Currency Overview CURRENCIES GLOBAL - HSBC

We challenge the consensus again and argue for a stronger

USD in 2019

We look at four themes that support USD strength this year

CAD and CHF appear fragile given slower global growth and

private sector debt levels

Summary

EUR: We expect EUR-USD to fall to 1.10 by year end, restrained by soft Eurozone

growth, limited ability for the ECB to tighten and political risk concerns.

GBP: A ‘No Deal’ Brexit could see GBP-USD move to 1.10, whereas a Soft Brexit

could see GBP-USD push towards 1.45.

JPY: We see JPY strengthening to 105 against the USD by year end. JPY may

benefit from its safe-have allure amidst uncertainties facing the global economy.

CHF: We expect CHF to be dominated by external forces in 2019. A potential

increase in “risk on – risk off” behaviour could see modest gains for the CHF.

AUD: We stay bearish on the AUD in 2019 given its vulnerability to slower global

growth and tighter financial conditions. We see AUD-USD at 0.66 by year end.

NZD: We expect NZD-USD to fall to 0.62 by year-end given exposure to slowing

global growth and RBNZ’s resistance to currency strength.

CAD: We forecast USD-CAD to finish the year at 1.40. CAD concerns include the

pace of economic activity, the oil price, BoC monetary policy and household debt.

RMB (CNY): We lower our year-end forecast to 6.95 from 7.10 previously, to reflect

shifting probabilities toward the more optimistic outcomes from trade talks.

INR: We see USD-INR at 73 by year end as domestic drivers weigh on the INR.

Key upcoming events

Date Event

9 January BoC rate announcement

9 January FOMC December meeting minutes

23 January BoJ rate announcement

24 January ECB rate announcement

30 January FOMC rate announcement

5 February RBA rate announcement

7 February BoE rate announcement

Source: HSBC

HSBC currency forecasts

Spot Q1 19 Q2 19 Q3 19 Q4 19

EUR-USD 1.1455 1.13 1.10 1.10 1.10

GBP-USD 1.2736 1.30 1.30 1.30 1.30

USD-JPY 108.87 108 108 105 105

USD-CHF 0.9814 0.99 0.98 0.98 0.98

AUD-USD 0.7148 0.69 0.68 0.67 0.66

NZD-USD 0.6752 0.65 0.64 0.63 0.62

USD-CAD 1.3232 1.35 1.37 1.38 1.40

USD-CNY 6.8388 6.80 6.85 6.90 6.95

USD-SGD 1.3576 1.36 1.36 1.37 1.38

USD-INR 70.460 70.0 71.0 72.0 73.0

USD-MYR 4.1130 4.15 4.20 4.25 4.30

Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019

9 January 2019

Currency Overview CURRENCIES GLOBAL

Central Bank policy rate forecasts (%)

Current Q2 2019(f) Q4 2019(f)

USD 2.25-2.50 2.25-2.50 2.50-2.75

EUR 0.00 0.00 0.00

JPY -0.10 -0.10 -0.10

GBP 0.75 0.75 0.75

Source: HSBC forecasts for Fed funds, Refi rate/Deposit rate, Overnight Call rate and Base rate

Real GDP forecasts (%)

2017 2018(f) 2019(f)

US 2.2 2.9 2.5

China 6.9 6.6 6.6

Japan 1.7 0.8 0.9

Eurozone 2.5 1.9 1.4

UK 1.7 1.3 1.6

Source: HSBC forecasts

January 2019

CURRENCIES GLOBAL

9 January 2019

2

Challenging the consensus (again)

“If it ain’t broke, don’t fix it”, and so we enter 2019 retaining our counter-consensus USD bullish

view. We were happy in 2018 to stand apart from the consensus. In late April, we moved from

being USD neutral to USD bullish, a shift which has worked out well. We see little reason to

change. Consensus offers a tale of USD weakness which failed it in 2018. It will likely fail it

again in 2019 as four themes remain USD bullish.

1) USD should capitalise on slowing global economy

2019 has begun with the market in a sombre mood, digesting mounting evidence of a slowing

global economy. Should this trend persist, the JPY would be the natural outperformer but the

USD would likely not be far behind. The Federal Reserve (Fed) has the policy wherewithal to

support the US economy through interest rate cuts and a resurrection of a bond buying

programme if needed. Other G10 central banks, notably in Europe, are less well placed to offer

policy insulation (refer to chart 1 below). Instead, we believe weaker currencies would act as the

main shock absorber to help reflate their economies. In addition, a cyclical downturn could

highlight structural frailties around household and corporate debt levels for the likes of

Switzerland and Canada.

1. The Fed has greater flexibility to insulate the economy from a downturn than most

Source: HSBC, Bloomberg

-1

0

1

2

3

4

5

-1

0

1

2

3

4

5

USD NZD CAD AUD NOK GBP EUR JPY CHF SEK

10-year range Latest% %Policy rate:

USD: The best of a bad bunch

We retain our counter-consensus USD bullish view for 2019

In the relative world of FX, the USD is still best placed to strengthen

in most scenarios

Four themes remain supportive of the USD in 2019

3

CURRENCIES ● GLOBAL

9 January 2019

2) USD remains the high-yield play in G10

Alternatively, perhaps the gloom is misplaced and slower growth may not herald a more

threatening downturn. In this scenario, the fixation remains on policy, the cyclical dynamic.

Might 2019 be the year when the European Central Bank (ECB) starts to raise rates and the

Fed stops? This is a major premise used by dollar bears but it need not point to USD downside.

We need to think about levels and not just the change in rates. The USD is the high-yielding

play in G10. Other currencies simply cannot compete, and the interest rate differentials remain

wide (refer to chart 2 below). The USD bears argued that the USD would fall sharply once the

Fed was done hiking. The rates market now says we are at this point, but the USD has not

collapsed. Dollar bears are now scratching around for other arguments.

2. The USD is the G10 high yielder

Note: NOK* shows 3 year Norwegian bond Source: HSBC, Bloomberg

3) Policy rate changes unlikely to undermine the USD

Even if we focus on the more dovish change in Fed policy, things still look good for the USD.

The market is now priced for no rate hikes at all by the Fed in 2019. The market played a less

aggressive form of this dovish game in 2018 and failed. The case for a US recession is more

evident in financial markets than in the economic data. We still expect the Fed to hike while the

market does not. Other central banks might join the tightening club but it is not enough to simply

raise rates. “One and done” is not a game changer for a currency.

4) USD: Market long does not mean we are wrong

We would also dispute the view that the speculative market already being long (more USD

being bought than sold), means that the USD cannot rally further. Positioning is not stretched

and the USD extended its rally in mid-2014 from a similar position. In addition, our research

findings show that stretched positioning does not point to a reversal, but to greater scope for a

large move either higher or lower. When we consider what factors might cause a big move in

the USD, it is easier to envisage those that point to USD strength than a sudden bout of USD

weakness.

Conclusion

While the USD’s story may not look as positive as it did last year, with growth slowing and Fed

rate hike expectations softening, we must remember that currencies are a relative game. And in

a world of slower US growth, other currencies actually look even more vulnerable than the USD.

Other central banks face an inability to loosen policy if needed, the underlying level of rates

remains USD supportive, the balance of risks around consensus rate hike views still points to

USD upside, and positioning is not skewed against the USD, in our view. The USD may not be

perfect, but it is the best of a bad bunch in G10.

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

USD CAD AUD NZD NOK* GBP JPY SEK EUR CHF

2Y bond yield% %

CURRENCIES GLOBAL

9 January 2019

4

The most significant threat to G10 currencies in 2019 could come through private sector

leverage, in our view. We believe the CAD and CHF are two of the most exposed G10

currencies in this respect (in addition to the NOK and SEK which are not covered in this report).

This debt, in the form of household and corporate borrowing, does not enjoy much of a

backstop from central banks who have been more willing to take public sector debt onto their

balance sheets in recent years. Even where some central banks have bought corporate bonds

in the latest round of quantitative easing (QE), the scale has been small. As we move into 2019,

private sector debt faces rising risks from slower nominal growth and tighter financial conditions.

We therefore look at where in G10 these private sector pressure points could be felt most

acutely.

Chart 3 shows the total debt-to-GDP ratios for the household and corporate sectors across the

G10 economies, as of Q3 2018, plotted against the change in those ratios since 2007. The

further right on the chart, the higher the total level of household and corporate debt as a

percentage of GDP. The higher up on the y-axis, the bigger the increase in debt since the

previous global financial crisis. Charts 4 and 5 show the breakdown by household and corporate

sectors. Switzerland and Canada are two of the economies that stand out. They have some

of the largest combined debt-to-GDP ratios across these two sectors – both are well over 200%

of GDP. These countries have also seen some of the biggest increases in debt in the last

decade, of 50% of GDP or more since 2007.

3. Exposing the CAD and CHF

Source: HSBC, BIS

AUD

CAD

EUR

JPY

NZD

NOK

SEK CHF

GBPUSD

-30

-20

-10

0

10

20

30

40

50

60

140 160 180 200 220 240 260

Household and corporate debt, %GDP (x-axis) versus change since end-2007 (y-axis)ppt

% GDP

Greater increase in debt since 2007

Larger totalunderlying debt

Exposing the CAD and CHF

Slower global growth and shifting financial market dynamics suggest

that structural concerns will be more exposed in 2019

Private sector debt – across households and corporates – is the most

concerning potential pressure point in our view

CAD and CHF stand out as two of the most vulnerable in G10

5

CURRENCIES GLOBAL

9 January 2019

4. Those with the largest debt to GDP... 5. …have also seen the largest increase

Source: HSBC, BIS Source: HSBC, BIS

A two-pronged attack for currencies

The build-up of private sector leverage in these economies matters on two fronts, one cyclical

one structural. The cyclical concern for FX is that the build-up of leverage makes it hard for

central banks to hike rates very quickly, making it more likely these currencies underperform.

The structural concern is that these levels of debt actually engender a disruptive negative spiral.

The latter is less likely but would likely lead to significant FX weakness so cannot be ignored.

1. Cyclically, higher debt should mean slower growth

Switzerland and Canada have seen their economic growth since the global financial crisis being

driven by this build-up of leverage given ultra-loose monetary policy. As monetary conditions

continue to tighten, it is likely that credit-assisted growth will be less forthcoming in the future.

And this would be happening at a time when global growth has already slowed and is forecast

to slow further. This makes the cyclical argument for owning these currencies much less

compelling, especially compared to the USD where rates are already higher and have further

room for hikes given earlier household deleveraging.

Higher rates against a backdrop of more debt will also have a bigger impact on interest

payments. This will likely make it harder for central banks in these economies to tighten policy

given fears of generating financial instability. This may be a rising worry for the Bank of Canada

(BoC), as the economy has seen household debt increase by close to 30ppt relative to GDP

since 2007, a good chunk of which has been in the form of mortgages. But house prices gains

have slowed, from nearly 4% y/y in 2017 to basically flat in late 2018, as the BoC has delivered

five hikes.

2. Structural risks rise with higher debt and rising debt servicing

The bigger negative risk would be if the combination of higher debt, slower growth and an

inability to loosen monetary policy were to lead to a much more dramatic series of defaults or

restructurings of debt in either of these economies or sectors. While this is not our base case, it

is relatively straightforward to map out a path whereby this could become a toxic cocktail where

these loans start to fail, pushing borrowing costs even wider, slowing growth further and

creating a negative feedback loop.

Conclusion

The biggest risks – from both a cyclical and a structural perspective – are from private sector

rather than public sector debt in our view. We believe the CAD and CHF are amongst the G10

currencies facing the most vulnerabilities in 2019 due to the overall level of private sector

debt in their economies.

0

50

100

150

200

250

CHF SEK NOK CAD AUD NZD GBP EUR JPY USD

Household Corp

Credit to different sectors, market value, % GDP

-30

-20

-10

0

10

20

30

40

50

60

SEK CAD CHF NOK EUR AUD JPY NZD GBP USD

Household Corp

Change in credit to different sectors since 2007

market value, % GDP,

CURRENCIES GLOBAL

9 January 2019

6

EUR: Slower and lower

We expect the EUR to weaken during 2019, restrained by soft growth, a central bank with limited justification to tighten meaningfully, and possible bouts of heightened political risk. Our 1.10 year-end EUR-USD forecast is in marked contrast to a consensus looking for something closer to 1.20.

The EUR’s core problem is that the case for monetary tightening is weak. Growth persistently disappointed during 2018 despite flawed reassurances from the ECB that things would improve. Leading indicators at the end of 2018 suggest little prospect of a convincing upswing any time soon.

Policy divergence with the Fed also looks unlikely. Core inflation remains low and while it may creep higher, it is hard to see the ECB raising rates more than the Fed in 2019. In any event, the low level of EUR rates, is likely to remain a headwind when the USD offers relatively generous positive yields.

EUR-USD

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

EUR-USD HSBC Forecasts

HSBC

Forecasts

Source: HSBC, Refinitiv Eikon

__ Past performance ___ ________ Forecasts _________ FX L-T view* Spot Support Resistance 1mth 3mth 6mth Q1 19 Q2 19 Q3 19 Q4 19

EUR-USD ↘ 1.1455 1.1309 1.1621 0.69% -0.30% -2.50% 1.13 1.10 1.10 1.10 Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019 *L-T = long-term

GBP: Purely politics

As the Article 50 process that governs the UK’s exit from the European Union nears its end, on 29 March 2019, so too does GBP approach its potential moment of reckoning. The currency has, for long periods in the last few years, been trading as a probability weighted average of two distinct binary outcomes related to Brexit.

At one extreme is a ‘No Deal’ Brexit, where the UK would leave the EU with no agreements whatsoever, leaving a high level of economic uncertainty. In our view, this would cause GBP-USD to move to 1.10 as the economy dealt with a likely recession and a spike in inflation.

The other extreme is a Soft Brexit, where the UK signs a Withdrawal Agreement and enters a transition period where nothing changes for a minimum of 21 months. This outcome, in our view, would push GBP-USD towards 1.45 through the course of 2019, as business investment and growth rebound, and more rate hikes could be priced in.

GBP-USD

1.15

1.25

1.35

1.45

1.55

1.65

1.75


GBP-USD HSBC Forecasts

HSBC Forecasts



GBP-USD ↗ 1.2736 1.2441 1.2893 0.08% -3.09% -3.93% 1.30 1.30 1.30 1.30 Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019 *L-T = long-term

7

CURRENCIES GLOBAL

9 January 2019

JPY: Safety play

The JPY is likely to prove a notable exception to our USD bullish outlook as it contends with the myriad uncertainties facing the global economy in 2019. We expect USD-JPY to finish the year at 105.

Even in the early days of 2019, the JPY has shown itself to be the “go to” safe haven play within FX. We do not expect this to change. The coming year holds a number of potential worries for markets that we believe will keep the JPY supported alongside the USD. Uncertainty prevails over the likely scale of the global economic slowdown, and any sign that it is becoming a more significant downswing would be JPY positive.

Domestic drivers to the JPY are likely to remain muted with monetary policy set to remain unchanged. Verbal intervention by policymakers to limit any risk-off gains in the JPY are likely, periodically.

USD-JPY

95

100

105

110

115

120

125

130


USD-JPY HSBC Forecasts

HSBC Forecasts



USD-JPY ↘ 108.87 104.87 111.15 -3.42% -3.60% -1.78% 108 108 105 105 Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019 *L-T = long-term

CHF: Clocking off

The domestic story is not particularly inspiring, suggesting the CHF will be dominated by external forces in 2019, with a potential increase in “risk on – risk off” type market behaviour pointing to some modest outperformance for the currency. Our year-end USD-CHF forecast is 0.98.

With the ECB not expected to hike until Q4 2019 at the earliest, and with growth and inflation dynamics in Switzerland pointing in the wrong direction, it is hard to see why the Swiss National Bank (SNB) would look to shift from its long-term dovish stance.

That said, external factors could drive some outperformance for the CHF, with the currency likely to benefit from its safe haven status should global growth deteriorate more rapidly, even if these effects are more modest than in the past.

USD-CHF

0.85

0.90

0.95

1.00

1.05


USD-CHF HSBC Forecasts

HSBC Forecasts



USD-CHF → 0.9814 0.9542 0.9881 -0.90% -1.04% -1.00% 0.99 0.98 0.98 0.98

Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019 *L-T = long-term

CURRENCIES GLOBAL

9 January 2019

8

AUD: Fragile households

We stay bearish on the AUD in 2019 given its vulnerability to slower global growth and tighter financial conditions as well as emergent local headwinds. Consistent with our strong USD view, we now expect AUD-USD to fall to 0.66 by the end of 2019.

The AUD-USD has not rallied after the large dovish adjustment in US rates, as Reserve Bank of Australia (RBA) hike expectations have retreated broadly in tandem. The possibility of an RBA rate cut cannot be ruled out given peaking GDP growth, weak underlying inflation and risks around the housing sector and China.

The AUD could also be vulnerable if structural concerns re-emerge as the primary driver of FX given Australia has the most negative net international investment position relative to GDP within G10, reflecting its net debtor status.

AUD-USD

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00


AUD-USD HSBC Forecasts

HSBC Forecasts



AUD-USD ↘ 0.7148 0.6741 0.7335 -0.71% 0.65% -4.26% 0.69 0.68 0.67 0.66 Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019 *L-T = long-term

NZD: Fragile globe = Fragile NZD

We expect NZD-USD to fall to 0.62 by the end of 2019. In part this reflects our bullish USD view, but we also struggle to see how the NZD will gain in an environment where global growth is slowing and the Reserve Bank of New Zealand (RBNZ) is likely to remain highly resistant to currency strength.

The primary issue for the NZD is cyclical as the currency transitions away from its long-held high-yielder status. While New Zealand bond yields were historically top of the G10 league table, they are now the fourth highest using the 2Y yield. There is little in the outlook to suggest that this will reverse, particularly as policymakers appear to be on high alert for signs of faltering growth.

Locally, GDP growth has already lost momentum judging by the Q3 2018 print of 2.6% y-o-y with the breakdown showing a second consecutive quarter of disappointing business investment, a possible sign that the recessionary levels of business sentiment are starting to bite.

NZD-USD

0.60

0.65

0.70

0.75

0.80

0.85

0.90


NZD-USD HSBC Forecasts

HSBC Forecasts



NZD-USD ↘ 0.6752 0.668 0.68 -1.66% 4.33% -1.20% 0.65 0.64 0.63 0.62 Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019 *L-T = long-term

9

CURRENCIES GLOBAL

9 January 2019

CAD: Fragile

We expect USD-CAD to finish the year at 1.40. In part, the trajectory reflects our bullishness on the USD but it also embeds our concerns about the CAD regarding the pace of economic activity, the oil price, the outlook for Bank of Canada (BoC) monetary policy and the vulnerability of the household sector to higher interest rates.

The BoC has more recently tempered its hawkish rhetoric, in part to take account of the sharp decline in oil prices during Q4 2018.With Canadian oil prices particularly hard hit, there have already been announcements of oil production cuts that will negatively impact overall GDP growth.

The market is currently priced more hawkishly for the BoC than it is for the Fed. We question whether this divergence will actually play out in reality. In particular, there are already signs in the Canadian data for housing and auto sales that the tightening delivered is taking its toll on activity. Lower inflation and moderate wage growth suggest no need for urgency.

USD-CAD

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50


USD-CAD HSBC Forecasts

HSBC Forecasts



USD-CAD ↗ 1.3232 1.3179 1.3665 -0.65% 2.22% 0.95% 1.35 1.37 1.38 1.40 Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019 *L-T = long-term

China (CNY): A truce for now

US-China trade tensions have become a key driver of USD-RMB. The two sides have until 2 March 2019 to reach some sort of agreement, or the US will raise the tariff rate on USD200bn of Chinese imports from 10% to 25%. There are, broadly speaking, three potential outcomes, in our view.

First, there is a truce and the US continues to freeze the tariff rate at 10% – USD-RMB could fall towards the 6.80 level from late July 2018. Secondly, if there is a deal and both sides rescind all tariffs – USD-RMB will likely fall sharply. Thirdly, if talks break down and the US considers tariffs on all imports from China – USD-RMB could break 7.00.

The meeting between President Trump and President Xi at the G20 summit and subsequent comments from their aides have raised the likelihood of an agreement, in our view. Accordingly, to reflect the shifting probabilities toward the more optimistic outcomes, we lower our USD-RMB forecast for end-2019 to 6.95, from 7.10 previously.

USD-CNY

6.00

6.20

6.40

6.60

6.80

7.00

7.20


USD-CNY HSBC Forecasts

HSBC Forecasts



USD-CNY → 6.8388 6.6895 6.8941 -0.50% -1.20% 3.43% 6.80 6.85 6.90 6.95

Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019 *L-T = long-term

CURRENCIES GLOBAL

9 January 2019

10

INR: Stumped

In 2019, the depreciation pressure on the INR should moderate relative to 2018, but is unlikely to go away. We expect USD-INR to reach 73 by end-2019. Broad USD strength should continue. Meanwhile, domestic drivers may also weigh on the INR, including the still deteriorating ‘core’ balance of payments, the softening growth outlook, and election risks.

Inflation is subdued by benign food prices and growth has lost momentum. The latter has been compounded by liquidity challenges faced by non-bank financial corporates. In our view, a weaker growth outlook would sustain the INR’s depreciation pressures, especially when its nominal and real yields have been narrowing.

Nonetheless, the pace of INR weakness should moderate. India’s current account deterioration is expected to slow given the INR’s earlier decline. Also, if Brent oil prices were to stabilise at USD50-60/barrel, this would lead to a significant improvement in India’s balance of payments.

USD-INR

55.0

60.0

65.0

70.0

75.0

80.0


USD-INR HSBC Forecasts

HSBC Forecasts



USD-INR ↗ 70.460 69.4249 71.6022 -0.55% -5.21% 2.64% 70.0 71.0 72.0 73.0 Source: HSBC, Refinitiv Eikon as at 14:05 HKT on the 09/01/2019 *L-T = long-term

Glossary

Dovish Dovish refers to an economic outlook which generally supports low interest rates as a means of encouraging growth within the economy

Hawkish Hawkish is typically used to describe monetary policy which favours higher interest rates, and tighter monetary controls to keep inflation in check

MoM, YoY Month on month, Year on year

RMB CFETS Index This index refers to the currency basket accepted by China Foreign Exchange Trade System (CFETS) comprising 13 currencies vs. RMB

Libor A benchmark rate that some of the world's leading banks charge each other for short-term loans

Curve Refers to the yield curve for the respective country’s sovereign bonds

2’s-30’s curve Refers to the difference in yield between 2yr and 30yr sovereign bonds for the specified country NEER Nominal Effective Exchange rate PMI Purchasing Managers Index – an indicator of economic health of the manufacturing sector (>50

represents expansion vs. previous month) QFII Qualified Foreign Institutional Investor (QFII) is a program that permits certain licensed international

investors to participate in China’s mainland stock exchange. Quotas determine the amount that licensed foreign investors can invest in China’s capital markets and these can be adjusted to reflect and respond to China’s economic and financial situation

FDI Foreign Direct Investment is an investment made by a company or entity based in one country, into a company or entity based in another country. It typically involves the investor having a significant degree of influence and control over the company in which the investment is made.

Fed Federal Reserve System (US Central Bank) ECB European Central Bank (Eurozone Central Bank) BoE Bank of England (UK Central Bank) BoJ Bank of Japan (Japanese Central Bank)

BoC Bank of Canada PBoC People’s Bank of China (China Central Bank) RBA Reserve Bank of Australia

RBNZ Reserve Bank of New Zealand SNB Swiss National Bank, the central bank of Switzerland MAS Monetary Authority of Singapore

BNM Bank Negara Malaysia (Malaysia’s Central Bank) Mario/Draghi Mario Draghi, President of the European Central Bank (ECB) Powell Jerome Powell, Chair of the Board of Governors of the Federal Reserve System (Fed)

Carney Mark Carney, Governor of the Bank of England Abe Shinzo Abe, Prime Minister of Japan Kuroda Haruhiko Kuroda, Governor of the Bank of Japan

Explanation of terms

Support (S), Resistance (R): Significant previous lows and highs plus retracement levels.

Meaning of the arrows:

As per HSBC Global Research, an upward sloping (↗) / downward sloping (↘) arrow indicates that the

first currency quoted in the pair is expected to appreciate/depreciate against the second currency quoted by the end of the last forecast period shown in the report. For example, an upward sloping arrow for EUR-USD means that the EUR is expected to appreciate against the USD by the end of the last forecast period.

A sideways arrow (→) indicates that the currency is expected to be at a similar level to the spot price

stated in the report by the end of the last forecast period.

Note: The direction of the arrow is dictated by the difference between the spot price and the furthest

forecast stated in the forecast table. Within that timeframe, it is quite possible that the currency is expected to move in an opposing direction. This is depicted both by the forecast ‘dots’ shown on the charts as well as in the forecast table.


9 January 2019

12

Disclosure appendix

Important disclosures

This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to

buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Information in this

document is general and should not be construed as personal advice, given it has been prepared without taking account of the

objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the

appropriateness of the information, having regard to their objectives, financial situation and needs. If necessary, seek professional

investment and tax advice.

Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may

not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the

investment products mentioned in this document and take into account their specific investment objectives, financial situation or

particular needs before making a commitment to purchase investment products.

The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor

may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value

that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by

exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future

results.

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of

companies covered in HSBC Research on a principal or agency basis.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

Additional disclosures

1 This report is dated as at 09 January 2019.

2 All market data included in this report are dated as at close 08 January 2019, unless a different date and/or a specific time

of day is indicated in the report.

3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of

Research operate and have a management reporting line independent of HSBC's Investment Banking business.

Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses

to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest

payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the

price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument,

and/or (iii) measuring the performance of a financial instrument.

13


9 January 2019

Disclaimer This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the

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Miscellaneous

Notwithstanding this document is not investment advice, please be aware of the following for the sake of completeness. Past performance is not an indication of future performance. The value of

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This document contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. Such statements are projections, do not represent any one investment

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