Edited text Fx Strat 16.3.2015 PvB - Standard Chartered · 2015. 3. 16. · USD/JPY seems to have...

This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. Important disclosures can be found in the Disclosures Appendix.

1

fx strategyfx | 16 March 2015

The views expressed in this publication are made on the basis of a 2-4 week outlook and may differ from our longer term views and forecasts from the Global Research function

Strong USD uptrend likely to continue

The USD gained against most major peers following another strong US employment report and initiation of bond buying by the European Central Bank (ECB). Declines in the EUR and GBP contributed the most to the USD rally, while the fall in the JPY was relatively modest.

In the week ahead, Euro area inflation and the Fed FOMC meeting are key events. Lower than estimated inflation expectations could provide impetus to further EUR downside. A more hawkish Fed would likely extend the USD rally.

EUR/USD

We remain bearish on the EUR/USD pair as strong trend and momentum indicators signal further downside ahead.

USD/JPY

We turn neutral on the USD/JPY pair (from bullish earlier) as upward momentum seems to have eased.

AUD/USD

We remain bearish on the AUD/USD pair as technical indicators signal further downside ahead.

USD/SGD

We remain bullish on the USD/SGD pair and expect it to head beyond the 1.400 mark.

GBP/USD

We turn bearish on the GBP/USD pair (from neutral earlier) after key support levels were breached, signalling more weakness.

XAU/USD

We turn neutral on the XAU/USD pair (from bearish earlier) as technical indicators are providing divergent signals.

Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary Res

EUR/USD Bearish 1.000 1.015 1.052 1.084 1.120

USD/JPY Neutral 116.00 119.00 121.32 122.50 124.50

AUD/USD Bearish 0.720 0.745 0.765 0.800 0.820

USD/SGD Bullish 1.342 1.365 1.393 1.420 1.452

GBP/USD Bearish 1.400 1.440 1.476 1.500 1.540

XAU/USD Neutral 1080 1140 1160 1220 1250

USD/CNH* Neutral 6.222 6.260 6.275 6.300 6.315

USD/ZAR* Bullish 10.625 11.342 12.437 12.562 13.500

NZD/USD* Bearish 0.698 0.715 0.736 0.750 0.765

USD/CHF* Bullish 0.962 0.985 1.005 1.020 1.040

USD/SEK* Bullish 7.800 8.150 8.695 9.000 9.465

USD/CAD* Bullish 1.160 1.200 1.2801 1.320 1.400

*SUPPLEMENTARY PAIRS - Going forward, we will maintain the EUR, JPY, AUD, SGD, GBP and XAU outlook while adding just key technical levels for the supplementary pairs

Contents

Strong USD uptrend likely to continue 1

EUR/USD 2

USD/JPY 3

AUD/USD 4

USD/SGD 5

GBP/USD 6

XAU/USD (Gold) 7

SUPPLEMENTARY PAIRS 8

Interest Rate Differentials 10

FX Implied Volatility 10

Disclosure Appendix 12

Weekly performance of pairs

6 March 2015 to 13 March 2015

Source: Bloomberg, Standard Chartered

Steve Brice Chief Investment Strategist

Clive McDonnell Head, Equity Investment Strategy

Manpreet Gill Head, FICC Investment Strategy

Adi Monappa, CFA Head, Asset Allocation

Audrey Goh, CFA Investment Strategist

Victor Teo, CFA Investment Strategist

Tariq Ali, CFA Investment Strategist

Abhilash Narayan Investment Strategist

-0.75

-1.95

1.10

-1.02

0.47

-3.21

-4.00 -3.00 -2.00 -1.00 0.00 1.00 2.00

XAU/USD

GBP/USD

USD/SGD

AUD/USD

USD/JPY

EUR/USD

%

16 March 2015 | fx strategy

This reflects the views of the Wealth Management Group 2

EUR/USD

We remain bearish on the EUR/USD pair as strong trend and momentum indicators signal further downside ahead.

Performance

EUR/USD ended down (-3.21%) over the previous week. Greece welcomed funding through the European Stability Mechanism during the week. Investor sentiment recovered, mirroring other improving business gauges, helped by the ECB’s QE programme.

In the US, producer prices fell last month. The University of Michigan’s consumer sentiment index fell in March, although forward-looking inflation expectations rose to their highest since September.

Technical Analysis

Major technical indicators are, on balance, bearish.

We remain bearish on the EUR/USD pair. The break-down of the January-February symmetrical triangular pattern has resulted in an accelerated decline below the 1.120 mark. Although short positing is approaching extreme levels, demand remains weak amid poor sentiment. The next significant support levels are now near parity.

We would review our outlook if the pair moves above 1.084.

Key Signposts

Euro area – Consumer price inflation, ZEW survey expectations, employment (17 March), trade balance (18 March), labour costs (19 March), the ECB’s current account (20 March).

US – Empire manufacturing, industrial production, capacity utilisation, NAHB housing market (16 March), housing starts, building permits (17 March), FOMC rate decision, current account balance, Philadelphia Fed business outlook and leading indicators (19 March).

The EUR/USD downtrend remains intact, despite oversold indicators

Technical Analysis Chart: EUR/USD (Daily)


1.015

1.084

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15

EUR

/US

D

EUR/USD 50 dma 100 dma 200 dma

Key technical indicators and forecast*

Technical Indicator Action

RSI (14) Buy

Oscillator (5,10) Neutral

MACD (12,26,9) Sell

ADX (14) Sell

Momentum (14) Sell

Key Levels Level Importance

Secondary Resistance 1.120 High

Primary Resistance 1.084 High

Spot 1.052 –

Primary Support 1.015 Low

Secondary Support 1.000 High

Forecast Consensus

Q1 2015 1.12

Q2 2015 1.09

Q3 2015 1.08

Q4 2015 1.08

* Please see Appendix on Pg 11 for explanation on technical


50 dma 100 dma 200 dma1.1319 1.185 1.2524



USD/JPY

We turn neutral on the USD/JPY pair (from bullish earlier) as upward momentum seems to have eased.

Performance

USD/JPY ended up (0.47%) over the previous week. Q4 growth was revised lower to an annualised rate of 1.5%, suggesting the economy has struggled to recover after the April sales tax hike. Inflation was flat and well below the BoJ’s target rate.

Technical Analysis

Major technical indicators, on balance, are bullish to neutral.

We turn neutral on the USD/JPY pair (from bullish earlier). The bullish momentum has eased despite clearing initial resistance (120.50). A temporary pullback to 119.00 and a consolidation phase cannot be ruled out at this stage. However, a clear break above 122.50 would indicate a resumption in the rally, in our opinion.

We would review our outlook if the pair moves below 119.00 or above 122.50.

Key Signposts

BoJ monetary policy statement, leading index, nationwide department store sales (17 March), trade balance, machine tool orders (18 March), all industry activity index (19 March), the BoJ meeting minutes (20 March).

USD/JPY seems to have lost momentum recently

Technical Analysis Chart: USD/JPY (Daily)


119.00

122.50

98

102

106

110

114

118

122

126

130


US

D/J

PY

USD/JPY 50 dma 100 dma 200 dma



RSI (14) Neutral

Oscillator (5,10) Sell

MACD (12,26,9) Buy

ADX (14) Buy

Momentum (14) Neutral




Spot 121.32 –

Primary Support 119.00 Medium


Forecast Consensus

Q1 2015 120

Q2 2015 122

Q3 2015 124

Q4 2015 125



50 dma 100 dma 200 dma118.95 118.21 111.3



AUD/USD

We remain bearish on the AUD/USD pair as technical indicators signal further downside ahead.

Performance

AUD/USD ended down (-1.02%) over the previous week. The employment report saw greater job creation than consensus expected while the official unemployment rate moved to 6.3% in February. In China, inflation rose in February, in line with expectations. However, industrial production slowed down to 6.8% in February from 7.9% in the previous month.

Technical Analysis

Major technical indicators, on balance, are neutral to bearish.

We remain bearish on the AUD/USD pair. The pair’s break below the late-January sideways range indicates the possibility of further weakness. We believe the longer-term downtrend unfolding since February is likely heading towards 0.72 (the 61.8% retracement of its 2000-2011 bull rally).

We would review our outlook if the pair recovers above 0.800.

Key Signposts

Australia – New motor vehicle sales (16 March), RBA March meeting minutes (17 March), the Westpac leading index (18 March.

China – no key economic releases this week.

AUD/USD seems to be resuming its downtrend following consolidation

Technical Analysis Chart: AUD/USD (Daily)


0.745

0.800

0.70

0.75

0.80

0.85

0.90

0.95

1.00


AU

D/U

SD

AUD/USD 50 dma 100 dma 200 dma



RSI (14) Neutral


MACD (12,26,9) Sell

ADX (14) Sell

Momentum (14) Sell




Spot 0.765 –



Forecast Consensus

Q1 2015 0.77

Q2 2015 0.76

Q3 2015 0.75

Q4 2015 0.74



50 dma 100 dma 200 dma0.7876 0.8156 0.8669



USD/SGD

We remain bullish on the USD/SGD pair and expect it to head beyond the 1.400 mark.

Performance

USD/SGD ended up (1.10%) over the previous week. Q4 unemployment rate was flat and in line with expectations.

Technical Analysis

Major technical indicators, on balance, are bullish.

We remain bullish on the USD/SGD pair. The rally continued to progress last week with the pair getting close to the psychological 1.400 mark. The on-going uptrend has been remained largely uninterrupted, highlighting the likelihood of further upside.

We would review our outlook if the pair falls below 1.365.

Key Signposts

No key economic releases this week.

The rally is likely to extend further

Technical Analysis Chart: USD/SGD (Daily)


1.365

1.420

1.21

1.26

1.31

1.36

1.41

1.46


US

D/S

GD

USD/SGD 50 dma 100 dma 200 dma



RSI (14) Buy


MACD (12,26,9) Buy

ADX (14) Neutral

Momentum (14) Buy



Primary Resistance 1.420 Medium

Spot 1.393 –


Secondary Support 1.342 Medium

Forecast Consensus

Q1 2015 1.36

Q2 2015 1.38

Q3 2015 1.38

Q4 2015 1.40



50 dma 100 dma 200 dma1.3542 1.3302 1.293



GBP/USD

We turn bearish on the GBP/USD pair (from neutral earlier) after key support levels were breached, signalling more weakness.

Performance

GBP/USD ended down (-1.95%) over the previous week. The trade deficit narrowed in January, the lowest in 12 months. Industrial and manufacturing production witnessed a slowdown in January instead of a rebound as expected. BoE Governor Mark Carney commented that he was in no rush to raise rates.

Technical Analysis

Major technical indicators, on balance, are bearish.

We turn bearish on the GBP/USD pair (from neutral earlier). The pair last week broke through the previous key support of 1.500 and then the 2013 double-bottom lows of 1.480. This has now opened up the possibility the pair will test the 1.44 region near the 2010 lows.

We would review our outlook if the pair ends above 1.50.

Key Signposts

Rightmove house price index (16 March), employment change, BoE minutes and ILO unemployment rate (18 March).

GBP/USD technicals signal further weakness ahead after breach of key support levels.

Technical Analysis Chart: GBP/USD (Daily)


1.440

1.500

1.40

1.43

1.46

1.49

1.52

1.55

1.58

1.61

1.64

1.67

1.70

1.73


GB

P/U

SD

GBP/USD 50 dma 100 dma 200 dma



RSI (14) Buy

Oscillator (5,10) Buy

MACD (12,26,9) Sell

ADX (14) Sell

Momentum (14) Sell




Spot 1.476 –

Primary Support 1.440 High


Forecast Consensus

Q1 2015 1.51

Q2 2015 1.50

Q3 2015 1.49

Q4 2015 1.50



50 dma 100 dma 200 dma1.5196 1.5451 1.6037



XAU/USD (Gold)

We turn neutral on the XAU/USD pair (from bearish earlier) as technical indicators are providing divergent signals.

Performance

XAU/USD ended down (-0.75%) over the previous week. Strong demand for the US dollar added pressure to the price of the yellow metal.

Technical Analysis

Major technical indicators are divergent.

We turn neutral on the XAU/USD pair (from bearish earlier). The previous low of 1,140 seen back in November appears to be a key support that could temporarily halt the decline. A technical rebound from this level is possible as last witnessed in the Nov-Jan period.

We would review our outlook if the pair moves back above 1,220 or falls below 1,140.

Key Signposts

Any messaging from the FOMC regarding outlook for interest rate hikes and Euro area CPI estimate.

Gold may find support near current levels

Technical Analysis Chart: XAU/USD (Daily)


1,140

1,220

1,100

1,150

1,200

1,250

1,300

1,350

1,400


XA

U/U

SD

XAU/USD 50 dma 100 dma 200 dma



RSI (14) Neutral

Oscillator (5,10) Buy

MACD (12,26,9) Neutral

ADX (14) Sell

Momentum (14) Buy


Secondary Resistance 1,250 High

Primary Resistance 1,220 High

Spot 1,160 –

Primary Support 1,140 Medium

Secondary Support 1,080 High

Forecast Consensus

Q1 2015 1,210

Q2 2015 1,180

Q3 2015 1,190

Q4 2015 1,215



50 dma 100 dma 200 dma1155.65 1228.53 1209.24



SUPPLEMENTARY PAIRS *SUPPLEMENTARY PAIRS – Going forward, we will maintain the EUR, JPY, AUD, SGD, GBP and XAU outlook while adding just key technical

levels for the supplementary pairs

We remain neutral on USD/CNH

Technical Analysis: USD/CNH


We remain bullish on USD/ZAR

Technical Analysis: USD/ZAR


We remain bearish on the NZD/USD

Technical Analysis: NZD/USD


6.260

6.300

5.95

6.00

6.05

6.10

6.15

6.20

6.25

6.30

6.35

6.40


US

D/C

NH

USD/CNH 50 dma 100 dma 200 dma

11.342

12.562

9.8

10.1

10.4

10.7

11.0

11.3

11.6

11.9

12.2

12.5

12.8


US

D/Z

AR

USD/ZAR 50 dma 100 dma 200 dma

0.715

0.750

0.69

0.72

0.75

0.78

0.81

0.84

0.87

0.90

Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15

NZ

D/U

SD

NZD/USD 50 dma 100 dma 200 dma

50 dma 100 dma 200 dma6.2537 6.2101 6.1907

50 dma 100 dma 200 dma11.6854 11.4947 11.1556

50 dma 100 dma 200 dma0.7507 0.765 0.8006



We remain bullish on USD/CHF

Technical Analysis: USD/CHF


We remain bullish on USD/SEK

Technical Analysis: USD/SEK


We remain bullish on USD/CAD

Technical Analysis: USD/CAD


0.985

1.020

0.81

0.86

0.91

0.96

1.01

1.06

1.11


US

D/C

HF

USD/CHF 50 dma 100 dma 200 dma

8.150

9.000

5.8

6.3

6.8

7.3

7.8

8.3

8.8

9.3


US

D/S

EK

USD/SEK 50 dma 100 dma 200 dma

1.200

1.320

0.96

1.01

1.06

1.11

1.16

1.21

1.26

1.31

1.36


US

D/C

AD

USD/CAD 50 dma 100 dma 200 dma

50 dma 100 dma 200 dma8.3086 7.9287 7.4441

50 dma 100 dma 200 dma1.2401 1.1921 1.1428

50 dma 100 dma 200 dma0.9461 0.9588 0.9388



Interest Rate Differentials FX Implied Volatility

Measures the yield of holding the foreign currency relative to the base currency

An appropriate indicator used to gauge future expectations of price movements based on FX options market pricing

EUR/USD EUR/USD

USD/JPY USD/JPY

AUD/USD AUD/USD

USD/SGD USD/SGD

GBP/USD GBP/USD


1.0

1.1

1.2

1.3

1.4

1.5

1.6

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Jul-09 Dec-10 May-12 Oct-13 Mar-15

EU

R/U

SD

%

Difference between EUR and USD 2 yr swap EUR/USD (RHS)

3

8

13

18

23

Jan-11 Jan-12 Feb-13 Feb-14 Mar-15

2W Implied Volatility

75

85

95

105

115

125

0.0

0.2

0.4

0.6

0.8

1.0

1.2


US

D/J

PY

%

Difference between USD and JPY 2 yr swap USD/JPY (RHS)

3

8

13

18

23



0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

0

1

2

3

4

5

6


AU

D/U

SD

%

Difference between AUD and USD 2 yr swap AUD/USD (RHS)

3

7

11

15

19

23



1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6


US

D/S

GD

%

Difference between USD and SGD 2 yr swap USD/SGD (RHS)

2

7

12

17



1.4

1.5

1.6

1.7

1.8

-0.2

0.3

0.8

1.3

1.8

2.3


GB

P/U

SD

%

Difference between GBP and USD 2 yr swap GBP/USD (RHS)

3

5

7

9

11

13

15





TECHNICAL INDICATORS – EXPLANATORY APPENDIX

RSI (Relative Strength Index) – The RSI indicators can be used to describe the speed at which prices move over a given time period. An RSI above 70 can indicate a currency pair is overbought while an RSI below 30 can indicate the pair is oversold.

Stochastic Oscillator – The Stochastic Oscillator compares where a security's price closed relative to its trading range over a given time period. The security or index is generally considered oversold when the Oscillator falls to 20%, while a reading of 80% is considered overbought.

MACD (The Moving Average Convergence/Divergence) – This indicator shows the relationship between two moving averages of prices. A bearish signal is provided when the main moving average line drops below the second moving average line, and vice versa.

ADX (Average Directional Index) – This indicator quantifies a trend's strength regardless of whether it is up or down. An index rising above zero provides a bullish signal while an index falling below zero provides a bearish signal.

Momentum Indicator – The momentum of a security is the ratio of today's price compared to the price at a given point in the past. If the security's price is higher today, the momentum indicator will be considered strong. If the security's price is lower today, the momentum Indicator will be weak.


12

Disclosure Appendix This document is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This document does not necessarily represent the views of every function within the Standard Chartered Bank, particularly those of the Global Research function.

Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority.

In Dubai International Financial Centre (“DIFC”), the attached material is circulated by Standard Chartered Bank DIFC on behalf of the product and/or Issuer. Standard Chartered Bank DIFC is regulated by the Dubai Financial Services Authority (DFSA) and is authorised to provide financial products and services to persons who meet the qualifying criteria of a Professional Client under the DFSA rules. The protection and compensation rights that may generally be available to retail customers in the DIFC or other jurisdictions will not be afforded to Professional Clients in the DIFC.

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This document is being distributed for general information only and it does not constitute an offer, recommendation, solicitation to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This document is for general evaluation only, it does not take into account the specific investment objectives, financial situation, particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons.

Opinions, projections and estimates are solely those of SCB at the date of this document and subject to change without notice. Past performance is not indicative of future results and no representation or warranty is made regarding future performance. Any forecast contained herein as to likely future movements in rates or prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in rates or prices or actual future events or occurrences (as the case may be).

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Edited text Fx Strat 16.3.2015 PvB - Standard Chartered · 2015. 3. 16. · USD/JPY seems to have...

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