01 July 2011 _fx Weekly Complete

8/6/2019 01 July 2011 _fx Weekly Complete

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IMPORTANT NOTICE. Please refer to important disclosures found at the end of this report.Some sections of this report have been written by our strategy teams (shown in blue). Suchreports do not purport to be an exhaustive analysis and may be subject to conflicts ofinterest resulting from their interaction with sales and trading which could affect theobjectivity of this report.www.GlobalMarkets.bnpparibas.com

Foreign Exchange 01 July 2011

FX Weekly: Is It Safe? Currency Summary 2

Dont Bank on HIA II to Help the Dollar 5

Why We Like Being Short Cable 6

Greek Votes And Swiss Havens 8

IMF COFER Q1 Update EUR Conundrum 10

Thai Election Scenarios & Market Impact 11

Weekly FX Global Bias Indicators 13

Medium Term Recommendations 16

Volatility Cones 18

Correlation 19

Economic Calendar 20

FX Forecast 22

Contacts 23

Risk appetite to allow EUR upside to extend this week

We stay long EURCHF; and long SEK in front of Riksbank

Return in risk appetite to support local markets in comingweek

FX Weekly Strategy: G10 Summary

After the positive outcome from this week's Greek budget vote, attentionturns elsewhere for the time being at least. We see the shift in focussupporting further medium-term gains in EUR, and indeed, a broadly weakerUSD. The ECB meeting now looms large. The easing of euro-peripheral

stress should allow markets to reprice further policy moves from the centralbank: OIS markets still price in less than three 25bp hikes over the coming12 months, including the 25bp to be delivered on Thursday. As such, weexpect dips in EURUSD to remain shallow. While global reserve managersmay have been less active euro buyers than we had supposed (through Q1at least), we expect to see willingness by real-money investors to add to theireuro exposure, while leveraged accounts may, we suspect, soon startparticipating in upside EUR risk if dips prove to be shallow.

From a broader risk perspective, concerns about the state of global growthpersist. While Fridays softer-than-hoped-for China PMI plays to this grain,the unexpected bounce in US manufacturing ISM offers genuine hope thanthe US soft patch is just that. The combination ostensibly plays to a lowerAUDCAD, though any such move may not survive Tuesdays RBA meeting if,as a result of easing euro-peripheral stresses, the RBA sounds more

hawkish than last month.

The key US-specific event risks that will now drive the dollar side of the FXequation should be Fridays employment report, where a meager 85k isexpected (BNPP +75k, and progress or otherwise on the US debt ceiling.Here, the effective deadline for action given the time necessary for legislationis mid-July. As well as needing to see progress towards a deal, size alsomatters given the overhanging threat of negative ratings actions if anyagreement is deemed to be too small to matter with respect to longer-termfiscal consolidation. We look for a further unwinding of CHF safe-havenlongs allowing EURCHF to trade up towards 1.2500 in coming weeks. Wealso stay long SEK ahead of what we expect will be the delivery of a further25bp rise in the Riksbanks repo rate on Tuesday, to 2.0%.

Local Markets StrategyThe first day of H2 has seen a return in risk appetite in local markets and weremain positive towards risk in the next week. Continued flows into EM fundswill prove supportive for risky assets, particularly given the reduced threatfrom Greece for the time-being and given that local markets have sailedthrough the end of QE2 relatively unscathed. The upcoming ECB meetingand the expected rate hike should not bear too much weight on CEEmarkets. We dont think the CZK will suffer substantially from the wideningrate differential and would look to sell EURCZK into rallies. We think that theimproved risk assessment in Romania following the relief with regards to theGreek vote should feed into the currency and we would position ourselves inshort EURRON looking for a move to 4.16 in the coming days. We alsoremain short EURPLN ahead of the NBP meeting next week as M&A flowsand NBP/FinMin activity should keep the zloty supported. In Latam however

the near term picture is more mixed despite the underlying trend of growth.While growth in Brazil could moderate in H2, that of Mexico is expected topick up and we would recommend short USDMXN via 2-month risk-reversals.


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Friday, 01 July 2011

FX Weekly http://www.GlobalMarkets.bnpparibas.com

Weekly Currency SummaryEurope

EUR

The Eurogroup expected to approve the next tranche of aid for Greece over the weekend, and focus should quicklyturn to the ECB. There is little doubt that a rate hike will be delivered, but the question is what signals will be sentabout subsequent moves. Our view is that the ECB will deliver more hikes and at a faster pace than is currently pricedin. Investors are not long EUR; we expect dips to be shallow and look for further gains in the week ahead.

CHF

The unwind of the CHF safe haven trade was very much in evidence Thursday and with the EcoFin likely to approvethe next 12bn tranche of aid over the weekend, we see scope for EURCHF to extend gains well beyond the two bigfigures seen so far. The same goes for various CHF crosses vs. risk/commodity currencies, including an extension ofthe downside on CHFSEK. Softer Swiss Manufacturing PMI @53.40 in June (57.80 tipped) down from 59.20 in Mayplays to the grain of long CHF unwinds via perceptions the SNB will still be seriously lagging the ECB. We likeEURCHF higher for now.

GBP

UK manufacturing PMI details were very weak; lowest manufacturing PMI since Sept 2009, slowest input priceinflation since Dec 2009, and playing to a host of other slowing growth indicators. Our economists dovish BoE view (nopolicy change though 2012, or if there is, probably via more QE, is gaining traction with more BoE members talkingabout the possibility. While this weeks BoE meet will be a non-event, watch out for softer PMI services.

NOK

The NOK should continue to recover strongly as a fiscal safe haven to the extent they had been dogged by liquiditytensions in the weeks leading to the Greek vote. NOKSEK has fallen back and could consolidate lower down to1.1630 support though we would expect the cross to remain biased higher rather than lower on a medium term view.Norway PMI fell in June like elsewhere. The week brings May industrial production figures.

SEK

SEK is the top performing currency in G10 as liquidity tensions abated significantly with the Greek vote on austeritymeasures having averted a Greek default and hence a potential funding crisis. This has been reflected in somecalming visible in cross-cc basis swaps and should see the USDSEK fall maintain traction. Sweden PMI fell in Junelike elsewhere. An expected Riksbank rate hike to 2.00% next week could add to SEKs gains.

Converging Europe, Russia and Israel

PLNWe expect the NBP to leave rates on hold next week, in line with the consensus view and expect the banks inflationprojection to be revised lower. M&A activity in the past week will prove to be net positive for the zloty. We stick to ourshort EURPLN position, looking for a move to 3.90 in the coming weeks.

CZK

EURCZK is trading well within the range and we do not see a real reason to bet on a break out. For the medium term,we remain bullish on the koruna due to the general positive macro outlook but next week could prove a bit morevolatile around the ECB meeting. However we think the CZK has proved to be quite resilient to the widening ratedifferential and so we prefer to sell EURCZK on rallies.

HUFOur recommendation to sell CZKHUF has reached its target. We take profits at 10.90 as we believe the EURHUF

down move is close to an end. That said, we would suggest observing the 263 support level as any break would leadto further HUF strength.

RONThe NBR left rates on hold and sounded dovish in its statement. That said, current inflation does not permit any policyeasing. Romanias risk assessment has improved following the Greek vote and EURRON tends to be well correlatedwith credit spreads. We would therefore be inclined to enter short EURRON positions at this juncture, targeting 4.16.

RUBThe CBR left rates on hold as expected and CPI readings have moderated lately. We are neutral towards Russianmarkets but given the recovery in risk appetite, we would expect the basket to test the 33.35 support next week.

TRYQ1 GDP figures have challenged the CBRTs view of an existence of a negative output gap and inflation to bereleased on Monday will provide a further test to the CBRTs credibility. We may well see some relief rally in TRY onthe back of increased risk appetite but would stay cautious for the time being.

ILS

Our short EURILS position has been stopped out following the spike in EURUSD on the back of the approval of theGreek austerity plan. While the BoI left rates on hold, we think that they will likely continue with their tightening cycle inthe coming months although we expect a less aggressive approach in 2012. We remain positive on the shekel at thisstage.

America

USD

The debt ceiling negotiations are heating up, with just a few short weeks left before agreement must be reached.Failure to agree is likely to see investors grow nervous ironically leading to a stronger USD but this is unlikely to bethe case just yet. The stronger than expected ISM may raise expectations for Fridays NFP, but in the meantime theUSD is likely to remain under pressure as the rebound in risk continues.

CAD

Stronger domestic CPI along with some support for oil prices have helped the CAD, and USDCAD has broken sharplylower down to below 0.9650 and is currently threatening the 0.9600 level. The week ahead brings June Ivey PMI andemployment, former expected to moderate though the stronger US ISM may have reduced that risk. CAD shouldcontinue to remain supported.

EMK America

BRLAs we approach month-end, market will start to move on the expectations that the BCB may do what it did last monthand not roll-over the USD 1.7bn maturing on July 1. That would imply strong USD selling pressure. There is almostUSD 3bn of equity issuances in the pipeline to be settled in early July. BRL has room to appreciate in the short-term.

CLPBCCh is turning more dovish and may pause hiking rates, reducing the appetite for CLP on the margin. However,

carry remains favourable for long CLP positions (just behind BRL) and fundamentals for copper support higher prices.MXN

MXN remains cheap vis--vis its Latam peers. The US growth is key for MXN performance, but also the changes intechnicals, which have turned much lighter recently. We like long MXN positions using options.

COP While fundamentals call for robust USD inflow with S&Ps upgrade of Colombia to the IG criteria, Banrep is also

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opening the door for a pause and National Treasury may prevent COP from moving higher. We stay neutral.

PENBCRP was more dovish than expected, keeping rates unchanged in June. Fundamentals are favorable for PEN, butwe prefer to wait for the new president-elect, Humala, to announce his economic team before suggesting a bullishPEN strategy. The announcement should take place close to July 28, when Humala effectively takes office.

VEFThe current level of oil prices is enough to give the government some extra-time before announcing another devaluationof the VEF, which we expect to take place at the beginning of 2013, following presidential elections in December 2012.

ARS President Cristina Kirchner announced this week that she will run for re-election. Some rumours that she could not runmay prompt some under-performance of Argentinean assets. We are neutral ARS.

YEN

Despite its reputation as a fear gauge, the Yen remains oblivious to the panic and euphoria of recent weeks. Indeed, itnow seems to be able to shake off even significant movements in US Treasuries. Ultimately this has to change, butthere is little to suggest that must be soon; implied volatility has to fall a lot further before complacency can be said tohave set in. Meanwhile, the threat of a more significant rating agency move continues to grow while politicians fiddle.

SGD

USDSGD finally moved out of its consolidation range (1.2300-1.2450) as the positive outcome on Greeces parliamentvote sent USDSGD below its 1.2300 support, opening a test of the years low at 1.2213. The robust monetary dataalso lent support to the SGD. The upper band of the S$NEER lies at 1.2226. We stay with our USDSGD short positionentered at 1.2410 with a stop lowered to breakeven at 1.2410. The week ahead sees manufacturing PMI.

MYR

Failure to sustain the break above the 200-day MA resistance at 3.0600 saw USDMYR fall sharply lower on the back

of fresh inflows into longer-tenored MYR-bonds. Externally, the passage of the Greek austerity package led to arebound in risk sentiment and the pair broke through its 100-day MA support at 3.0248, opening the 3.0000psychological support. We stay short from 3.0700 with a stop lowered to 3.0700. May trade data is due on Tuesdayand BNM meets on Thursday. Our economist expects the BNM to hike policy rates by 25 bp to 3.25%.

IDR

USDIDR traded off the highs of 8632 as the positive outcome in Greece spurred risk-taking. The pair broke through its50-day MA support at 8568 on the back of heavy foreign selling, eyeing a re-test of the 8500 support. On the topside,we expect the 100-day MA resistance at 8657 to be well respected as IDR continues to gain support from offshoreinflows into IDR equities and bonds. The higher than expected headline inflation print in June also suggests that astrong IDR would be the favoured strategy of the BI to ward off imported inflation. We maintain our technical shorts at8690, with a stop at break-even.

THB

Election uncertainties pushed USDTHB up towards 31.00. The failure to cross this level and an improved sentiment inEurope on the back of the Greece vote saw USDTHB ease off towards 30.70 by the weeks end. Whatever theoutcome of the elections, history has shown that politics matter little to the currency. More so are the countrys macrofundamentals, especially its positive BoP surplus that has supported the THB. We favour buying the THB onweakness towards USd 31.20 with a stop above.

PHP

Strong fiscal balance sheets and an even stronger external balance sheet continue to buffer the peso against external

volatility. Once the latter improved, market players resumed their long PHP bias, buying the currency and bringing ittowards 43.00 again. CPI and FX reserves will be the focus next week. The grind higher in inflation should keep theBSP on its tightening path and the pesos yield attraction favouring more currency gains.

HKD

The trade deficit narrowed on better-than-expected export and import growth. The inverse relationship betweenUSDHKD spot and Hang Seng Index persisted, with the risk-off sentiment expressed via a weaker HSI pushingUSDHKD higher. A return of risk appetites and better performance in equities could cap the topside on the currencypair. Forwards traded higher on easing concerns over USD liquidity with forwards up to 1Y supported. Retail sales andPMI will be released this week.

CNY

Both leading index and manufacturing PMI declined. USDCNY fixing fell by 57 pips the week past while USDCNHfixing fell below its onshore counterpart finally, a trend we thought would be re-established. DBS Bank has applied tothe Monetary Authority of Singapore (MAS) to tap the bilateral currency swap agreement to provide RMB financing toa Singapore-based exporter. Front-end NDFs up to 3M is supported. We like to sell CNH DF vs. CNY NDF on a 9M or1Y tenor.

TWD

The central bank raised policy rate by 12.5 bp as widely expected. The central reckoned that a strong currency couldhelp ease imported inflation, supporting the TWD. We maintain a technical short position established at 28.70 with astop at 29.20 as we see strong resistance at 29.00 and the 100-day MA at 29.07. Reportedly, the CBC is still paying

1M to 3M FX swap. NDFs are expected to trade in a range in the coming summer holidays. CPI, WPI, FX reservesand external trade are due this week.

KRW

Korea posted a strong trade surplus and industrial production. The won will stay supported on capital inflows andmounting inflationary pressure as the governments pledge to fight inflation even at the cost of economic growthfavours a stronger currency. The KRW rallied to a 34-month high on Friday before giving up most of the days gains onpossible intervention. We maintain our short USDKRW position at 1087 with a break-even stop. Data due this weekincludes FX reserves, PPI and FDI.

INR

A surprise change in USDINR fix methodology caused panic in the offshore markets, where the lack of appetite torollover long NDF trades caused swap points to shift left. Spot USDINR was heavy to in the risk-on mood after thepositive votes in Greece. Softer WPI prints provided some relief to Indian asset markets with Indian stocks surging.Exports, imports and WPI are the next data prints to watch. Technically, a break of 44.50 opens a return to 44.00. Wemaintain a technical short USDINR position at 44.48 with a stop at 45.58.

VND

More regulations designed to prevent USD hoarding has made its impact on the VND. The sale of foreign currency asstated in Circular 13 dated 31 May requiring banks to sell currencies from 1 July prompted more exposure in Vietbonds, unhedged. The improvement in sentiment is evident in Viet CDS spreads, tightening 26bp in the week to closeat 324bp. We remain positive on developments so far, and by implication the VND.

AUDAfter a few weeks of pressure in nervous markets, AUD has been released by the Greek budget vote and has revertedto its natural state of buoyancy. We expect the risk rally to continue into next week as markets remove the pricing of

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rate cuts, but there will be plenty of action: on top of Tuesdays RBA decision, there is a full data calendar next week.

NZDThe Kiwi continues to mark all-time highs against the USD, likely aided by reserve manager inflows and insurancepayments related to the earthquakes. We see little to suggest that this will change next week, seeing further gains aslikely on strong Q1 GDP and the NZIER business survey.

ZAR

The ZAR has benefited from the improvement in sentiment towards the end of the week but overall we still see it asrange-bound. 6.74/USD is the first support and it would take a few releases suggesting a more hawkish approach from

the central bank to break it. That being said, credit growth remains fairly subdued and so it is tough to expect anyinflationary pressures.

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Ray Attrill Friday, 01 July 2011


Dont Bank on HIA II to Help the Dollar

HIA I saw about USD 300bn repatriated in2005, with meaningful support for USD

A repeat as part of a US fiscal/debt ceilingdeal could see even bigger return flows; but weare sceptical HIA II will be agreed.

New HIA important if it flies, but we doubt it will

One of the arguments being advanced in favour of adollar revival in coming quarters is that the UnitedStates Congress and President may be about to

rerun the 2004 Homeland Investment Act (whichallowed US corporations to bring profits back fromoverseas at a highly preferential 5.25% corporationtax rate). This could form part of an eventual budgetdeal between Democrats and Republicans thatallows the debt ceiling to be raised ahead of theearly August deadline, after which the government isat risk of defaulting on its obligations. Lobbyistspushing for a repeat are very hard pressed tocredibly justify a rerun as liable to createemployment.

The evidence from 2004 Act is that more than 90%

of the estimated USD 300bn of profits repatriated byUS corporations from overseas the next year eitherwent to share buybacks (most of it) or extraordinarydividend payments. (See: Watch What I Do, NotWhat I Say: The Unintended Consequences of theHomeland Investment Act, by the National Bureauof Economic Analysis, June 2009). This was despitethe legislated purposes of the HIA: job creation,business investment or R&D expenditure. Lobbyists'strongest (only?) argument is that a return of HIAwould boost share prices of companies repatriatingprofits (either because of higher dividend paymentsor accelerated share buybacks). This may, then,

have an indirect benefit on consumer spending viathe wealth affect of higher share prices, while thegovernment would benefit both from the tax take itwill get from repatriated profits as well as the tax dueon higher dividend payouts. The impact on shareprices is, nevertheless, ambiguous; ratings agencieshave previously warned that by reducing cashbuffers in the form of retained earnings overseas,some companies are at risk of suffering downgradesto their financial strength ratings.

While we dont expect HIA II to fly, its worthremembering the Acts impact, since the scale of

return flows was large and the FX impact significant.Data from the Bureau of Economic Analysis suggestthat about USD 300bn was repatriated from

overseas that year. Prior to the 2005 repatriations,survey evidence drawn from major corporationssuggested that perhaps half of the funds likely to berepatriated were held in foreign currencies. HIA flowsshowed up in national accounts as a reduction in USFDI abroad (see Chart 1); hence, a big swing fromnegative to positive occurred in 2005, concentrated

in the second half of the calendar year. Of the totalamount, the bulk was seen to have been held withinthe EU (see Chart 2) and mostly in euros (Sterlingand some Asian local currencies were also in themix). In excess of USD 100bn of additionalEURUSD demand was likely to have occurred in2005. This had meaningful FX market impact,temporarily breaking the entrenched USDdowntrend.

Were HIA II to come into effect, we would be quick tosuggest it could again have an impact, all the moreso in so far as estimates of accumulated US

corporate profits held overseas since 2005 suggestflows could be at least as large as in 2005 andpossibly as much as USD 600bn.

Chart 1: USD TWI versus US FDI flows

9 8 0 0 0 2 0 4 0 6 0 8 1 0

billions

-7 5

-5 0

-2 5

0

2 5

5 0

7 5

1 0 0

7 5

8 0

8 5

9 0

9 5

1 0 0

1 0 5

1 1 0

1 1 5

1 2 0

1 2 5

F D I f lo w s ( U S D ) ( 2 Q m a v ) (r h s )

U S D - T W I ( lh s )

H IA re l a tedFD I f l ow s

Source: Reuters Ecowin Pro

Chart 2: US FDI Abroad Total vs. EU

0 0 0 1 0 2 0 3 04 05 0 6 0 7 08 0 9 1 0

USD(

billions)

- 6 0 0

- 5 0 0

- 4 0 0

- 3 0 0

- 2 0 0

- 1 0 0

0

1 0 0

2 0 0

3 0 0

4 0 0

T o t a l U S F D Ia b r o a d

U S F D Ii n to E U

Source: Reuters Ecowin Pro

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Kiran Kowshik Friday, 01 July 2011


Why We Like Being Short Cable

Our bearishness towards the GBP,prominent since May on weaker growthindicators, has dialled up a notch following theweaker C/A data in the Q1 UK GDP release.

Rising credit risks against the backdrop ofan even bigger C/A with the financial accountsinking even further into deficit spell trouble forsterling.

STRATEGY: We remain short GBPUSD inthe medium term, targeting 1.5350 with a stop at1.6285. While a EUR-led USD sell-off may delay

this gaining traction, we remain comfortablebeing short GBPUSD.

Bearish GBP stance underpinned

We have long been sterling bears, further convincedof our view when leading indicators for growthstarted rolling over around May. Now, with Q1 GDPdata and revised Q4 data showing a sorrycurrent-account picture over the past six months, ourbearish GBP stance still holds.

We have been watching the recent uptick in UKsovereign CDS rates, which coincides with a rollingover of leading growth indicators. This suggests thatthe credibility of the governments fiscalconsolidation plan is under threat. Recall how creditmarkets late last year showed their appreciation forthe fiscal consolidation plan, leading to a fall in 5YUK CDS rates and a rebounding GBP. However, itseems that the plan was based on overly optimisticgrowth forecasts, in turn explaining the turnaround inUK sovereign CDS. While this in itself should be ofconcern for sterling, Q1 data released yesterdayshowed that the current account deficit failed to

narrow nearly as much as thought (GBP 9.4bndeficit) with a GBP 2.5bn downward revision to theQ4 deficit to GBP -13bn. This implies that the hole tobe filled by the financial account is even bigger thaninitially thought. FDI inflows (which come to underGBP 2bn on a four-quarter basis) make up only asmall part of shortfall.

Chart 1 shows the sum of portfolio investment plusother investment in green (the two big-ticket itemsseen from UK financial account data) set againstGBPUSD. The recent data showed this sum addingto the deficit. Rising credit risks against the backdrop

of an even bigger current account deficit with thefinancial account already in the red raises thequestion of where the inflows can come from. Theimplication is one that spells trouble for sterling.

The second point worth noting from the weakexternal balance data is the indirect implication formonetary policy, which in turn feeds into views aboutthe future GBP exchange rate. If one assumes thatthe UKs fiscal tightening programme is kept on

track, then for an already weak economy not to gointo a tailspin would require overall monetaryconditions to remain easy or even be relaxed further.This implies a need for one or both of the following:(a) easing monetary policy by lowering bond yieldsfurther (QE); (b) encouraging a weaker GBP in thehope of improving export-led growth prospects. Inpractice, these are two sides of the same coin. Withpolicy rates effectively at the zero bound, a weakerGBP would need to be the result of either lowerlonger-term rates or higher inflation expectations one or other of which is achievable with more QE. Inthis context, it should not be surprising that we now

have more MPC members talking about the potentialneed for more QE down the road. While oureconomists forecast unchanged policy through 2012,

Chart 1: Financial Account vs. GBPUSD

Source: Reuters Ecowin Pro. The financial account (sum of portfolio

investments and other Investments) is starting to turn south, consistent

with GBP weakness.

Chart 2: Inflation expectations have been onedriver of GBPUSD post crisis

Source: Bloomberg, BNP Paribas

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Kiran Kowshik Friday, 01 July 2011


having already-negative UK yields becoming evenmore negative will surely hurt the GBP even more.Chart 2 shows that bond market implied inflationexpectations may have already begun to price agreater potential for UK QE relative to US QE. It

compares the US-UK 10Y bond implied inflationexpectations spread set against GBPUSD. Weassume that one side-effect of extraordinary easingmeasures is to raise inflation expectations. The chartshows that GBPUSD gains in recent months havecoincided with the US being more successful inengineering a rise in inflation expectations.

We note that this is the reverse of the mechanismseen over the 2004-2006 period, when higher

inflation expectations in the UK relative to the USimplied a higher GBPUSD (via the anticipatedmonetary policy response). This overplayedrelationship reversed post the financial crisis, andnow falling US inflation expectations warn of a

stronger USD relative to the GBP.

Strategy: Last week, we recommended a shortCable position in our medium-termrecommendations on a break of 1.5930, targeting1.5350 with a stop at 1.6285. While a EUR-led USDsell-off may support the GBP in the weeks ahead,we remain comfortable being short GBPUSD.

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Robert Ryan Friday, 01 July 2011


Greek Votes And Swiss Havens

With the successful passage of the Greekbudget, the threat of imminent catastrophe issharply reduced.

EURCHF has come under sustainedpressure as investors sought the safety of theSwiss Franc; and EURCHF risk reversals havebeen extremely well bid for puts. We expect theeasing of concerns to lead to a rebound inEURCHF and a normalisation of the riskreversals.

On Wednesday we recommended buying a

3-month EURCHF 1.2200 Call with Knock-In at1.28, Knock-out at 1.17. The risk reversal over-prices the chance of Knock-Out; and under-prices the chance of Knock-In.

Catastrophe Averted

Wednesdays Greek drama failed to result infinancial Armageddon as the budget vote passedwith relative ease; and Thursday saw the smoothapproval of the associated implementationlegislation. The result should be a rubber-stamping

of the next EUR 12bn tranche of aid at the 3 JulyEcoFin. Meanwhile, progress towards agreement onprivate investor participation suggests the politicalopposition to the next bailout will not beinsurmountable.

Certainly a number of significant hurdles remain. TheECBs hard-line approach to any reprofiling thatwould trigger a Greek default could still derail theGreek banking system. The German ConstitutionalCourt is due to rule on the constitutionality of the firstbailout package on 5 July. And it could bereasonably argued that while one of the EU/IMF

conditions for a second bailout was 'national unity,yesterdays tally of 155 votes hardly meets thatstandard. But the Greek bailout is ultimately apolitical decision. It is difficult to see the ECBchoosing to bring down the Greek banking systemagainst the wishes of the politicians. There was asomewhat ironic note to protests yesterday from theECBs Stark, who said the French investorparticipation plan would violate the Maastricht no-bailout clause this after EUR 110bn has alreadybeen sent to Greece, not to mention Ireland andPortugal. More likely the ECBs rules will bechanged or bent if the ratings agencies dont

cooperate. The future of Greece and the Eurocannot be seen to depend on the judgement of a fewprivate ratings agencies. Similarly the GermanConstitutional Court will not want to be cast into the

history books as the destroyers of 61 years ofpolitical integration. Demands for Greek nationalunity will have to be sacrificed on the altar ofpragmatism. The second bailout package is coming.

Investors Sidelined

Investors are not long risk. Hedge funds have beenwaiting for the next move, not wanting to waste thefew remaining bullets they have. And real moneyinvestors have been wary of investing ahead of thecrucial vote. But focus should now shift to theinflation pressures in the euro core and what thatmeans for ECB policy. OIS markets still price in lessthan 50bp of tightening 1 year out, including the25bp to be delivered next week. Broader concerns

Chart 1: EURCHF vs Eurozone

GDP-Weighted CDS Spreads

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011

0

20

40

60

80

10 0

12 0

14 0

16 0

18 0

GDP Wei hted EU CDS b RHS

EURCHF (LHS Inverted)

Source: BNP Paribas. The chart shows how EURCHF has come under

pressure as the average CDS of Eurozone sovereigns has risen.

Concerns over banks safety have also played a part as investors moved

deposits out of European banks and into the relative safety of Swiss

accounts. But if the Greek budget vote removes the risk of imminent

disaster, these pressures should begin to ease.

Chart 2: EURCHF Risk Reversals vs. GlobalHazard Index

0

5

10

15

20

25

30

35

40

Jun-2006 Dec-2007 Jun-20 09 Dec-2010

-5.3

-4.3

-3.3

-2.3

-1.3

-0.3

0. 7EURCHF Risk Reversals (RHS Inverted)

Global Hazzard index

Source: BNP Paribas. EURCHF risk reversals are currently extremely well

bid for puts. While this is usual in times of general market stress, the

current levels reflect the extent to which the skew is the result of

idiosyncratic Eurozone stress.

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Robert Ryan Friday, 01 July 2011


about the state of global economy remain, but a setof decent PMIs on Friday would take the risk of aglobal slowdown off the table. In this regard both theChinese PMI and the US ISM will be very important.The greatest risk may be that another rally in risk

develops but that investors are left waiting to buydips that do not materialize - and then must chase ithigher.

EURCHF Spot, Skew to Normalise

The search for safety in the face of Eurozone debtcrisis has seen EURCHF come under sustainedpressure (Chart 1); but with imminent disaster nowmuch less likely, some of that pressure should

subside. At the same time, EURCHF risk reversalshave been extremely well bid for puts (Chart 2); thisstress should also normalise. On Wednesday werecommended combining the two dynamics throughthe following strategies:

(1) Buy a 3-month EURCHF 1.2200 Call withKnock-In at 1.28, Knock-out at 1.17. The riskreversal over-prices the chance of Knock-Out; andunder-prices the chance of Knock-In. Cost is 0.88%against a vanilla price of 1.53%

(2) Buy A 3-month EURCHF 1.22 Call with Knockout 1.17. Cost is 1.08% [Both NY Cut, Spot 1.2000]

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Ray Attrill Friday, 01 July 2011


IMF COFER Q1 Update EUR Conundrum

Q1 reserves surge flattered by valuationeffects

EUR demand may have stalled, unlike GBP,JPY and others (mostly AUD and CAD)

Begging the question of whether RMdemand is even necessary to sustain EURUSDgains.

Our first blush take of the IMF's latest update on theComposition of Global Foreign Exchange Reserves(COFER) published Thursday was that it

corroborated the view that amidst rapidly risingreserves growth, efforts to prevent the dollarproportion of reserves from rising meant thatReserve Mangers (RMs) were heavy buyers of eurosand other non-ISD G10 currencies during Q1 2011.However when we properly adjust for exchange ratechanges over the quarter the picture looks quitedifferent: RMs - at least those who report thebreakdown of their reserves look to have been neteuro sellers in the quarter, with efforts to prevent thedollar proportion of total reserves from risingreflected mostly in a pick up in demand for GBP,JPY and other (non-EUR and non-CHF) G10

currencies.

Total global FX reserves as reported to the IMFexpanded by $435bn in Q1, some $164bn more thanthe Q4 210 increase. However, of the $182bnincrease among those central banks who report thebreakdown in reserves, almost half the increaselooks to have come from valuation changesstemming from the 6% rise in the euro. This thoughassumes that interest receipts on the stock ofreserves and local currency valuation changes onthat stock were negligible. Interest rate receipts, atleast on bonds held with more than one year

duration, add significantly to reserves each quarter,while valuation effects in Q1 will likely have beennegative given the back up in bond yields during thequarter. This makes it impossible to accuratelyremove valuation effects from volume effects.

On the (heroic) assumption of no significant interestreceipts/asset valuation effects and just adjusting forFX valuation change, we see that there were neteuro sales of some EUR16bn in Q1 (of which aboutEUR12bn came from Emerging and DevelopingEconomies and the rest from Advanced countries.In contrast, RMs who report their currencycomposition were net buyers of about GBP6bn (mostof this coming from Developing and EmergingEconomies) and JPY909bn (of which JPY547bn wasfrom this latter group). In percentage terms, the

QoQ changes in reserve holdings among theallocated portion of total reserves amount to +2.4%for USD, +4.7% for GBP, +5.7% for JPY, -1.6% forEUR and a whopping +12.6% for other, which weassume is heavily concentrated in AUD and CAD.

It is entirely possible that these composition changesare not readily extrapolate to the $4.39tn ofunallocated reserves of which China makes up thebulk ($3tn).

If it were, that means there may have been net salesof euros by central banks in Q1 of some EUR40bn,despite which EURUSD rallied by over 6%!

As well as challenging our prior notion about whyEURUSD appear to have sustained levels abovethat implied by interest rate differentials (includingthe negative impact of euro-peripheral stress) in Q1,one conclusion is that may not need an ongoingstrong Reserve Manager bid to sustain euro

strength. Another is that demand for other(commodity) currencies as reserve assets, and toothe yen, remains very strong.

Chart 1: Total reserves

0

2, 000, 000

4, 000, 000

6, 000, 000

8, 000, 000

10, 000, 000

12, 000, 000

Ma r-99 Ma r- 02 Ma r-05 Mar- 08 Ma r-11

EM

Total

Source: BNP Paribas

Chart 2: Non USD, EUR reserves in EM

0

50, 000

100, 000

150, 000

200, 000

250, 000

300, 000

350, 000

400, 000

Ma r- 99 Ma r-02 Ma r-05 Ma r- 08 Ma r-11

GBP JPY CHF Other

Source: BNP Paribas

10


11/23



Thai Election Scenarios & Market Impact

Thais will go to the polls on July 3 for ageneral election that Prime Minister AbhisitVejjajiva hopes will settle a long-running politicalconflict in the deeply divided country.

A close fight between the Democrat Partyand the Pheu Thai Party is certain. Less certainis the outcome.

We list two main scenarios: A Democrat-ledor a Pheu Thai-led Coalition Government.Whichever scenario eventuates, the political

landscape will remain weak, something whichinvestors have gotten accustomed to.

A refocus back on economic fundamentalspost-elections argue for the THB to maintain itsground.

We list two possible election scenarios courtesy ofthe head of our Thai equity research, ChutimaWoramontri:

Scenario 1:Democrat leads government: Democrat(200) + Bhum Jai Thai (60) + Chart Thai Pattana

(25) + Chart Pattana Puea Pandin (20) = 305

For this scenario, our equity strategists have aneutral weighting and a SET index target of 1,200,offering 16% upside potential from current levels.

We believe that the USDTHB will fall under thisscenario, towards the 30.30 level.

Scenario 2: Phue Thai leads government: PhueThai (250) + Chart Thai Pattana (25) + Chart PattanaPuea Pandin (20) = 295

For this scenario, our equity strategists see furtherdownside on the SET due to rising political risks. A1% rise in the WACC would lower our SET indextarget by 10% to 1,080. Foreign ownership currentlystands at 35% in the year to June, with foreigninvestors selling out USD 652mn so far, overturningthe net buying position in the first five months of2011, bringing ytd foreign net sell positions of USD252mn. In 2010, foreigners were net buyers to thetune of USD 2.7bn.

We believe the USDTHB would rise under this

scenario, towards 31.21, the pivot level. Because

Box 1: Factsheet on Thai Elections

DEMOCRATIC UPHEAVAL

Election will be Thailand's 26th since it became ademocracy in 1932.

Thailand is governed by 17 constitutions and hasexperienced 18 military coups -- actual andattempted -- the latest in 2006, which overthrewtycoon Thaksin Shinawatra and his Thai Rak Thaiparty (TRT).

TRT the only Thai political party to win a secondterm in office and dissolved for electoral fraud after2006 coup.

Latest incarnation is the Puea Thai Party, whichremains under Thaksin's control from exile.

KEY FIGURES

47 million eligible voters among Thailand's estimated67 million people. Turnout in recent polls has beenrelatively high at 74.5 percent (2007), 60 percent(2005) and 70 percent (2001).

557 polling stations across the country. Some 2.6million people applied to cast votes in advance.

42 parties will take part in this election7 of themwon parliamentary seats in the 2007 poll.

Lawmakers elected for 4 years. 500 seats in play. 375 constituency seats total from 76 provinces

Bangkok has 33 seats.

THE BALLOT

Voters will tick two boxes on their ballots, one fortheir preferred constituency candidate and anotherfor their preferred party at a national level; the latterdecides who gets "party list" seats, allocatedaccording to the percentage of votes each partygets. Each has nominated a list of candidates fortheir party list quotas. There is no minimumpercentage required to win one of these 125 partylist seats.

Polling stations will be open from 0100-0800 GMTon Sunday, July 3. A clear indication of which partywill finish first should be known by about 1300 GMT.

FORMING A GOVERNMENT

Entire process is normally completed within onemonth of the poll.

If no party wins a majority of more than 250 seats,the party with most seats, or a plurality, will be givenfirst chance to form a coalition government.

If the party that wins a plurality is unable to form acoalition, the second-placed party gets a chance.

Source: Reuters

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12/23



market players have priced in to some degreethe potential for this poorer outcome, USDTHBmay not break this level. Historically, it has beenshown that political outcomes have no lasting

impact on USDTHBs trend. Hence, we maintainour downside targets on USDTHB at 29.50 byend-2011.

In any scenario, we note that the Thai politicallandscape will remain weak, something whichinvestors have gotten accustomed to. In eithercase, a victory led by either PT or Democrats willunlikely sit through its four years in office.

Thus we expect the market to refocus back onfundamentals. Our improved outlook for the Thai

economy in H2, and the continued robustness ofprivate consumption, will keep the Thai economyafloat. Coupled with a positive balance ofpayments surplus, the moderate appreciationtrend in the THB remains intact, albeit withbumps like these along the way.

Chart 1: Composition Of Thai Parliament

Source: The Nation.com

Chart 2: Thai BOP Surplus Supports THB

Sources: BNP Paribas and Bloomberg

12


13/23



BNP Paribas Weekly FX Global Bias Indicator*

Chart 1 : Weekly Global Bias Indictor Chart 2 : Weekly Global Bias - Momentum

-8

-6

-4

-2

0

2

4

6

8

10

CHF EUR JPY AUD NOK CAD USD SEK GBP

+8 equals strongest reading/-8 equals weakest reading

BNP Paribas 2011 - All Rights Reserved

-6

-4

-2

0

2

4

6

CAD SEK EUR CHF AUD NOK USD GBP JPY

+16 equals strongest reading/-16 equals weakest reading


Weekly Global Bias Indicator

*BNP Paribas FX Strategy Global Bias Indicatorsare derived from our system of technical trading models and are designed to providean indication of the overall strength of individual currencies. Bias Indicators at extreme bullish or bearish levels have historically proved tobe good leading indicators of corrections or turning points in the underlying spot rate.

Caution required with the CHF long positionsand SEK short positions

After spending a prolonged period of time as thestrongest currency within our system of mediumterm models, the CHF is now showing the first signsof weakening. Although the Weekly Bias Indicatorstill shows the AUD ranked overall as the strongestcurrencies, the Daily Bias Indicator is now showinga different picture, with the CHF having declinedsharply down the rankings from a near extremebullish position to a relatively negative position,implying that we are now starting to seeconsolidation in the CHF. Thus we recommendcaution with medium term CHF long positions

similarly the Weekly Bias Indicator continues toshow the SEK as one of the weakest currencies butas with the CHF is now starting to show signs ofturning. Hence we also recommend caution withmedium term SEK short positions.GBP continues to triggers bearish signals

Following the negative GBP signals triggered lastweek, the Weekly Bias Indicator shows the GBPmoving into a extreme bearish position, while theDaily Bias Indicator now also shows the GBP as theweakest currency overall within our system of shortterm models. With the GBP developing continuedbearish momentum within the Weekly Bias Indicatorwe would now expect some further GBP losses.

Weekly and Daily Bias Indicators give strongCAD buy signals and strong JPY sell signals

Over the past few days we have seen the CADclimb the ranking in the Daily Bias Indicator from aposition deep in negative territory to a relativelyneutral position. This is also consistent with thereadings from the Weekly Bias Indicator, whichshows the CAD having now recovered from theposition as the weakest currency into a slightnegative position as well as developing strongmedium term positive momentum. Further CADgains would now be expected over the short andmedium term

JPY on the other hand is developing the mostbearish momentum within our system of mediumterm models. Also the JPY has moved rapidly downthe overall rankings within the Weekly BiasIndicator, from the strongest currency last week to amoderately positive position currently. But the extent

of bullish momentum suggests the JPY will movemuch deeper into negative territory in the overallrankings in the coming week. This implies somefurther losses in the near-term at least. Indeed, theDaily Bias Indicator is also giving JPY bearishsignals.

These readings suggest long SEKJPY andCADJPY positions and GBPCAD and GBPSEKshort positions over the coming week.

13


14/23



BNP Paribas Weekly FX Global Bias Indicator

Chart 3 : EUR Bias Indicator and EURUSD Chart 4 : GBP Bias Indicator and EURGBP

-4

-2

0

2

4

6

8

Mar-11 May-11

1.37

1.39

1.41

1.43

1.45

1.47

1.49

BNP Paribas EUR Indicator EURUSD (rhs)

Bullish Extreme

Bearish Extreme

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

Mar-11 May-11

0.830

0.840

0.850

0.860

0.870

0.880

0.890

0.900

BNP Paribas GBP Indicator EURGBP (rhs)

Bullish Extreme

Bearish Extreme

Chart 5 : JPY Bias Indicator and EURJPY Chart 6 : CHF Bias Indicator and EURCHF

-10

-8

-6

-4

-2

0

2

4

6

8

Mar-11 May-11

105.00

107.00

109.00

111.00

113.00

115.00

117.00

119.00

121.00

123.00

BNP Paribas JPY Indicator EURJPY (rhs)

Bullish Extreme

Bearish Extreme

-8

-6

-4

-2

0

2

4

6

8

10

Mar-11 May-11

1.18

1.20

1.22

1.24

1.26

1.28

1.30

1.32

BNP Paribas CHF Indicator EURCHF (rhs)

Bullish Extreme

Bearish Extreme

Chart 7 : AUD Bias Indicator and EURAUD Chart 8 : CAD Bias Indicator and EURCAD

-10

-8

-6

-4

-2

0

2

4

6

8

Mar-11 May-11

1.29

1.31

1.33

1.35

1.37

1.39

1.41

1.43

1.45

BNP Paribas AUD Indicator EURAUD (rhs)

Bullish Extreme

Bearish Extreme

-9

-7

-5

-3

-1

1

3

5

Mar-11 May-11

1.28

1.30

1.32

1.34

1.36

1.38

1.40

1.42

1.44

BNP Paribas CAD Indicator EURCAD (rhs)

Bullish Extreme

Bearish Extreme

14


15/23



Chart 9 : CEEMEA Weekly Global Bias IndictorChart 10 : CEEMEA Weekly Global Bias

Momentum

-3

-2

-2

-1

-1

0

1

1

2

2

3

CZK ZAR HUF PLN RUB TRY ILS RON


-7

-6

-5

-4

-3

-2

-1

0

1

2

3

RON CZK PLN ZAR HUF RUB TRY ILS

BNP Paribas 2011 - All

Chart 11 : LATAM Weekly Global Bias IndictorChart 12 : LATAM Weekly Global Bias

Momentum

-5

-4

-3

-2

-1

0

1

2

3

4

PEN BRL ARS MXN CLP COP


-4

-2

0

2

4

BRL MXN CLP COP PEN ARS


Chart 13 :Asia Weekly Global Bias Indictor Chart 14 : Asia Weekly Global Bias Momentum

-8

-6

-4

-2

0

2

4

6

8

KRW SGD PHP IDR INR MYR TWD THB


-4

-2

0

2

4

6

SGD MYR KRW PHP INR THB TWD IDR


15


16/23



Medium Term FX RecommendationsShort GBPUSD Spot

24 June 2011Sold on a break of 1.5930, target 1.5350multi-month, stop-loss at 1.6285.

GBPUSD

1.6018

Our short position in Cable was activated on June 27t

thoughGBPUSD has backed up a bit on the coattails of the EURUSDrally following the passing of the Greek vote. However, this ismore of a USD move to us with GBP weaker on several othercrosses. We have long been Sterling bears, but our bearishbelief was invigorated with last weeks Q1 GDP data andrevised Q4 data showing a sorry current account picture overthe past 6 months. Rising credit risks against the backdrop ofan even bigger current account deficit - with the financialaccount already in deficit begs the question of where theinflows can come from. The implication is one that spells

trouble for Sterling. We still favour GBPUSD breaking lower inthe weeks and months ahead. Our measures of real rates hasplunged (see chart alongside)

Short GBPAUD Via 3m Options

24 June 2011Long 1.53 put RKO at 1.45 Vs. Short 1.63Call.

GBPAUD

1.4964

The position, now despite a lower spot is marking to marketpretty much flat as the moment with gains on the short calleroded equally by losses as the RKO put loses value as spotgets closer to the trigger. Keeping in mind the choppiness thata carry trade like short GBPAUD can face on rising volatility,

we opted to use options to play for a grind lower (using RKO tocut cost) and further sell a very OTM call to make it zero entrycost. We hold the position as we feel that GBPAUD couldcontinue to grind lower. China PMI did come in weaker butthankfully managed to hold above to 50 boom-bust mark.Along with the input prices dropping sharply which plays tolower imported inflation pressure, this goes to the China pressreports suggesting a tad less aggressive monetary policy. Onthe other hand, we dislike GBP as articulated in our shortCable trade.

Go Long EURCHF Via Options

01 July 2011 Long 3m 1.22 Call, 1.28 KI, 1.17 KO

EURCHF1.2260

The passing of Greek austerity measures reduced the tail riskof immediate default. The search for safety in the face ofEurozone debt crisis has seen EURCHF come undersustained pressure (Chart 1); but with imminent disaster nowmuch less likely, some of that pressure should subside. At thesame time, EURCHF risk reversals have been extremely wellbid for puts (Chart); this stress should also normalise. Wesuggest combining the two dynamics: Buy a 3-month EURCHF1.2200 Call with Knock-In at 1.28, Knock-out at 1.17. The riskreversal over-prices the chance of Knock-Out; and under-prices the chance of Knock-In. Cost is 0.88% against a vanillaprice of 1.53%

16


17/23



July 21 1.05/1.01 AUDUSD Put in the red

20 May 2011Jul 21 1.05/1.01 put spread bought at1.05%

AUDUSD1.07

Having marked to market positively at 1.10% AUD just lastweek with spot closer to 1.0500, the situation has completelychanged following the passage of Greece vote on austeritymeasures and their implementation. The position is nowmarking to market at 0.5250% AUD with 20 days left.AUDUSDhas reversed sharply higher and 1.06 channel down trendresistance has been broken. With the immediate Greekdefault and potential liquidity crisis averted, the USD has comeunder pressure once again. China PMI did come in weaker butthankfully managed to hold above to 50 boom-bust mark.Along with the input prices dropping sharply which plays tolower imported inflation pressure, this goes to the China pressreports suggesting a tad less aggressive monetary policystance.

NOKSEK RKO MTM at breakeven; Still Hold

NOKSEK1.1700

Suggested Aug 4 1.1485 RKO Call (barrier at 1.1905) nowmaps at 0.4995% NOK with 34 days left, versus 0.5000% atinception, which also the entry cost of option. Trade wasrecommended at over a 50% discount relative to the vanillaalternative. The NOK, like the SEK should continue to recoverstrongly to the extent they had been dogged by liquiditytensions in the weeks leading to the Greek vote. With thesomber threat of a liquidity crisis (on bond haircuts) havingbeen averted, NOK should once again gain given its status asthe most superior "fiscal" safe haven. NOKSEK has fallen backand could consolidate lower down to 1.1630 support thoughwe would expect the cross to remain biased higher rather thanlower on a medium term view.

17


18/23



Implied Option Volatility Analysis

EURUSD Implied Volatility Curve and 1y highs& lows

8

10

11

13

14

16

18

1w 1m 2m 3m 6m 9m 12m

Current Imp. Vol. High/Low Last Week Imp. Vol. USDCHF Implied Volatility Curve and 1y highs

& lows

7

8

9

11

12

13

14

15

17

1w 1m 2m 3m 6m 9m 12m

Current Imp. Vol. High/Low Last Week Imp. Vol.

AUDUSD Implied Volatility Curve and 1y highs& lows

8

11

13

16

18

21

1w 1m 2m 3m 6m 9m 12m

Current Imp. Vol. High/Low Last Week Imp. Vol.

USDJPY Implied Volatility Curve and 1y highs& lows

67

9

10

1113

1415

1618

19

202223

1w 1m 2m 3m 6m 9m 12m

Current Imp. Vol. High/Low Last Week Imp. Vol. GBPUSD Implied Volatility Curve and 1y highs

& lows

6

8

9

11

12

14

1w 1m 2m 3m 6m 9m 12m

Current Imp. Vol. High/Low Last Week Imp. Vol. USDCAD Implied Volatility Curve and 1y highs

& lows

6

8

9

11

13

15

1w 1m 2m 3m 6m 9m 12m

Current Imp. Vol. High/Low Last Week Imp. Vol. *BNP Paribas FX Strategy: The above charts show the current volatility curves (1-week through to 1-year) for themajor currency pairs in relation to the 1-year highs and lows for each of the tenor.

18


19/23



Majors Emerging Markets

EURUSD GBPUSD USDCHF USDJPY AUDUSD USDCAD USDZAR USDTRY USDHUF USDPLN

O

IL

0.52

0.09

0.5

0.48

0.09

0.37

0.02

0.39

0.17

0.51

0.19

0.1

0.64

0.04

0.57

0.08

0.74

0.54

0.05

0.56

0.37

0.23

0.64

0.43

0.04

0.470.47

0.01

0.560.54

COPPER 0.33

0.04

0.2

0.4

0.03

0.1

0.14

0.38

0.07

0.32

0.31

0.01

0.45

0.11

0.37

0.01

0.35

0.26

0.07

0.41

0.19

0.01

0.36

0.06

0.08

0.37

0.16

0.03

0.34

0.2

CRB

0.87

0.68

0.79

0.81

0.49

0.66

0.65

0.84

0.66

0.03

0.77

0.3

0.84

0.34

0.62

0.29

0.68

0.53

0.23

0.66

0.49

0.11

0.73

0.42

0.55

0.780.76

0.57

0.85

0.73

Commodities

GOLD

0.5

0.4

0.22

0.58

0.25

0.31

0.09

0.58

0.2

0.18

0.58

0.08

0.62

0.17

0.5

0.18

0.490.39

0.04

0.48

0.29

0.27

0.54

0.25

0.27

0.47

0.21

0.27

0.57

0.25

SP500

0.64

0.18

0.59

0.56

0.16

0.51

0.34

0.5

0.02

0.71

0.09

0.2

0.88

0.32

0.64

0.45

0.88

0.8

0.33

0.78

0.62

0.42

0.77

0.48

0.27

0.680.63

0.34

0.76

0.61

FTSE100 0.52

0.05

0.46

0.38

0.03

0.36

0.27

0.42

0.08

0.52

0.08

0.2

0.7

0.2

0.61

0.2

0.70.64

0.29

0.61

0.54

0.43

0.69

0.48

0.26

0.590.55

0.29

0.62

0.53

NIKKEI

225

0.23

0.14

0.12

0.35

0.07

0.06

0.22

0.14

0.03

0.36

0.17

0.06

0.34

0.01

0.22

0.05

0.33

0.16

0.13

0.3

0.2

0.03

0.26

0.06

0.1

0.22

0.13

0.11

0.24

0.18 Equities

EUR

O

NEXT

100 0.5

0.02

0.42

0.42

0.12

0.39

0.32

0.3

0.05

0.56

0.06

0.18

0.71

0.2

0.56

0.19

0.740.67

0.2

0.66

0.5

0.36

0.64

0.42

0.29

0.59

0.53

0.29

0.62

0.49

US10Y

Yields

0.54

0.17

0.5

0.53

0.15

0.39

0.57

0.32

0.1

0.68

0.310.31

0.75

0.16

0.49

0.05

0.81

0.65

0.19

0.66

0.41

0.07

0.69

0.39

0.09

0.69

0.51

0.03

0.71

0.54

EU

10Y

Yields

0.52

0.06

0.52

0.45

0.01

0.35

0.45

0.22

0.01

0.54

0.140.16

0.56

0.09

0.29

0.04

0.580.51

0.16

0.470.44

0.01

0.5

0.36

0.05

0.530.53

0.04

0.570.54

J

P10Y

Yields

0.29

0.33

0.27

0.18

0.28

0.04

0.29

0.15

0.01

0.44

0.13

0.07

0.41

0.22

0.04

0.13

0.42

0.21

0.33

0.45

0.16

0.37

0.36

0.14

0.26

0.23

0.23

0.19

0.28

0.28

US3m

LIBOR

0.36

0.25

0.07

0.31

0.170.12

0.18

0.23

0.11

0.25

0.22

0.07

0.29

0.21

0.05

0.16

0.34

0.06

0.17

0.21

0.1

0.18

0.34

0.05

0.22

0.33

0.05

0.22

0.32

0.02Bonds&Rates

EU

3m

LIBOR

0.29

0.01

0.14

0.24

0.08

0.12

0.17

0.28

0.05

0.08

0.210.18

0.2

0.18

0.12

0.19

0.17

0.08

0.24

0.140.1

0.09

0.20.15

0.01

0.21

0.1

0.01

0.21

0.15

High

Low

Current3 Month log daily return correlation. High and lows over the past 12 months

Different colours highlight the proximity to the extremes (dark red close to extreme)

19


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Economic Calendar: 4 - 8 JulyGMT Local Previous Forecast Consensus

Mon 04/07 01:30 13:30 Australia Retail Sales m/m : May 1.1% 0.6% n/a

01:30 13:30 Retail Sales y/y : May 3.3% 3.5% n/a

09:00 11:00 Eurozone PPI m/m : May 0.9% -0.1% -0.1%

09:00 11:00 PPI y/y : May 6.7% 6.3% 6.3%

US Public Holiday

Tue 05/07 01:30 13:30 Australia Trade Balance : May AUD1597mn AUD1277mn n/a

04:30 14:30 RBA Rate Announcement

07:30 09:30 Sweden Riksbank Rate Announcement & Monetary Policy

Report

08:00 10:00 Eurozone PMI Services (Final) : Jun 54.2 (p) 54.2 54.2

08:00 11:00 PMI Composite (Final) : Jun 53.6 (p) 53.6 n/a

09:00 11:00 Retail Sales (sa) m/m : May 0.9% -1.0% -1.0%

09:00 10:00 Retail Sales (ca) y/y : May 1.1% -0.6% -0.6%

08:30 09:30 UK CIPS Services : Jun 53.8 53.2 53.3

14:00 10:00 US Factory Orders m/m : May -1.2% 0.9% 1.0%

Wed 06/07 07:00 09:00 Spain Industrial Production (wda) y/y : May -1.6%

09:00 11:00 Eurozone GDP (Final) q/q : Q1 0.8% (p) 0.8% n/a

09:00 11:00 GDP (Final) y/y : Q1 2.5% (p) 2.5% n/a

10:00 12:00 Germany Factory Orders m/m : May 2.8% -1.0% 0.1%

10:00 12:00 Factory Orders y/y : May 10.5% 9.0% 10.0%

11:30 07:30 US Challenger Layoffs : Jun

14:00 10:00 ISM Non-Manufacturing : Jun 54.6 53.0 53.5

Thu 07/07 23:50

(06/07)

08:50 Japan Machinery Orders (sa) m/m : May -3.3% 3.5% 3.0%

01:30 11:30 Australia Unemployment Rate : Jun 4.9% 4.9% n/a

01:30 11:30 Employment Change : Jun 7.8k 27.5k n/a

06:45 08:45 France Trade Balance : May EUR-7.1bn EUR-6.4bn n/a

07:15 09:15 Switz CPI m/m : Jun 0.0% -0.1% n/a

07:15 09:15 CPI y/y : Jun 0.4% 0.8% n/a

07:30 09:30 Neths CPI m/m : Jun 0.1% -0.4% n/a

07:30 09:30 CPI y/y : Jun 2.3% 2.4% n/a

08:00 10:00 Norway Manufacturing Prod (sa) m/m : May -1.1% -0.5% n/a

08:00 10:00 Manufacturing Prod (nsa) y/y : May 0.6% 2.1% n/a

08:30 09:30 UK Industrial Production m/m : May -1.7% 1.3% 1.0%

08:30 09:30 Industrial Production y/y : May -1.2% -0.3% -0.6%

08:30 09:30 Manufacturing Production m/m : May -1.5% 1.4% 1.0%

08:30 09:30 Manufacturing Production y/y : May 1.3% 2.5% 1.8%

11:00 12:00 BoE Rate Announcement

10:00 12:00 Germany Industrial Production m/m : May -0.6% -0.3% 0.5%

10:00 12:00 Industrial Production y/y : May 9.6% 6.2% 7.0%11:45 13:45 Eurozone ECB Rate Announcement

12:30 14:30 ECB Press Conference

12:15 08:15 US ADP Labour Change : Jun 38k 100k 70k

12:30 08:30 Initial Claims 428k 410k n/a

15:00 11:00 EIA Oil Inventories

16:30 12:30 Feds Hoenig Speaks in Iowa

Fri 08/07 23:50

(07/07)

08:50 Japan Current Account (nsa) : May JPY406bn JPY498bn JPY388bn

06:00 08:00 Germany Trade Balance (sa) : May EUR14.0bn EUR11.0bn EUR11.0bn

06:30 08:30 France BdF Business Survey (Prel) : Jun 103.1 102.0 n/a

06:45 08:45 Budget Balance (Cumulative) : May EUR-67.9bn EUR-69bn n/a

07:30 09:30 Sweden Industrial Production (sa) m/m : May -0.7% 0.2% n/a

07:30 09:30 Industrial Production (nsa) y/y : May 12.0% 10.1% n/a

20


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GMT Local Previous Forecast Consensus

07:30 09:30 Neths Industrial Production (sa) m/m : May -0.3% -0.5% n/a

07:30 09:30 Industrial Production (nsa) y/y : May 0.8% 0.9% n/a

08:00 10:00 Italy Industrial Production m/m : May 1.0% 0.0% 0.0%

08:00 10:00 Industrial Production (wda) y/y : May 3.7% 2.7% 2.7%08:30 09:30 UK Input PPI (nsa) m/m : Jun -2.0% 0.5% 0.1%

08:30 09:30 Output PPI (nsa) y/y : Jun 5.3% 5.3% 5.5%

08:30 09:30 Output PPI (Ex-FDT, sa) y/y : Jun 3.4% 3.4% 3.3%

11:00 07:00 Canada Unemployment Rate : Jun 7.4% 7.4% 7.4%

11:00 07:00 Payroll Jobs y/y : Jun 22.3k 10.0k 10.0k

12:30 08:30 US Non-Farm Payrolls (Chg) : Jun 54k 75k 85k

12:30 08:30 Unemployment Rate : Jun 9.1% 9.1% 9.1%

12:30 08:30 Average Hourly Earnings m/m : Jun 0.3% 0.1% 0.2%

14:00 10:00 Wholesale Inventories m/m : May 0.8% 0.6% 0.7%

19:00 15:00 Consumer Credit : May USD6.2bn USD-3.0bn USD5.0bn

During 04-07 UK Halifax House Prices m/m : Jun 0.1% 0.0% n/a

Week Halifax House Prices y/y : Jun -4.2% -4.0% -4.2%

Release dates and forecasts as at c.o.b. prior to the date of publication: SeeDaily Economic Spotlight for any revision Source: BNP Paribas

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FX Forecasts*USD Bloc Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14

EUR/USD 1.50 1.55 1.45 1.40 1.35 1.35 1.30 1.30 1.30 1.30 1.34

USD/JPY 78 83 85 90 95 95 95 95 95 95 114

USD/CHF 0.83 0.83 0.90 0.93 1.00 1.00 1.04 1.04 1.04 1.04 1.09

GBP/USD 1.65 1.68 1.59 1.56 1.53 1.53 1.53 1.53 1.53 1.53 1.70

USD/CAD 0.98 0.93 0.95 0.97 1.01 1.01 1.04 1.04 1.04 1.04 1.21

AUD/USD 1.09 1.13 1.07 1.04 0.99 0.99 0.96 0.96 0.96 0.96 0.78

NZD/USD 0.82 0.84 0.81 0.80 0.76 0.76 0.74 0.74 0.74 0.74 0.56

USD/SEK 5.93 5.48 5.93 6.21 6.67 6.67 6.92 6.92 6.92 6.92 6.94

USD/NOK 4.98 4.77 5.07 5.26 5.56 5.56 5.77 5.77 5.77 5.77 5.07

EUR Bloc Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14

EUR/JPY 117 129 123 126 128 128 124 124 124 124 153

EUR/GBP 0.91 0.92 0.91 0.90 0.88 0.88 0.85 0.85 0.85 0.85 0.79

EUR/CHF 1.25 1.28 1.30 1.30 1.35 1.35 1.35 1.35 1.35 1.35 1.46

EUR/SEK 8.90 8.50 8.60 8.70 9.00 9.00 9.00 9.00 9.00 9.00 9.30

EUR/NOK 7.47 7.40 7.35 7.37 7.50 7.50 7.50 7.50 7.50 7.50 6.80

EUR/DKK 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46

Central Europe Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14

USD/PLN 2.60 2.48 2.69 2.75 2.81 2.78 2.85 2.77 2.85 2.85 2.65

EUR/CZK 24.3 24.5 24.1 23.9 23.8 23.5 23.7 24.0 23.5 23.3 23.1

EUR/HUF 275 275 269 265 265 260 260 255 260 260 250

USD/ZAR 6.80 6.60 6.55 6.60 6.50 6.50 7.20 7.10 7.00 6.90 6.69

USD/TRY 1.52 1.50 1.56 1.59 1.63 1.65 1.65 1.67 1.69 1.69 1.54

EUR/RON 4.20 4.15 4.20 4.25 4.15 4.10 4.20 4.20 4.10 3.95 3.90

USD/RUB 27.51 27.25 27.86 27.97 28.08 27.65 28.19 27.75 29.07 27.75 27.75

EUR/PLN 3.90 3.85 3.90 3.85 3.80 3.75 3.70 3.60 3.70 3.70 3.55

USD/UAH 7.8 7.8 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.3 7.4

EUR/RSD 100 100 98 97 96 95 93 92 91 90 85

Asia Bloc Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14

USD/SGD 1.22 1.21 1.21 1.20 1.19 1.18 1.17 1.16 1.15 1.14 -----

USD/MYR 2.95 2.90 2.87 2.85 2.83 2.80 2.77 2.75 2.73 2.70 -----

USD/IDR 8500 8400 8300 8200 8100 8000 7900 7800 7800 7800 -----

USD/THB 29.80 29.50 29.30 29.00 28.70 28.50 28.30 28.00 28.00 28.00 -----

USD/PHP 42.50 42.00 41.50 41.00 40.50 40.00 39.50 39.00 39.00 39.00 -----

USD/HKD 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 -----

USD/RMB 6.40 6.31 6.25 6.21 6.17 6.13 6.23 6.20 6.17 6.15 -----

USD/TWD 28.00 27.50 27.00 26.70 26.50 26.00 26.00 26.00 26.00 26.00 -----

USD/KRW 1060 1050 1040 1030 1020 1010 1000 1000 1000 1000 -----

USD/INR 45.50 45.00 44.50 44.00 43.50 43.00 43.00 42.50 42.50 42.00 -----

USD/VND 20500 20000 20000 20000 20000 20000 20000 20000 20000 20000 -----

LATAM Bloc Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14

USD/ARS 4.18 4.25 4.34 4.43 4.51 4.60 4.69 4.78 4.86 4.95 -----

USD/BRL 1.58 1.55 1.53 1.55 1.56 1.58 1.59 1.60 1.61 1.62 -----

USD/CLP 450 435 425 430 435 440 442 445 447 450 -----

USD/MXN 11.40 11.10 11.00 10.90 11.00 11.10 11.10 11.17 11.25 11.30 -----

USD/COP 1730 1690 1690 1700 1710 1720 1725 1730 1740 1750 -----

USD/VEF 4.29 4.29 4.29 4.29 4.29 4.29 8.80 8.80 8.80 8.80 -----

USD/PEN 2.70 2.65 2.63 2.63 2.64 2.66 2.67 2.68 2.69 2.70 -----

Others Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14

USD Index 72.30 70.76 74.87 77.62 80.72 80.72 82.99 82.99 82.99 82.99 83.88

*End Quarter

22


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FX Global Strategy Contacts

Foreign ExchangeRaymond Attrill Senior FX Strategist New York 1 212 841 2492 [email protected]

James Hellawell Quantitative Strategist London 44 20 7595 8485 [email protected] Kowshik FX Strategist London 44 20 7595 1495 [email protected] Nicola FX Strategist New York 1 212 841 2492 [email protected]

Emerging Markets FX & IR StrategyDrew Brick Head of FX & IR Strategy Asia Singapore 65 6210 3262 [email protected] Loo Thio FX & IR Asia Strategy Singapore 65 6210 3263 [email protected] Ryan FX & IR Asia Strategy Singapore 65 6210 3314 [email protected] Poh FX & IR Asia Strategy Singapore 65 6210 3418 [email protected] Qi FX & IR Asia Strategy Shanghai 86 21 2896 2876 [email protected] Pawlowski Head of FX & IR Strategy CEEMEA London 44 20 7595 8195 [email protected] Gruie FX & IR CEEMEA Strategist London 44 20 7595 8492 [email protected] Ahmad FX & IR CEEMEA Strategist London 44 20 7595 8620 [email protected] Donadio FX & IR Latam America Strategist Sao Paulo 55 11 3841 3421 [email protected]

Production and Distribution please contact:Roshan Kholil, Foreign Exchange, London. Tel: 44 20 7595 8486, Email: [email protected]

Important DisclosuresThis report has been written by our strategy teams. Such reports do not purport to be an exhaustive analysis and may be subject to conflicts of interestresulting from their interaction with sales and trading which could affect the objectivity of this report. (Please see further important disclosures in the text of thisreport).This report is a marketing communication. It is not independent investment research. It has not been prepared in accordance with legal requirementsdesigned to provide the independence of investment research, and is not subject to any prohibition on dealing ahead of the dissemination of investmentresearch. The information and opinions contained in this report have been obtained from, or are based on, public sources believed to be reliable, but norepresentation or warranty, express or implied, is made that such information is accurate, complete or up to date and it should not be relied upon as such. Thisreport does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investment. Information andopinions contained in the report are published for the assistance of recipients, but are not to be relied upon as authoritative or taken in substitution for theexercise of judgement by any recipient, are subject to change without notice and not intended to provide the sole basis of any evaluation of the instrumentsdiscussed herein. Any reference to past performance should not be taken as an indication of future performance. To the fullest extent permitted by law, noBNP Paribas group company accepts any liability whatsoever (including in negligence) for any direct or consequential loss arising from any use of or relianceon material contained in this report. All estimates and opinions included in this report are made as of the date of this report. Unless otherwise indicated in thisreport there is no intention to update this report. BNP Paribas SA and its affiliates (collectively BNP Paribas) may make a market in, or may, as principal oragent, buy or sell securities of the issuers mentioned in this report or derivatives thereon. BNP Paribas may have a financial interest in the issuers mentioned inthis report, including a long or short position in their securities and/or options, futures or other derivative instruments based thereon, or vice versa. BNP

Paribas, including its officers and employees may serve or have served as an officer, director or in an advisory capacity for any issuer mentioned in this report.BNP Paribas may, from time to time, solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser,manager, underwriter or lender) within the last 12 months for any issuer referred to in this report. BNP Paribas may be a party to any agreement with theissuer relating to the production of this report. BNP Paribas, may to the extent permitted by law, have acted upon or used the information contained herein, orthe research or analysis on which it was based, before its publication. BNP Paribas may receive or intend to seek compensation for investment bankingservices in the next three months from or in relation to an issuer mentioned in this report. Any issuer mentioned in this report may have been provided withsections of this report prior to its publication in order to verify its factual accuracy.BNP Paribas is incorporated in France with limited liability. Registered Office 16 Boulevard des Italiens, 75009 Paris. This report was produced by a BNPParibas group company. This report is for the use of intended recipients and may not be reproduced (in whole or in part) or delivered or transmitted to anyother person without the prior written consent of BNP Paribas. By accepting this document you agree to be bound by the foregoing limitations.

Certain countries within the European Economic AreaThis report is solely prepared for professional clients. It is not intended for retail clients and should not be passed on to any such persons. This report has beenapproved for publication in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas, 10 Harewood Avenue, London NW1 6AA, which isregulated by the Financial Services Authority for the conduct of its investment business in the United Kingdom and registered in England & Wales under No.FC13447. This report has been approved for publication in France by BNP Paribas, a credit institution licensed as an investment services provider by theCECEI and the AMF, whose head office is 16, Boulevard des Italiens 75009 Paris, France.This report is being distributed in Germany either by BNP Paribas London Branch, or by BNP Paribas Niederlassung Frankfurt am Main, regulated by theBundesanstalt fr Finanzdienstleistungsaufsicht (BaFin).

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BNP Paribas (2011). All rights reserved.

01 July 2011 _fx Weekly Complete

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