This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. Important disclosures can be found in the Disclosures Appendix. This document is provided for general circulation and information purposes only, it does not take into account the specific investment objectives, needs or financial situation of any particular person or class of persons and it has not been prepared as investment advice for any such person(s). Prospective investors should seek advice from a financial adviser on the suitability of an investment, taking into account these factors before making a commitment to invest in an investment 1 fx strategy fx | 3 August 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 Payrolls may be the next key USD catalyst A constructive Fed statement failed to convince USD bulls, resulting in the greenback ending slightly lower last week. In the week ahead, US non-farm payroll data may be key; a strong print might see the USD initiate its next leg higher. A disappointing number, on the other hand, might see the USD fall back into consolidation mode. The RBA policy meeting will also be closely watched. While consensus expects policy rate to remain unchanged, we see an increased possibility of a surprise rate cut. This, in turn, could cause the AUD to test new lows. EUR/USD We remain neutral on the EUR as price action remains range- bound without evidence of any decisive break. USD/JPY We remain neutral on the USD/JPY pair and expect it to remain range-bound for now. AUD/USD We remain bearish on the AUD/USD pair as it continues to offer room for further downside. USD/SGD We remain bullish on the USD/SGD pair as price momentum has been robust, pointing to further upside. GBP/USD We turn bullish on the GBP/USD pair (from neutral earlier) as positive chart patterns are likely to support the pair. XAU/USD We remain neutral on XAU/USD as we see the pair consolidating after the sharp sell-off. Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res EUR/USD Neutral 1.050 1.085 1.098 1.120 1.140 USD/JPY Neutral 121.50 122.50 124.00 124.50 126.00 AUD/USD Bearish 0.700 0.720 0.730 0.750 0.770 USD/SGD Bullish 1.332 1.355 1.375 1.380 1.400 GBP/USD Bullish 1.520 1.540 1.562 1.589 1.620 XAU/USD Neutral 1,000 1,080 1,096 1,160 1,200 USD/CNH* Neutral 6.147 6.185 6.219 6.230 6.282 USD/ZAR* Bullish 11.725 12.050 12.690 12.855 13.000 NZD/USD* Bearish 0.615 0.640 0.659 0.675 0.685 USD/CHF* Bullish 0.925 0.940 0.965 0.972 0.985 USD/SEK* Bullish 8.200 8.400 8.622 8.800 9.000 USD/CAD* Bullish 1.257 1.282 1.312 1.332 1.375 *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 Payrolls may be the next key USD catalyst 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 24 July 2015 to 31 July 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 Senior Investment Strategist Victor Teo, CFA Investment Strategist Tariq Ali, CFA Investment Strategist Abhilash Narayan Investment Strategist -0.30 0.74 0.04 0.36 0.06 0.00 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 XAU/USD GBP/USD USD/SGD AUD/USD USD/JPY EUR/USD %
12
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This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. Important disclosures can be found in the Disclosures Appendix. This document is provided for general circulation and information purposes only, it does not take into account the specific investment objectives, needs or financial situation of any particular person or class of persons and it has not been prepared as investment advice for any such person(s). Prospective investors should seek advice from a financial adviser on the suitability of an investment, taking into account
these factors before making a commitment to invest in an investment
1
fx strategyfx | 3 August 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
Payrolls may be the next key USD catalyst
A constructive Fed statement failed to convince USD bulls, resulting in the greenback ending slightly lower last week. In the week ahead, US non-farm payroll data may be key; a strong print might see the USD initiate its next leg higher. A disappointing number, on the other hand, might see the USD fall back into consolidation mode.
The RBA policy meeting will also be closely watched. While consensus expects policy rate to remain unchanged, we see an increased possibility of a surprise rate cut. This, in turn, could cause the AUD to test new lows.
EUR/USD
We remain neutral on the EUR as price action remains range-bound without evidence of any decisive break.
USD/JPY
We remain neutral on the USD/JPY pair and expect it to remain range-bound for now.
AUD/USD
We remain bearish on the AUD/USD pair as it continues to offer room for further downside.
USD/SGD
We remain bullish on the USD/SGD pair as price momentum has been robust, pointing to further upside.
GBP/USD
We turn bullish on the GBP/USD pair (from neutral earlier) as positive chart patterns are likely to support the pair.
XAU/USD
We remain neutral on XAU/USD as we see the pair consolidating after the sharp sell-off.
Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res
*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
Payrolls may be the next key USD catalyst 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
24 July 2015 to 31 July 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 Senior Investment Strategist
Victor Teo, CFA Investment Strategist
Tariq Ali, CFA Investment Strategist
Abhilash Narayan Investment Strategist
-0.30
0.74
0.04
0.36
0.06
0.00
-0.40 -0.20 0.00 0.20 0.40 0.60 0.80
XAU/USD
GBP/USD
USD/SGD
AUD/USD
USD/JPY
EUR/USD
%
3 August 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 2
EUR/USD
We remain neutral on the EUR as price action remains range-bound without evidence of any decisive break.
Performance
EUR/USD ended flat over the previous week. Core inflation rose unexpectedly last month. The unemployment rate remained unchanged. However, consumer and business confidence in Germany held near record highs, supporting growth in the Euro area.
In the US, durable goods orders rose strongly in June. Consumer confidence surprised to the downside. The FOMC policy statement continued to indicate a move towards a rate hike at some point this year. The employment cost index, however, was disappointing.
Technical Analysis
Major technical indicators are, on balance, are neutral.
We remain neutral on the EUR. The rising support trend-line from March lows remains intact. A clear breach would be a strong indication of further downside. At the same time, we view the 1.14-1.15 region as a strong resistance region, likely to form a cap in the short term. Hence, we are likely to continue to see consolidation until a clear breach is achieved in either direction.
We would review our outlook if the pair rebounds above 1.14.
Key Signposts
Euro area – Manufacturing PMI (3 August), PPI (4 August), services PMI, composite PMI and retail sales (5 August) and retail PMI (6 August).
US – Personal income, real personal spending, PCE core and ISM manufacturing (3 August), ADP employment change, trade balance, composite PMI and ISM non-manufacturing composite (5 August) and non-farm payrolls change, unemployment rate, average hourly earnings and labour force participation (7 August).
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1.1176 1.1027 1.1578
3 August 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 3
USD/JPY
We remain neutral on the USD/JPY pair and expect it to remain range-bound for now.
Performance
USD/JPY ended almost flat over the previous week. The Bank of Japan cut its growth outlook to 1.7% (from 2%) for 2015. It also cut its inflation forecast to 0.7% (from 0.8%) for the fiscal year ending March 2016.
Technical Analysis
Major technical indicators are neutral.
We remain neutral on USD/JPY. While the pair has demonstrated some strength recently, the strong resistance area at 124.50 appears likely to limit any major upside for now. We believe a breach of this level remains a critical requirement before the broad uptrend can resume. On the downside, we believe the 122.50 level has formed a solid base. Overall, we see the pair trading in the 122.50-124.50 range.
We would review our outlook if the pair moves below 122.50 or moves above 124.50.
Key Signposts
Manufacturing PMI (3 August), monetary base and real cash earnings (4 August), services PMI and composite PMI (5 July) and the BoJ annual monetary meeting (7 August).
USD/JPY still waiting to break out of its consolidation range
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma122.33 121.1 118.63
3 August 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 4
AUD/USD
We remain bearish on the AUD/USD pair as it continues to offer room for further downside.
Performance
AUD/USD ended up (0.36%) over the previous week. Consumer sentiment found some respite in July. New motor vehicle sales rebounded in June.
In China, June industrial profits edged lower while July manufacturing PMI was in-line with expectations. Non-Manufacturing PMI remained resilient in July.
Technical Analysis
Major technical indicators, on balance, are neutral.
However, we remain bearish on AUD/USD. The pair continued to follow its broad trend lower. Presently, the pair seems to be finding support at the 0.72 area. A breach below these levels would be confirmation of further downside.
We would review our outlook if it moves above 0.750.
Key Signposts
Australia – Trade balance, retail sales, the RBA monetary meeting and commodity index (4 August), employment change, unemployment rate and full employment change (6 August) and home loans and the RBA’s monetary policy statement (7 August).
China – Manufacturing PMI (3 August), composite PMI and services PMI (5 August) and exports, imports and trade balance (8 August).
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma0.7756 0.775 0.8035
3 August 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 5
USD/SGD
We remain bullish on the USD/SGD pair as price momentum has been robust, pointing to further upside.
Performance
USD/SGD ended up (0.04%) over the previous week. Q2 GDP unexpectedly shrank as the manufacturing sector took a blow due to sluggish global demand. Retails sales figures for July came in a little better than expected.
Technical Analysis
Major technical indicators, on balance, are bullish.
We remain bullish on the USD/SGD pair. The pair has continued to hold above the previous resistance (and now support) region of 1.35-36, suggesting a bullish undertone. The recent 50 and 100 DMA cross also suggests the upward trend is becoming firmer. The next focus is likely to be the key resistance at 1.380.
We would review our outlook if the pair moves below 1.332.
Key Signposts
Manufacturing PMI (3 August) and foreign reserves (6 August).
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1.3418 1.3517 1.333
3 August 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 6
GBP/USD
We turn bullish on the GBP/USD pair (from neutral earlier) as positive chart patterns are likely to support the pair.
Performance
GBP/USD ended up (0.74%) over the previous week. 2Q GDP as well as service sector indicators were generally in line with expectations. July consumer confidence was slightly below expectations but remained robust overall.
Technical Analysis
Major technical indicators, on balance, are divergent.
However, we turn bullish on the GBP/USD pair (from neutral earlier). The pair has been making a series of higher highs and higher lows, remaining relatively resilient. We see the positive bias in the pair holding as long as it remains above 1.54. Key resistance remains the June high of 1.589.
We would review our outlook if the pair falls below 1.540.
Key Signposts
Manufacturing PMI (3 August), nationwide house price index (4 August), services PMI (5 August), the BoE monetary meeting, the BoE inflation report, manufacturing production and NIESR GDP estimates (6 August) and trade balance (7 August).
* Please see Appendix on Pg 11 for explanation on technical
Source: Bloomberg, Standard Chartered
50 dma 100 dma 200 dma1.5527 1.5272 1.5433
3 August 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 7
XAU/USD (Gold)
We remain neutral on XAU/USD as we see the pair consolidating after the sharp sell-off.
Performance
XAU/USD ended down (-0.30%) over the previous week. Last week’s Fed statement was generally positive for the USD and negative for gold.
Technical Analysis
Major technical indicators are bearish.
However, we remain neutral on gold. The pair seems to be entering a consolidation phase along the 1,080 key support. A decisive break below this level would be strong indication of further downside towards the psychological 1000 level. Until then, we prefer to remain on the sidelines.
We would review our outlook if the pair rebounds above 1,160.
Key Signposts
Surprises in economic data, specially related to US core PCE inflation and the labour market report are key for gold this week. A stronger USD may see gold test new recent lows.
Short-term consolidation likely before resumption of downtrend
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 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
Dec-09 May-11 Oct-12 Mar-14 Jul-15
EU
R/U
SD
%
Difference between EUR and USD 2 yr swap EUR/USD (RHS)
2
7
12
17
22
Jan-11 Feb-12 Apr-13 Jun-14 Aug-15
2W Implied Volatility
75
85
95
105
115
125
135
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Dec-09 May-11 Oct-12 Mar-14 Jul-15
US
D/J
PY
%
Difference between USD and JPY 2 yr swap USD/JPY (RHS)
2
7
12
17
22
Jan-11 Feb-12 Apr-13 Jun-14 Aug-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
Dec-09 May-11 Oct-12 Mar-14 Jul-15
AU
D/U
SD
%
Difference between AUD and USD 2 yr swap AUD/USD (RHS)
2
6
10
14
18
22
Jan-11 Feb-12 Apr-13 Jun-14 Aug-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
Dec-09 May-11 Oct-12 Mar-14 Jul-15
US
D/S
GD
%
Difference between USD and SGD 2 yr swap USD/SGD (RHS)
2
7
12
17
Jan-11 Feb-12 Apr-13 Jun-14 Aug-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
Dec-09 May-11 Oct-12 Mar-14 Jul-15
GB
P/U
SD
%
Difference between GBP and USD 2 yr swap GBP/USD (RHS)
3
5
7
9
11
13
15
17
Jan-11 Feb-12 Apr-13 Jun-14 Aug-15
2W Implied Volatility
3 August 2015 | fx strategy
This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 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.
3 August 2015 | fx strategy
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Disclosure Appendix This document is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This document does not necessarily represent the views of every function within the Standard Chartered Bank, particularly those of the Global Research function.
Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority.
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This document is being distributed for general information only and it does not constitute an offer, recommendation, solicitation to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This document is for general evaluation only, it does not take into account the specific investment objectives, financial situation, particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons.
Opinions, projections and estimates are solely those of SCB at the date of this document and subject to change without notice. Past performance is not indicative of future results and no representation or warranty is made regarding future performance. Any forecast contained herein as to likely future movements in rates or prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in rates or prices or actual future events or occurrences (as the case may be).
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