FX Compass July 2011

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FX Strategy Research

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For the first time Euro-bears gain the upper handin the short-term, too

For the first time in six months German corporates see no potential for a further Euro-

rise in the short-term. Instead, expectations shifted in July in favour of the Euro bear

camp. (Chart 1) What happened? It seems as if rising uncertainty (e.g. fears of contagion

effects of the Eurozone debt crisis) is actually the main driver behind the move

A more detailed look at the data offers some interesting aspects:

(1) German corporate expectations are at least in the short term not influenced by the

EUR-USD spot price.1

Indeed the current assessment shift comes at a time when EUR-

USD is neither close to excessive levels nor shows tendencies of a short-term market cor-

rection from a technical point of view. These are good news in our view, because it shows

corporates are neither one-dimensional in their way of thinking nor simple trend followers.

(2) However, it seems as if the risk environment (in this case illustrated by the 3 months EUR-

USD volatility) at least in these unsecure times of sizzling Eurozone crisis is a main

driver for the short-term EUR-USD-assessment of German trade oriented companies. As

chart 5 on page 2 illustrates, the Euro bull camp increased during times of decreasing

volatility. Vice versa you can see Euro-bullishness declining or like in the actual July fig-

ures turn into the Euro-bear camp when the risk measure is rising.

And what about the hit ratio of the companies EUR-USD-assessments? Whereas it is still too

early for analytical modelling, the first results look encouraging: The companies polled were

correct with their Euro-bullish 3 month outlook in February and March, but were on the wrong

side in April (chart 6, p.2)

CHART 1: German companies look for Euro weaknessIndex depiction: total euro bulls minus total euro bears

+11+5

+22

-7-14

+24

-27

-45

+5

-16

-26

+28

-19

-46

-13-7

-1

+15

-50

-40

-30

-20

-10

+0

+10

+20

+30

+40

3 months 6 months 12 months

Feb11 Mar11 Apr11 May 11 Jun 11 Jul 11

Source: Commerzbank FX Research

1In the long-term, however, it seems likely that expectations are influenced by extreme exchange rate levels and corpo-

rates assume them to move towards fair values such as the PPP.

FX Compass

Results of the July 2011 poll

Content/ page

EUR-GBP: Between a rock and a hard place 3EUR-CHF: Companies expect further Francstrengh 4EUR-PLN: Zloty bulls continue to dominate 5EUR-RUB: Long-term ruble bulls aredecreasing in numbers 6

Author:

Alexandra Bechtel+49 69 136 [email protected]

29. Juli 2011


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CHART 2: EUR-USD: June poll CHART 3: EUR-USD: July poll

-18%

-44%

-63%

46%

25%17%

-60%

-40%

-20%

0%

20%

40%


decrease increase

-41% -43%-35%

28%36% 34%

-60%

-40%

-20%

0%

20%

40%


decrease increase

Source: Commerzbank FX Research Source: Commerzbank FX Research

CHART 4: EUR-USD outlook of exporters and importers (12

month horizon, poll July 2011)

CHART 5: Volatility seems to be a main driver behind corpo-

rate expectations at least in these unsecure timesFX Compass (index depiction, short-term outcome) vs. 3 months EUR-USD-volatility

40%

-39%

15%

39%

-60%

-40%

-20%

0%

20%

40%

60%

importers exporters

decrease increase

Source: Commerzbank FX Research Source: Bloomberg, Commerzbank FX Research

CHART 6:Average EUR-USD levels at FX polling date TABLE 1:FX Compass positioning index (EUR-USD)

Poll 3 months 6 months 12 months

February 2011 +15 +11 +5

March 2011 +22 -7 -14

April 2011 +24 -27 -45

May 2011 +5 -16 -26

June 2011 +28 -19 -46

July 2011 -13 -7 -1

1,416

1,4107

1,3576

1,4388

1,4192

1,4461

1,25

1,30

1,35

1,40

1,45

1,50

Jan-1 1 Feb -11 M ar-1 1 Ap r-1 1 M ay-11 Ju n-1 1 Jul-1 1

EUR-USD

Average exc hange rate during the monthly poll

Source: Commerzbank FX Research, Bloomberg Source: Commerzbank FX Research

Euro-

bears

Euro-

bulls

10

11

12

13

14

15

Jan-11 Feb-11 Mar-11 May-11 Jun-11 Jul-11

-20

-10

0

10

20

30

40

3 months EURUSD volatility

FX Compass (rhs, invers)

Euro-

bears

Euro-

bulls

10

11

12

13

14

15

Jan-11 Feb-11 Mar-11 May-11 Jun-11 Jul-11

-20

-10

0

10

20

30

40

3 months EURUSD volatility

FX Compass (rhs, invers)


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EUR-GBP: Between a rock and a hard place

The deterioration of the Eurozone debt crisis over the past few weeks is also affecting the poll

results for EUR-GBP: Short term the camp of the euro bulls has fallen notably from 29% to

18% (chart 7 & 8). The camp of the euro bears on the other hand has hardly changed against

the previous month. The result is likely to reflect the difficulties in the UK. At above 4% the

inflation rate is well above the Bank of Englands inflation target (2%). Markets nonetheless do

not expect a rate rise this year as the British economy has been weak for some time and there

are no signs as yet that the recovery is picking up speed. This caused speculation recentlyabout the Bank of England re-introducing measures of quantitative easing to support the econ-

omy. Economic concerns as well as the BoEs continued conundrum are putting pressure on

Sterling, also against the background that the ECB began its exit from the expansionary mone-

tary policy some time ago.

In the case of EUR-GBP market participants clearly face the choice between a rock and a hard

place. This is illustrated by the fact that the camp of the euro bears and euro bulls is of similar

size throughout all forecasting horizons. Moreover the number of companies expecting to see a

EUR-GBP sideways range short to medium term has risen compared with the previous month.

CHART 7: EUR-GBP: June poll CHART 8: EUR-GBP: July poll

-19%

-33% -32%

29%20% 17%

-40%

-20%

0%

20%

40%


decrease increase

-21% -23% -28%

18% 18% 22%

-40%

-20%

0%

20%

40%


decrease increase


CHART 9: EUR-GBP development since 2009 TABLE 2: FX Compass positioning index (EUR-GBP)


February 2011 +5 +4 +5

March 2011 +0 -2 -2

April 2011 +10 -19 -30

May 2011 -5 -6 -13

June 2011 +10 -13 -15July 2011 -3 -5 -5

0,80

0,84

0,88

0,92

0,96

2009 2010 2011

Source: Bloomberg Source: Commerzbank FX Research


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EUR-CHF: Companies expect to see further franc strength

Despite the fact that the franc has been moving from peak to peak over the past few weeks,

probably distancing itself further and further from its fair value (according to our exchange rate

model approx. 1.50 EUR-CHF) opinions among the companies polled has changed. So far the

majority of companies were unable to image that the franc might be able to appreciate further

short term. Bit in July the positioning index turned negative (table 3). Even at the current peaks

44% of companies polled expect a further appreciation of the franc (chart 11): This is hardly

surprising as uncertainty on the markets has risen over the past few weeks and there does notseem to be a real alternative to the Swiss franc as a safe haven. While the Eurozone has been

battling with the debt crisis for some time, the US now has its own debt crisis (raising the debt

ceiling). Moreover the US central banks monetary policy is putting pressure on the dollar.

Switzerland on the other hand is in a very stable position as far as its public finances are con-

cerned and so far the Swiss economy has been able to withstand the strong franc. Medium to

long term the outlook among the companies polled has changed hardly at all. The franc is likely

to be overvalued at current levels and the strength is unlikely to be sustainable. As a result the

majority of companies expect an upward correction in EUR-CHF for the 6 and 12 month hori-

zon.

CHART 10: EUR-CHF: June poll CHART 11: EUR-CHF: July poll

-35%-25% -22%

35%48% 50%

-40%

-20%

0%

20%

40%


decrease increase

-44%-29% -24%

25%41%

47%

-60%

-40%

-20%

0%

20%

40%


decrease increase


CHART 12: EUR-CHF development since 2009 TABLE 3: FX Compass positioning index (EUR-CHF)


February 2011 +29 +28 +33

March 2011 +10 +28 +30

April 2011 +23 +8 +9

May 2011 +6 +5 +20

June 2011 +0 +23 +28

July 2011 -20 +12 +24

1,10

1,20

1,30

1,40

1,50

2009 2010 2011



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EUR-PLN: Zloty bulls continue to dominate

The EUR-PLN outlook amongst the companies polled has changed hardly at all for the 3-month

horizon. For the 6 and 12 month horizon on the other hand the number of EUR-PLN bears has

fallen notably. Central bank governor Marek Belka signalling at the last rate meeting that the

extent of further rate rises was limited supports this change of view. According to Belka current

market expectations roughly corresponds to that of the central bank (NBP), suggesting that

there will only be one further rate rise this year. This is probably going to take place in the au-tumn, which as a result should support the zloty further short term. This factor does however

not apply long term and the central banks slightly more pessimistic growth outlook for this and

the coming year is likely to have more of an impact. In its July meeting the NBP revised its

GDP outlook for 2012 from approx. 3.6% yoy to only 3.2%.

On an overall basis the EUR-PLN bears still outnumber the EUR-PLN bulls. From a fiscal pol-

icy point of view the Polish government was able to surprise positively recently. The develop-

ment of the current account deficit was better than expected. On the whole the zloty remains an

attractive currency by regional comparison.

CHART 13: EUR-PLN: June poll CHART 14: EUR-PLN: July poll

-32% -38% -38%

16% 17% 17%

-40%

-20%

0%

20%

40%


decrease increase

-31%-25% -25%

17% 14% 14%

-40%

-20%

0%

20%

40%


decrease increase


CHART 15: EUR-PLN development since 2009 TABLE 4: FX Compass positioning index (EUR-PLN)


February 2011 -4 -2 +3

March 2011 +7 -3 -13

April 2011 -13 -21 -32

May 2011 -4 -16 -19

June 2011 -16 -21 -21

July 2011 -14 -11 -11

3,50

4,00

4,50

5,00

2009 2010 2011



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EUR-RUB: Long-term ruble bulls are decreasing in numbers

The positioning of German companies regarding the ruble has further lost its clarity. In particu-

lar the long-term view has changed considerably: while in June 47% had expected falling EUR-

RUB prices for the 12 month horizon only 15% considered that to be likely in July. For the 6

month horizon the share of the EUR-RUB bears has fallen by 14 percentage points. Short term

the number of EUR-RUB bears has remained stable, while the EUR-RUB bulls recorded a rise

in numbers by 6 percentage points.

The less certain positioning in one or the other direction reflects the current uncertainty on the

markets. First of all the European debt crisis and the debates about raising the debt ceiling in

the US have led to a significant rise in risk aversion. Moreover ruble-positive factors seem to be

concentrating on one aspect: the oil price. The high dependency on the development of the oil

price combined with weak long term growth outlook make the ruble susceptible to a surprising

oil price collapse, putting pressure on the long term ruble outlook. The investment climate re-

mains weak, the inflation rate has remained above 9% for some months and the central bank

does no longer seem willing to change interest rates.

CHART 16: EUR-RUB: June poll CHART 17: EUR-RUB: July poll

-29%

-47% -47%

18% 18% 24%

-40%

-20%

0%

20%

40%


decrease increase

-29% -33%

-15%

24% 19% 20%

-40%

-20%

0%

20%

40%


decrease increase


CHART 18:EUR-RUB development since 2009 TABLE 5:FX Compass positioning index (EUR-RUB)


February 2011 +10 +7 +11

March 2011 -11 +6 +8

April 2011 +3 -3 -16

May 2011 -42 -35 -40

June 2011 -12 -29 -24

July 2011 -5 -14 +5

36

38

40

42

44

46

48

2009 2010 2011



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