Resistance 1.620 High
Primary Resistance 1.585 High
Spot 1.573 –
Primary Support 1.560 Medium
Secondary Support 1.540 High
Forecast Consensus
Q2 2015 1.51
Q3 2015 1.49
Q4 2015 1.48
Q1 2016 1.49
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1.5054 1.5154 1.5603
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 7
XAU/USD (Gold)
We remain neutral on XAU/USD and expect the pair to continue to trade in a broad sideways range.
Performance
XAU/USD ended up (3.06%) over the previous week as weak US data pushed back expectations of a rate hike.
Technical Analysis
Major technical indicators are divergent.
We remain neutral on the XAU/USD pair. Despite last week’s surge in gold prices, the pair continued to trade in a broad sideways range (1,180-1250). Technical indicators also remain divergent. The pair has not been able sustain below 1,180 for long either. A convincing break out of this range would likely be required to create a strong directional indicator.
We would review our outlook if the pair moves back above 1,250 or falls below 1,180.
Key Signposts
Any news on Greek debt talks during the week will have implications for gold prices. Also, any strong statement from the FOMC minutes due this week and/or a pickup in US and EU CPI may move gold.
Gold continues to trade in a broad range
Technical Analysis Chart: XAU/USD (Daily)
Source: Bloomberg, Standard Chartered
1,180
1,250
1,100
1,150
1,200
1,250
1,300
1,350
1,400
Apr-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15
XA
U/U
SD
XAU/USD 50 dma 100 dma 200 dma
Key technical indicators and forecast*
Technical Indicator Action
RSI (14) Sell
Oscillator (5,10) Buy
MACD (12,26,9) Buy
ADX (14) Neutral
Momentum (14) Sell
Key Levels Level Importance
Secondary Resistance 1,280 High
Primary Resistance 1,250 High
Spot 1,225 –
Primary Support 1,180 High
Secondary Support 1,140 Medium
Forecast Consensus
Q2 2015 1,220
Q3 2015 1,190
Q4 2015 1,190
Q1 2016 1,220
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1223.16 1191.91 1211.97
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 8
SUPPLEMENTARY PAIRS *SUPPLEMENTARY PAIRS – Going forward, we will maintain the EUR, JPY, AUD, SGD, GBP and XAU outlook while adding just key technical
levels for the supplementary pairs
We remain neutral on USD/CNH
Technical Analysis: USD/CNH
Source: Bloomberg, Standard Chartered
We remain neutral on USD/ZAR
Technical Analysis: USD/ZAR
Source: Bloomberg, Standard Chartered
We remain neutral on the NZD/USD
Technical Analysis: NZD/USD
Source: Bloomberg, Standard Chartered
6.185
6.230
5.95
6.00
6.05
6.10
6.15
6.20
6.25
6.30
Apr-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15
US
D/C
NH
USD/CNH 50 dma 100 dma 200 dma
11.342
12.562
9.2
9.6
10.0
10.4
10.8
11.2
11.6
12.0
12.4
12.8
Apr-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15
US
D/Z
AR
USD/ZAR 50 dma 100 dma 200 dma
0.730
0.780
0.69
0.74
0.79
0.84
0.89
0.94
Jun-13 Sep-13 Dec-13 Apr-14 Jul-14 Oct-14 Feb-15 May-15
NZ
D/U
SD
NZD/USD 50 dma 100 dma 200 dma
50 dma 100 dma 200 dma6.2142 6.231 6.1919
50 dma 100 dma 200 dma12.0337 11.8215 11.4536
50 dma 100 dma 200 dma0.7524 0.7537 0.7756
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 9
We remain bullish on USD/CHF
Technical Analysis: USD/CHF
Source: Bloomberg, Standard Chartered
We turn neutral on the SEK (from bearish earlier)
Technical Analysis: USD/SEK
Source: Bloomberg, Standard Chartered
We remain bullish on USD/CAD
Technical Analysis: USD/CAD
Source: Bloomberg, Standard Chartered
0.908
0.936
0.85
0.90
0.95
1.00
1.05
1.10
Jul-13 Oct-13 Jan-14 Apr-14 Aug-14 Nov-14 Feb-15 May-15
US
D/C
HF
USD/CHF 50 dma 100 dma 200 dma
8.150
9.000
5.2
5.7
6.2
6.7
7.2
7.7
8.2
8.7
9.2
Jul-13 Oct-13 Jan-14 Apr-14 Aug-14 Nov-14 Feb-15 May-15
US
D/S
EK
USD/SEK 50 dma 100 dma 200 dma
1.190
1.240
0.96
1.01
1.06
1.11
1.16
1.21
1.26
1.31
Jun-13 Sep-13 Dec-13 Apr-14 Jul-14 Oct-14 Feb-15 May-15
US
D/C
AD
USD/CAD 50 dma 100 dma 200 dma
50 dma 100 dma 200 dma8.5403 8.3845 7.836
50 dma 100 dma 200 dma1.2368 1.2331 1.1775
50 dma 100 dma 200 dma0.9586 0.952 0.9512
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 10
Interest Rate Differentials FX Implied Volatility
Measures the yield of holding the foreign currency relative to the base currency
An appropriate indicator used to gauge future expectations of price movements based on FX options market pricing
EUR/USD EUR/USD
USD/JPY USD/JPY
AUD/USD AUD/USD
USD/SGD USD/SGD
GBP/USD GBP/USD
Source: Bloomberg, Standard Chartered
1.0
1.1
1.2
1.3
1.4
1.5
1.6
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Sep-09 Feb-11 Jul-12 Dec-13 May-15
EU
R/U
SD
%
Difference between EUR and USD 2 yr swap EUR/USD (RHS)
0
4
8
12
16
20
Jan-11 Feb-12 Mar-13 Apr-14 May-15
2W Implied Volatility
75
85
95
105
115
125
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Sep-09 Feb-11 Jul-12 Dec-13 May-15
US
D/J
PY
%
Difference between USD and JPY 2 yr swap USD/JPY (RHS)
0
5
10
15
20
25
Jan-11 Feb-12 Mar-13 Apr-14 May-15
2W Implied Volatility
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
0
1
2
3
4
5
6
Sep-09 Feb-11 Jul-12 Dec-13 May-15
AU
D/U
SD
%
Difference between AUD and USD 2 yr swap AUD/USD (RHS)
0
5
10
15
20
25
Jan-11 Feb-12 Mar-13 Apr-14 May-15
2W Implied Volatility
1.15
1.20
1.25
1.30
1.35
1.40
1.45
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
Sep-09 Feb-11 Jul-12 Dec-13 May-15
US
D/S
GD
%
Difference between USD and SGD 2 yr swap USD/SGD (RHS)
0
5
10
15
20
Jan-11 Feb-12 Mar-13 Apr-14 May-15
2W Implied Volatility
1.4
1.5
1.6
1.7
1.8
-0.2
0.3
0.8
1.3
1.8
2.3
Sep-09 Feb-11 Jul-12 Dec-13 May-15
GB
P/U
SD
%
Difference between GBP and USD 2 yr swap GBP/USD (RHS)
0
4
8
12
16
20
Jan-11 Feb-12 Mar-13 Apr-14 May-15
2W Implied Volatility
18 May 2015 | fx strategy
This reflects the views of the Wealth Management Group 11
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.
18 May 2015 | fx strategy
12
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