Lloyds TSB JUL 30 FX Strategy Weekly

8/9/2019 Lloyds TSB JUL 30 FX Strategy Weekly

1/13

FX Strategy WeeklyFriday, 30th July 2010

Kenneth BrouxSenior Market Economist0207 158 [email protected]

Market Strategy

Lloyds TSB Corporate Markets Economic Research, 10 Gresham Street, London, EC2V 7AE, Switchboard: 0207 626 1500.1

Market Outlook

Tactical view:= PMIs to test bullish GBP/USD trend, GBP/CAD target 1.65Dollar weakness coloured G10 fx markets in July but a stabilisation in speculative positioningbegs the question if the currency is due for some reprieve in August. The path to a USDbounce remains uneven at best, but as the tide of positive Q2 corporate earnings subsidesand scepticism surrounding EU peripheral spreads lingers, we wonder if safe havenflows could make a surprise return. Dovish statements by the BoE have so far beendisregarded by GBP bulls but as the policy stakes are gradually raised, we think there isa possibility that GBP exposure is gradually reduced from technically overbought levels.The week ahead is dominated by the PMIs and US non-farm payrolls. Holiday disruptedtrading conditions are likely to characterise daily flows. Demand for carry may keep theAUD underpinned even assuming for no change in RBA policy.

Recap A strong week for the pound capped the month of July, with GBP taking weak consumer

confidence and housing data in its stride. GBP rallied vs its G10 peers with the exceptionof the JPY and CHF, netting gains of 2% vs the NZ$, 1.9% vs the USD (topping 1.57), and0.6% vs the EUR. The NZ$ underperformed the G10 after the RBNZ raised interest ratesto 3% but warned of a slower pace of policy tightening in the months ahead. The rally inEUR/USD ran out of steam at 1.3107 and a negative report by Moodys on Spain causedprofit taking to set in, dragging the cross back below 1.30 into Fridays close.

US Q2 GDP was in line with forecast at 2.4% annualised. An upward revision for Q1 to3.7% vs 2.7% previously on the back of stronger inventories highlighted scepticismsurrounding the durability of the recovery. The core PCE index accelerated to 1.1% vs 0.7%.In the UK, data confirmed the recent slowdown in housing market activity with pricesdropping 0.5% m/m in July (Nationwide) and an easing in mortgage approvals to 47,600from 49,500. The CBI reported a surge in reported retail sales to +33 in July from -5 in June,marking the biggest gain in three years. The MPC testimony to the TSC brought no change inpolicy perceptions and means next week should see the BoE keep BR and the APF unchanged.

Gilt yields and swaps shot up to one-month highs over the first part of the week but dovishMPC commentary on growth and month-end extension buying drove yields back downwith the breach of key support levels triggering additional support. 10y yields hit a 3.52%high but ended the week at 3.33%, after piercing support levels and 3.45% and 3.40%.5y swaps initially firmed to 2.62% but three days of lower rates followed and led swapsto close at 2.41%. The 3mth Libor/Ois spread widened 2bp to 25bp, the highest since lastSeptember. The 2y/10y swap curve ended the week close to flat at 200bp after havingwidened at 204bp. The 10y swap spread rose 3bp to 5bp. A 6.0bln syndicated 2040 IL

auction was sold at a yield of 1.02%

Contents Page

Market Outlook ................................................................................................................ 2

Quantitative Market Analysis................ .............................................................................. 4

FX & commodity futures positioning ............................................................... 5

FX options: Risk reversal skews ...................................................................... 6

FX options: Implied volatility ............................................................................ 7

Economic data surprises ................................................................................. 8

Interest rate spreads vs. FX............................................................................. 9

S&P500 vs. FX ................................................................................................ 10

Commodities vs. FX ........................................................................................ 11

Market Review ............................................................................................................. ..... 12

Disclaimer ........................................................................................................ ................. 15

CloseWeeklyChange

FX %GBP/EUR 1.2025 0.64%

GBP/USD 1.5714 1.87%

GBP/JPY 135.85 0.75%GBP/CHF 1.6353 0.51%

GBP/AUD 1.7351 0.74%

GBP/NZD 2.1635 2.02%GBP/CAD 1.6157 1.13%

GBP/NOK 9.5026 -0.24%

GBP/SEK 11.31 0.38%

EUR/USD 1.3067 1.22%USD/JPY 86.45 -1.15%AUD/USD 0.9057 1.12%NZD/USD 0.7264 -0.12%USD/CAD 1.0282 -0.73%USD/SEK 7.1991 -1.48%USD/NOK 6.0471 -2.09%

USD/CHF 1.0407 -1.29%

Swaps % bp

2yr 1.385 -6.0

5yr 2.411 -7.4

10yr 3.375 -6.8Equities %FTSE100 5258.02 -1.03%


2/13

Quantitative Market Analysis

GBP/USD, EUR/USD gain traction with gold, CRB Net CHF longs still rising

4

Table 1: 1-month rolling correlations

Contrarian Indicators

Risk Reversal Skews (based on options prices, see page 7)and IMM data (highlighting speculative positioning, see page6) are used to analyse foreign exchange to understand howstretched currencies may have become.

Speculative short GBP positions fell for a 6th successive week inthe week to July 20th, with the 13,000 drop in short reportedpositions marking the largest weekly drop since June 15th.The next three weeks pose significant event risk for GBP andmay bring a reversal of bullish GBP flows as the GBP/USDventures into overbought territory and markets digest thePMIs and the MPC decision. Short EUR contracts were virtuallyunchanged at -33,000 vs -34,800 in the previous week. Thiseffectively cut back the short EUR/GBP spread to just 600contracts. Traction to the downside in EUR/GBP has howevernot emerged, with the 0.83-0.84 trading range staying inplace.

The reversal in AUD positioning gained further momentum aslong contracts were raised to 39,000, the highest since May11. Long CAD contracts were whittled back by 3,700 contractsto 39,000, marking a first drop in two weeks. Long CHFpositioning rose over the 20,000 mark to 21,000 contracts,marking a third successive rise. The decline in USD/CHFthrough 1.05 suggests a further accumulation of CHF longstook place over the past week. Long JPY exposure droppedfor the first time since positions flipped to positive during theweek of June 29.

The fact that overall USD short positioning has stabilisedaround -14,000 contracts (dollar index) is indicative of thereluctance by investors to heavily commit to a further leglower. Having said this, the dollar index has slipped below82.0 and faces a range of tests next week when the ISM

surveys and the July non-farm payrolls data are published.A breach of 81.46 Fibo support (88.752 the high, 74.17 thelow) brings a move to 80.0 into play, the 38.2% retracement.The fall in US 3-month libor below 0.50% and resultingwidening in US/G10 spreads has bolstered the attractivenessof a USD funded carry trade, with high yielders especiallylooking attractive in the context of positive Q2 earnings reportsand resilience of stocks. Lets see if this trading rationale canhold once the positive flow from company earnings subsides.

Only minor changes in risk reversal skews but the bias of agenerally more bearish backdrop grows vs the USD. GBP/USD skews continue to favour GBP calls. Though technicallywe have pointed out that the cross looks increasinglyoverbought (upper Bollinger), the percentile rank in riskreversal skews of 60% does not infer a great danger of acounter trend move. This is opposed to AUD/USD and USD/

CAD for example where percentile ranks are more elevated.EUR/USD risk reversals have also turned and at -1.71 are atthe highest level since April 28. Vol curves in EUR/USD and

EUR/GBP steepened to 1.59 and 1.76 respectively.

FX correlationsMarket correlations are shown on pages 10-12. 1-month rollingcorrelations are plotted for G-10 FX against interest ratespreads, S&P 500 and commodities (represented through theCRB index).

Correlation of G10 pairs with 2y spreads shot up across ourtarget currency pairs, marking an important change fromrecent weeks where statistically significant levels were confinedto EUR/USD, EUR/JPY and AUD/USD. GBP/USD joined the

fray with a correlation of 0.85. The drop to a new record lowfor US 2y yields below 0.55% (0.5461%) testifies to thesignificance of short-end rates in the present environment. Thiscontrasts to the longer-dated maturities which currently playan inferior role, with the exception perhaps of EUR/USD (0.80).

Correlation with equities have gained in significance for EUR/USD and GBP/USD but remain short of the 0.97 level forAUD/USD. The correlation of commodities has alsostrengthened to statistically relevant levels for a couple of pairs and except for AUD/USD now also include EUR/USDand GBP/USD. The latter two pairs have also picked uptraction with gold.

The danger of disappointing US data still looms. ISMsand non-farm payrolls are due next week.

AUDUSD USDCAD EURUSD GBPUSD USDJPY AUDJPY EURJPY

2 YR SPD 0.86 0.83 0.93 0.85 0.76 0.83 0.89

1 0 Y R SP D 0. 57 0. 49 0.80 0.73 0.44 0.66 0.77

S&P500 0.97 -0 .9 0 0 .79 0 .7 2 -0 .26 0.94 0.8 8

G ol d -0. 67 0. 43 - 0. 86 - 0. 80 0. 63 -0 .5 0 -0.77

Oil 0.88 -0.74 0.63 0.56 -0.26 0.85 0.67

elative Yield Curve 0.75 0.67 0.32 0.34 0.02 0.42 -0.01

CRB 0.92 -0.73 0.8 1 0.80 -0.50 0.8 1 0.77


3/13

FX & Commodity Futures Positioning

Data from the major US futures & options exchanges are released each Friday evening and report positions up tothe close of business on the previous Tuesday. Traders are classified as either commercial or non-commercial. Thepositioning of the non-commercial traders can be used as a proxy for the speculative side of the market. Extremenet long or net short positions are taken as an indication of the markets vulnerability to a sharp reversal. For asqueeze to occur, however, a separate catalyst such as a piece of fundamental news or a breach of a key technicallevel is usually required.

5

EUR/USD

-140,000-120,000-100,000-80,000-60,000-40,000-20,000020,00040,00060,000

07-1004-1001-1010-09

contracts

1.181.23

1.281.331.38

1.431.481.53

$

Net-Long Non-Commercial Positions (CME) Spot Rate

GBP/USD

-100,000

-80,000

-60,000

-40,000

-20,000

0

07-1004-1001-1010-09

contracts

1.30

1.40

1.50

1.60

1.70

1.80$


USD/CHF

-30,000

-20,000

-10,000

0

10,000

20,000

07-1004-1001-1010-09

contracts

1.00

1.05

1.10

1.15

1.20SFr


USD/JPY

-80,000

-40,000

0

40,000

80,000

07-1004-1001-1010-09

contracts

85

90

95

100

JPY


USD/CAD

-80,000-70,000

-60,000-50,000-40,000

-30,000-20,000

-10,0000

07-1004-1001-1010-09

contracts

0.90

0.95

1.00

1.05

1.10

1.15

1.20C$


AUD/USD

0

20,000

40,000

60,000

80,000

100,000

07-1004-1001-1010-09

contracts

0.75

0.80

0.85

0.90

0.95$


GOLD

0

50,000

100,000

150,000

200,000

250,000

300,000

07-1004-1001-1010-09

contracts

800

900

1000

1100

1200

1300

$


SILVER

0

10,000

20,000

30,000

40,000

50,000

60,000

07-1004-1001-1010-09

contracts

12

1314

1516

17

1819

20$


OIL (NYMEX WTI)

0

20,00040,000

60,00080,000

100,000

120,000140,000

160,000

07-1004-1001-1010-09

contracts

50

5560

6570

75

8085

90$


10-YR TREASURY NOTES

-300,000

-250,000

-200,000

-150,000

-100,000

-50,000

0

07-1004-1001-1010-09

contracts

112

114

116

118

120

122

124


3-month Eurodollar Future

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

07-1004-1001-1010-09

contracts

99.1

99.2

99.3

99.4

99.5

99.6

99.7

99.8


EUR/GBP (derived)

-40,000

0

40,000

80,000

120,000

160,000

07-1004-1001-1010-09

contracts

0.82

0.84

0.86

0.88

0.900.92

0.94


EUR/CHF (de rive d)

-150,000

-100,000

-50,000

0

50,000

07-1004-1001-1010-09

contracts

1.40

1.421.44

1.461.48

1.501.52

1.54

SFr


USD POSITIONING

-40

-20

0

20

40

07-07 01-08 07-08 01-09 07-09 01-10 07-10

$ bn

70

75

80

85

90

SUM (INDIVUAL CURRENCY PAIRS) - LHSDXY - spot (RHS)

S&P 500 Future

-80,000

-60,000

-40,000

-20,000

0

20,000

07-1004-1001-1010-09

contracts

800

900

1000

1100

1200

1300



4/13

FX Options: Risk Reversal Skews

The risk reversal skew is the difference in volatility between similar out-of-the-money call and out-of-the-money putoptions. A positive risk reversal means that the implied volatility (used for pricing) of the call is greater than that of the put. In this section, the skew is based on 1-month 25 delta call and put options. The skew has been analysed overa one-year period, with the positioning ranked and charted (in red) underneath the skew. If the skew and positioningare towards an extreme (we use above 75% or below 25% for the percentile rank), the risk of a contra-trend movein the underlying spot rate is high.

6

0%

20%

40%

60%

80%

100%

p e r c e n

t i l e r a n

k

EURUSD

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2 9 S e p 0 9

2 9 N

ov

0 9

2 9 J an1

0

2 9 M

ar 1

0

2 9 M

a y 1

0

2 9 J ul 1

0

2 5

d e l

t a s k e w

GBPUSD

-4.0

-3.0

-2.0

-1.0

0.0

2 9 S e p 0 9

2 9 N

ov

0 9

2 9 J an1

0

2 9 M

ar 1

0

2 9 M

a y 1

0

2 9 J ul 1

0

2 5 d e

l t a s

k e w

AUDUSD

-8.0

-6.0

-4.0

-2.0

0.0

2 9 S e p 0 9

2 9 N

ov

0 9

2 9 J an1

0

2 9 M

ar 1

0

2 9 M

a y 1

0

2 9 J ul 1

0

2 5 d e

l t a s

k e w

0%

20%

40%

60%

80%

100%

p e r c e n

t i l e r a n

k

0%

20%

40%

60%

80%

100%

p e r c e n

t i l e r a n

k

USDSEK

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

2 9 S e p 0 9

2 9 N

ov

0 9

2 9 J an1

0

2 9 M

ar 1

0

2 9 M

a y 1

0

2 9 J ul 1

0

2 5 d e l

t a s k e w

USDNOK

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

2 9 S e p 0 9

2 9 N

ov

0 9

2 9 J an1

0

2 9 M

ar 1

0

2 9 M

a y 1

0

2 9 J ul 1

0

2 5 d e l

t a s k e w

USDJPY

-4

-4

-3

-3

-2

-2

-1

-1

0

2 9 S e p 0 9

2 9 N

ov

0 9

2 9 J an1

0

2 9 M

ar 1

0

2 9 M

a y 1

0

2 9 J ul 1

0

2 5 d e l

t a s k e w

0%

20%

40%

60%

80%

100%

p e r c e n

t i l e r a n

k

0%

20%

40%

60%

80%

100%

p e r c e n

t i l e r a n

k

0%

20%

40%

60%

80%

100%

p e r c e n

t i l e r a n

k

NZDUSD

-8.00

-6.00

-4.00

-2.00

0.00

2 9 S e p 0 9

2 9 N

ov

0 9

2 9 J an1

0

2 9 M

ar 1

0

2 9 M

a y 1

0

2 9 J ul 1

0

2 5 d e l

t a s k e w

USDCAD

-1.00

0.00

1.00

2.00

3.00

4.00

2 9 S e p 0 9

2 9 N

ov

0 9

2 9 J an1

0

2 9 M

ar 1

0

2 9 M

a y 1

0

2 9 J ul 1

0

2 5 d e l

t a s k e w

USDCHF

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2 9 S e p 0 9

2 9 N

ov

0 9

2 9 J an1

0

2 9 M

ar 1

0

2 9 M

a y 1

0

2 9 J ul 1

0

2 5 d e l

t a s k e w

0%

20%

40%

60%

80%

100%

p e r c e n

t i l e r a n

k

0%

20%

40%

60%

80%

100%

p e r c e n

t i l e r a n

k

0%

20%

40%

60%

80%

100%

p e r c e n

t i l e r a n

k


5/13

FX Options: Implied volatility

Implied volati lity is an input that is required when an option has to be priced. A higher implied volatili ty would resultin a higher option price, if other factors were unchanged. Implied volatility is traded in the markets and is thereforealso dependent upon supply and demand for options. In periods of uncertainty or illiquidity, implied volatility will climbhigher. One-month and one-year implied volatility is shown in the charts below.

7

EURUSD

9

11

13

15

17

19

21

3 0 J u l

0 9

3 0 O c t 0 9

3 0 J a n 1

0

3 0 A

p r 1

0

3 0 J u l 1

0

%

1-month 1-yr

GBPUSD

9

11

13

15

17

19

21

3 0 J u l

0 9

3 0 O c t 0 9

3 0 J a n 1

0

3 0 A

p r 1

0

3 0 J u l 1

0

%

1-month 1-yr

AUDUSD

81012141618

2022242628

3 0 J u l

0 9

3 0 O c t 0 9

3 0 J a n 1

0

3 0 A

p r 1

0

3 0 J u l 1

0

%

1-month 1-yr

NZDUSD

1113

151719

2123252729

3 0 J u l

0 9

3 0 O c t 0 9

3 0 J a n 1

0

3 0 A

p r 1

0

3 0 J u l 1

0

%

1-month 1-yr

USDCAD

9

11

13

15

17

19

21

3 0 J u l

0 9

3 0 O c t 0 9

3 0 J a n 1

0

3 0 A

p r 1

0

3 0 J u l 1

0

%

1-month 1-yr

USDCHF

9

10

11

12

1314

15

16

3 0 J u l

0 9

3 0 O c t 0 9

3 0 J a n 1

0

3 0 A

p r 1

0

3 0 J u l 1

0

%

1-month 1-yr

USDSEK

10

12

14

16

18

20

22

2426

3 0 J u l

0 9

3 0 O c t 0 9

3 0 J a n 1

0

3 0 A

p r 1

0

3 0 J u l 1

0

%

1-month 1-yr

USDNOK

11121314

151617181920

3 0 J u l

0 9

3 0 O c t 0 9

3 0 J a n 1

0

3 0 A

p r 1

0

3 0 J u l 1

0

%

1-month 1-yr

USDJPY

910111213141516171819

3 0 J u l

0 9

3 0 O c t 0 9

3 0 J a n 1

0

3 0 A

p r 1

0

3 0 J u l 1

0

%

1-month 1-yr


6/13

Economic Data Surprises

The charts below show relative economic data surprises against historical FX spot rates. The economic data surprisesindice are provided by Citigroup. They are defined as weighted standard deviations of data surprises actualreleases vs. Bloomberg survey median. Relative data surprises between two countries have been calculated andgraphed below.

8

EURUSD

-150

-100

-50

0

50

100

150

3 0 J u l 1

0

0 2

J u n 1

0

0 5 A

p r 1

0

0 4 F

e b 1

0

0 8 D

e c 0 9

0 9 O

c t 0 9

1 2 A

u g 0 9

S u r p r i s e

I n d e x

1.18

1.23

1.28

1.33

1.38

1.43

1.48

S p o t R a t e

Economic Data Surprise Spread (RHS) Spot Rate (LHS)

USDJPY

-250

-200-150-100

-500

50100150200250

3 0 J u l 1

0

0 2

J u n 1

0

0 5 A

p r 1

0

0 4 F

e b 1

0

0 8 D

e c 0 9

0 9 O c t 0 9

1 2 A

u g 0 9

S u r p r i s e

I n d e x

85

87

89

91

93

95

97

99

S p o t R a t e


GBPUSD

-100

-50

0

50

100

150

200

3 0 J u l 1

0

0 2

J u n 1

0

0 5 A

p r 1

0

0 4 F

e b 1

0

0 8 D

e c 0 9

0 9 O c t 0 9

1 2 A

u g 0 9

S u r p r i s e

I n d e x

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

1.80

S p o t R a t e


USDCAD

-250

-200

-150-100

-50050

100150

200250

3 0 J u l 1

0

0 2

J u n 1

0

0 5 A

p r 1

0

0 4 F

e b 1

0

0 8 D

e c 0 9

0 9 O c t 0 9

1 2 A

u g 0 9

S u r p r i s e

I n d e x

1.00

1.02

1.04

1.06

1.08

1.10

1.12

S p o t R a t e


USDSEK

-200

-150

-100

-50

0

50

100

150

3 0 / 0 7

/ 1 0

0 2

/ 0 6 / 1 0

0 5 / 0 4

/ 1 0

0 4

/ 0 2

/ 1 0

0 8 / 1 2

/ 0 9

0 9 / 1 0 / 0 9

1 2

/ 0 8 / 0 9

S u r p r i s e

I n d e x

6.0

6.5

7.0

7.5

8.0

8.5

S p o t R a t e


USDCHF

-250

-200

-150

-100

-50

0

50

100

3 0 J u l 1

0

0 2

J u n 1

0

0 5 A

p r 1

0

0 4 F

e b 1

0

0 8 D

e c 0 9

0 9 O c t 0 9

1 2 A

u g 0 9

S u r p r i s e

I n d e x

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18

S p o t R a t e


AUDUSD

-100

-50

0

50

100

150

200

250

3 0 J u l 1

0

0 2

J u n 1

0

0 5 A

p r 1

0

0 4 F

e b 1

0

0 8 D

e c 0 9

0 9 O c t 0 9

1 2 A

u g 0 9

S u r p r i s e

I n d e x

0.550.600.65

0.700.750.800.850.900.951.00

S p o t R a t e


NZDUSD

-150

-100

-50

0

50

100

150

3 0 J u l 1

0

0 2

J u n 1

0

0 5 A

p r 1

0

0 4 F

e b 1

0

0 8 D

e c 0 9

0 9 O c t 0 9

1 2 A

u g 0 9

S u r p r i s e

I n d e x

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

S p o t R a t e


USDNOK

-100

-50

0

50

100

150

3 0 / 0 7

/ 1 0

0 2

/ 0 6 / 1 0

0 5 / 0 4

/ 1 0

0 4

/ 0 2

/ 1 0

0 8 / 1 2

/ 0 9

0 9 / 1 0 / 0 9

1 2

/ 0 8 / 0 9

S u r p r i s e

I n d e x

5.5

5.7

5.9

6.1

6.3

6.5

6.7

6.9

S p o t R a t e



7/13

Interest Rate Spreads vs. FX

The charts below show interest rate spreads plotted against historical FX spot rates. The spreads are calculatedusing two-year interest rate swaps. A one-month rolling correlation (between the spot rate and the interest ratespread) is shown to identify time periods when interest rate spreads are driving FX movements.

9

EURUSD

-0.10.00.10.20.30.40.50.60.70.8

3 0 J u l 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J u l

0 9

2 Y

R a t e S p r e a d

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

S p o t R a t e

2Y Rate Spread (RHS)

Spot Rate (LHS)

USDJPY

0.0

0.2

0.40.6

0.8

1.0

1.2

3 0 J u l 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J u l

0 9

2 Y

R a t e S p r e a d

85

87

89

91

93

95

97

99

S p o t

R a t e


Spot Rate (LHS)

GBPUSD

0.00.10.20.30.40.50.60.70.80.9

3 0 J u l 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J u l

0 9

2 Y

R a t e S p r e a d

1.301.351.401.451.501.551.601.651.701.75

S p o t R a t e


Spot Rate (LHS)

USDCAD

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

3 0 J u l 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1 J u l

0 9

2 Y

R a t e S p r e a d

0.90

0.95

1.00

1.05

1.10

1.15

S p o t R a t e


Spot Rate (RHS)

USDSEK

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

3 0 J u l 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J u l

0 9

2 Y

R a t e S p r e a d

5.5

6.0

6.5

7.0

7.5

8.0

8.5

S p o t

R a t e


Spot Rate (LHS)

USDCHF

0.0

0.10.20.30.40.50.60.70.80.91.0

3 0 J u l 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J u l

0 9

2 Y

R a t e S p r e a d

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

S p o t R a t e


Spot Rate (LHS)

AUDUSD

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

3 0 J u l 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J u l

0 9

2 Y

R a t e S p r e a d

0.550.600.650.700.750.800.850.900.951.00

S p o t R a t e

2Y Rate Spread (RHS)Spot Rate (LHS)

NZDUSD

1.0

1.5

2.0

2.5

3.0

3.5

4.0

3 0 J u l 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1 J u l

0 9

2 Y

R a t e S p r e a d

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

S p o t R a t e


Spot Rate (LHS)

Correlation-1

0

1

Correlation-1

0

1

Correlation-1

0

1

Correlation-1

0

1

Correlation-1

0

1

Correlation-1

0

1

Correlation-1

0

1

Correlation-1

0

1

USDNOK

-2.6

-2.4

-2.2

-2.0-1.8

-1.6

-1.4

-1.2

-1.0

3 0 J u l 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J u l

0 9

2 Y

R a t e S p r e a d

4.5

5.0

5.56.0

6.5

7.0

7.5

S p o t R

a t e


Spot Rate (LHS)

Correlation-1

0

1


8/13

S&P500 vs. FX

The charts below show the S&P500 plotted against historical FX spot rates. A one-month rolling correlation (betweenthe spot rate and equity index) is shown to identify time periods when the two series are moving in tandem.

10

EURUSD

600

700

800

900

1000

1100

1200

1300

2 9 J ul 1

0

1 8 M

a y 1

0

0 5 M

a r 1

0

2 3 D

e c 0 9

1 2

O c t 0 9

3 0 J ul

0 9

S & P 5 0 0

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

S p o t R a t e

S&P500

Spot Rate (LHS)

USDJPY

600

700

800

900

1000

1100

1200

1300

2 9 J ul 1

0

1 8 M

a y 1

0

0 5 M

a r 1

0

2 3 D

e c 0 9

1 2

O c t 0 9

3 0 J ul 0

9

S & P 5 0 0 i n v e r t e d

85

87

89

91

93

95

97

99

S p o t R a t e

S&P500

Spot Rate (LHS)

1

GBPUSD

600

700

800

900

1000

1100

1200

1300

2 9 J ul 1

0

1 8 M

a y 1

0

0 5 M

a r 1

0

2 3 D

e c 0 9

1 2

O c t 0 9

3 0 J ul

0 9

S & P 5 0 0

1.301.351.401.451.501.551.601.651.701.75

S p o t R a t e

S&P500

Spot Rate (LHS)

USDCAD

600

700

800

900

1000

1100

1200

1300

2 9 J ul 1

0

1 8 M

a y 1

0

0 5 M

a r 1

0

2 3 D

e c 0 9

1 2

O c t 0 9

3 0 J ul 0

9

S & P 5 0 0 i n v e r t e d

1.00

1.02

1.04

1.06

1.08

1.10

1.12

S p o t R a t e

S&P500

Spot Rate (RHS)

USDSEK

600

700

800

900

1000

1100

1200

1300

2 9 J ul 1

0

1 8 M

a y 1

0

0 5 M

a r 1

0

2 3 D

e c 0 9

1 2

O c t 0 9

3 0 J ul

0 9

S & P 5 0 0 i n v e r t e d

5.5

6.0

6.5

7.0

7.5

8.0

8.5

S p o t R a t e

S&P500

Spot Rate (LHS)

USDCHF

600

700

800

900

1000

1100

1200

1300

2 9 J ul 1

0

1 8 M

a y 1

0

0 5 M

a r 1

0

2 3 D

e c 0 9

1 2

O c t 0 9

3 0 J ul 0

9

S & P 5 0 0 i n v e r t e d

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

S p o t R a t e

S&P500

Spot Rate (LHS)

AUDUSD

600

700

800

900

1000

1100

1200

1300

2 9 J ul 1

0

1 8 M

a y 1

0

0 5 M

a r 1

0

2 3 D

e c 0 9

1 2

O c t 0 9

3 0 J ul

0 9

S & P 5 0 0

0.550.600.650.700.750.800.850.900.951.00

S p o t R a t e

S&P500Spot Rate (LHS)

NZDUSD

600

700

800

900

1000

1100

1200

1300

2 9 J ul 1

0

1 8 M

a y 1

0

0 5 M

a r 1

0

2 3 D

e c 0 9

1 2

O c t 0 9

3 0 J ul

0 9

S & P 5 0 0

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

S p o t R a t e

S&P500

Spot Rate (LHS)

Correlation-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation-1

0

1

USDNOK

600

700

800

900

1000

1100

1200

1300

2 9 J ul 1

0

1 8 M

a y 1

0

0 5 M

a r 1

0

2 3 D

e c 0 9

1 2

O c t 0 9

3 0 J ul 0

9

S & P 5 0 0 i n v e r t e d

5.0

5.5

6.0

6.5

7.0

7.5

S p o t R a t e

S&P500

Spot Rate (LHS)

Correlation

-1

0

1


9/13

Commodities vs. FX

The charts below show oil prices plotted against historical FX spot rates. A one-month rolling correlation (betweenthe spot rate and the commodity series) is shown to identify time periods when the two series are moving in tandem.

*All charts are sourced to Lloyds TSB Corporate Markets Research, Bloomberg, Datastream and Citigroup.

11

EURUSD

50

55

60

65

70

75

80

85

90

3 0 J ul 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J ul 0

9

O I L

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

S p o t R a t e

Oil (RHS)

Spot Rate (LHS)

USDJPY

20

30

40

50

60

70

80

90

100

3 0 J ul 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J ul

0 9

O I L

85

87

89

9193

95

97

99

S p o t R a t e

Oil (RHS)

Spot Rate (LHS)

GBPUSD

20

30

40

50

60

70

80

90

100

3 0 J ul 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J ul 0

9

O I L

1.301.351.401.451.501.551.601.651.701.75

S p o t R a t e

Oil (RHS)

Spot Rate (LHS)

USDCAD

50

55

60

65

70

75

80

8590

3 0 J ul 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J ul

0 9

O I L

1.001.02

1.04

1.06

1.08

1.10

1.12

S p o t R a t e

Oil (RHS)

Spot Rate (LHS)

USDSEK

20

30

40

50

60

70

80

90

100

3 0 J ul 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J ul 0

9

O I L

6.56.7

6.97.17.37.5

7.7

7.9

8.18.3

S p o t R a

t e

Oil (RHS)

Spot Rate (LHS)

USDCHF

20

30

40

50

60

70

80

90

100

3 0 J ul 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J ul

0 9

O I L

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

S p o t R a t e

Oil (RHS)

Spot Rate (LHS)

AUDUSD

20

30

40

50

60

70

80

90

100

3 0 J ul 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J ul 0

9

O I L

0.550.600.650.700.750.800.850.900.951.00

S p o t R a t e

Oil (RHS)Spot Rate (LHS)

NZDUSD

20

30

40

50

60

70

80

90

100

3 0 J ul 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J ul 0 9

O I L

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

S p o t R a t e

Oil (RHS)

Spot Rate (LHS)

Correlation-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation-1

0

1

USDNOK

20

30

40

50

60

70

80

90

100

3 0 J ul 1

0

1 9 M

a y 1

0

0 8 M

a r 1

0

2 4 D

e c 0 9

1 3 O c t 0 9

3 1

J ul

0 9

O I L

5.0

5.5

6.0

6.5

7.0

7.5

S p o t R a t e

Oil (RHS)

Spot Rate (LHS)

Correlation

-1

0

1


10/13

Market Review

Short-term G-10 FX Charts

12

GBP/USD

1.42

1.44

1.46

1.48

1.50

1.52

1.54

1.56

1.58

2 9/0 6/ 10 0 6/0 7/1 0 1 3 /0 7 /1 0 2 0/0 7/1 0 2 7/ 07 /1 0

EUR/USD

1.19

1.21

1.23

1.25

1.27

1.29

1.31

1.33

2 9/0 6/1 0 0 6/0 7/1 0 1 3/ 07 /1 0 2 0/0 7/ 10 2 7/ 07 /1 0

EUR/GBP

0.80

0.81

0.82

0.83

0.84

0.85

0.86

2 9/ 06 /1 0 0 6/ 07 /1 0 1 3/ 07 /1 0 2 0/0 7/1 0 2 7/ 07 /1 0

USD/JPY

86

87

88

89

2 9/0 6/1 0 0 6/0 7/1 0 1 3/ 07 /1 0 2 0/0 7/1 0 2 7/ 07 /1 0

AUD/USD

0.83

0.84

0.85

0.86

0.87

0.88

0.89

0.90

0.91

2 9/ 06 /1 0 0 6/ 07 /1 0 1 3 /0 7 /1 0 2 0/0 7/ 10 2 7/ 07 /1 0

NZD/USD

0.67

0.68

0.69

0.70

0.71

0.72

0.73

0.74

2 9/ 06 /1 0 0 6/0 7/1 0 1 3/0 7/1 0 2 0/0 7/ 10 2 7/0 7/ 10

USD/NOK

6.13

6.18

6.23

6.28

6.33

6.38

6.43

6.48

6.53

2 9/ 06 /1 0 0 6/ 07 /1 0 1 3/ 07 /1 0 2 0/0 7/ 10 2 7/ 07 /1 0

USD/SEK

7.20

7.30

7.40

7.50

7.60

7.70

7.80

7.90

2 9/ 06 /1 0 0 6/ 07 /1 0 1 3/0 7/1 0 2 0/ 07 /1 0 2 7/0 7/1 0

USD/CHF

1.04

1.05

1.05

1.06

1.06

1.07

1.07

1.08

1.08

1.09

2 9/ 06 /1 0 0 6/ 07 /1 0 1 3 /0 7 /1 0 2 0/0 7/1 0 2 7/0 7/1 0

USD/CAD

1.01

1.02

1.03

1.04

1.05

1.06

1.07

2 9/ 06 /1 0 0 6/ 07 /1 0 1 3/ 07 /1 0 2 0/0 7/1 0 2 7 /0 7/ 10


11/13

Medium-term G-10 FX Charts

13

GBP/USD

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10

EUR/USD

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53


EUR/GBP

0.80

0.82

0.84

0.86

0.88

0.90

0.92

0.94

0.96


USD/JPY

85

87

89

91

93

95

97

99

101

J ul -0 9 S ep -0 9 N ov- 09 J an -1 0 Ma r- 10 Ma y- 10 J ul -1 0

AUD/USD

0.75

0.77

0.79

0.81

0.83

0.85

0.87

0.89

0.91

0.93

0.95


NZD/USD

0.60

0.62

0.64

0.66

0.68

0.70

0.72

0.74

0.76

0.78


USD/NOK

5.45

5.65

5.85

6.05

6.25

6.45

6.65

6.85


USD/SEK

6.50

6.70

6.90

7.10

7.30

7.50

7.70

7.90

8.10


USD/CHF

0.98

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18


USD/CAD

0.95

0.97

0.99

1.01

1.03

1.05

1.07

1.09

1.11

1.13



12/13

FX Snapshot

Currency performance vs. USD

Currency performance vs. GBP

Currency performance vs. EUR

14

Weekly Currency Performance vs. USD

-0.54

0.32

0.860.93

1.18

1.26

1.27

1.28

1.42

-1 -0.5 0 0.5 1 1.5 2

NZD

CAD

JPY

AUD

CHF

GBP

EUR

SEK

NOK

%

Monthly Currency Performance vs. USD

2.33

3.383.70

4.14

5.67

5.78

6.59

6.98

1.58

0 2 4 6 8

CAD

JPY

GBP

CHF

NZD

AUD

NOK

EUR

SEK

%

12month Currency Performance vs. USD

-7.52

-5.40

1.85

2.07

4.30

4.40

9.20

9.68

10.89

-10 -5 0 5 10 15

EUR

GBP

NOK

SEK

CHF

CAD

AUD

JPY

NZD

%

Weekly Currency Performance vs. GBP

-1.82

-1.27

-0.95

-0.38

-0.34

-0.07

0.00

0.07

0.19

-2 -1.5 -1 -0.5 0 0.5

NZD

USD

CAD

JPY

AUD

CHF

EUR

SEK

NOK

%

Monthly Currency Performance vs. GBP

-3.39

-1.75

-0.96

0.45

0.70

2.13

2.59

3.11

3.90

-4 -2 0 2 4 6

USD

CAD

JPY

CHF

NZD

AUD

NOK

EUR

SEK

%

12 month Currency Performance vs. GBP

-2.25

5.39

7.10

7.36

9.47

9.54

13.35

14.56

14.68

-5 0 5 10 15 20

EUR

USD

NOK

SEK

CHF

CAD

AUD

JPY

NZD

%

Weekly Currency Performance vs. EUR

-1.81

-1.27

-0.95

-0.40

-0.35

-0.07

0.00

0.03

0.14

-2 -1.5 -1 -0.5 0 0.5

NZD

USD

CAD

JPY

AUD

CHF

GBP

SEK

NOK

%

Monthly Currency Performance vs. EUR

-6.59

-4.91

-4.11

-3.11

-2.64

-2.36

-0.89

-0.43

0.87

-8 -6 -4 -2 0 2

USD

CAD

JPY

GBP

CHF

NZD

AUD

NOK

SEK

%

12 month Currency Performance vs. EUR

2.25

7.52

9.22

9.42

11.51

11.59

15.29

16.46

16.60

0 5 10 15 20

GBP

USD

NOK

SEK

CHF

CAD

AUD

JPY

NZD

%


13/13

IMPORTANT NOTICE

This document, its contents and any related communication (altogether, the Communication) does not constitute or formpart of any offer to sell or an invitation to subscribe for, hold or purchase any securities or any other investment. ThisCommunication shall not form the basis of or be relied on in connection with any contract or commitment whatsoever.

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Lloyds TSB JUL 30 FX Strategy Weekly

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