fx strat 12 10 2015 pvb - standard chartered · 2015-10-16 · aud/usd likely to resume its...

This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. Important disclosures can be found in the Disclosures Appendix. This document is provided for general circulation and information purposes only, it does not take into account the specific investment objectives, needs or financial situation of any particular person or class of persons and it has not been prepared as investment advice for such person(s). ‘Person’ includes a corporation, co-operative society, trade union, sole proprietorship, partnership, limited liability partnership and any other business entity. Prospective investors should seek advice from a financial adviser on the suitability of an investment, taking into

account these factors before making a commitment to invest in an investment.

1

fx strategyfx | 12 October 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

USD may recover some losses

The USD fell against most major peers last week as prospects of a delay in Fed rate hikes, lacklustre US data and a rally in Emerging Markets weighed-in. The USD is now at key technical levels against a number of major pairs. A rebound in the USD from here may imply near-term weakness may have ended.

In the week ahead, currency markets are likely to focus on US inflation and retail sales data. For SGD, the monetary policy statement is likely to be crucial for the near term outlook.

EUR/USD

We remain neutral on EUR/USD as we expect the pair to continue consolidating.

USD/JPY

We remain bullish on USD/JPY as a cluster of support lines just below current levels is likely to aid a recovery.

AUD/USD

We remain bearish on the AUD/USD pair as we do not expect the past week’s rebound to sustain.

USD/SGD

We remain bullish on USD/SGD as the longer-term uptrend appears intact.

GBP/USD

We remain neutral on the GBP/USD pair as short-term trend signals are mixed.

XAU/USD

We turn bearish on XAU/USD (from neutral earlier) as the pair is approaching key trend-line resistance.

Pairs Outlook (2-4 wk) Secondary Sup Primary Sup Spot Primary Res Secondary ResEUR/USD Neutral 1.060 1.110 1.137 1.140 1.180USD/JPY Bullish 117.00 118.50 120.16 122.00 124.50AUD/USD Bearish 0.680 0.700 0.733 0.740 0.755USD/SGD Bullish 1.374 1.387 1.400 1.410 1.435GBP/USD Neutral 1.500 1.515 1.533 1.550 1.580XAU/USD Bearish 1080 1100 1158 1170 1200USD/CNH* Neutral 6.280 6.302 6.327 6.440 6.500USD/ZAR* Neutral 12.600 13.000 13.37 14.000 15.000NZD/USD* Bearish 0.620 0.648 0.670 0.682 0.700USD/CHF* Neutral 0.935 0.950 0.961 0.990 1.010USD/SEK* Neutral 7.800 8.055 8.191 8.860 8.880USD/CAD* Neutral 1.265 1.282 1.292 1.320 1.340

*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

USD may recover some losses 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

2 October 2015 to 9 October 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

Arun Kelshiker, CFA Exec. Director, Asset Allocation

Audrey Goh, CFA Director, Portfolio Solutions

Victor Teo, CFA Investment Strategist

Tariq Ali, CFA Investment Strategist

Abhilash Narayan Investment Strategist

1.57

0.90

-2.67

4.13

0.30

1.27

-3.50 -2.50 -1.50 -0.50 0.50 1.50 2.50 3.50 4.50

XAU/USD

GBP/USD

USD/SGD

AUD/USD

USD/JPY

EUR/USD

%

12 October 2015 | fx strategy

This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. 2

EUR/USD

We remain neutral on EUR/USD as we expect the pair to continue consolidating.

Performance

EUR/USD ended up (1.27%) over the previous week. PMIs show September business growth was slower than expected and fewer jobs were created. Investor sentiment slid to a nine-month low in October. Retail sales were flat in August.

In the US, minutes from the Fed’s September policy meeting pointed to concerns of a slowing global economy. Jobless claims fell to a near 42-week low although the trade deficit widened as exports sagged. ISM non-manufacturing was a little softer than forecast, while the services sector ebbed in September.

Technical Analysis

Major technical indicators, on balance, are neutral.

We remain neutral on EUR/USD. Since March, the pair has been consolidating in a narrow sideways channel band, with a slight upward bias. This consolidation is expected to continue and may stretch a little higher if it takes out the resistance at 1.140. Meanwhile, any short squeeze above 1.140 is likely to stay capped within 1.180, in our view. In the interim, we prefer to remain on the sidelines and await more convincing directional trends.

We would review our outlook if the pair moves above 1.140 or below 1.110.

Key Signposts

Euro area – Survey expectations (13 October), industrial production (14 October), new car registrations, trade balance and CPI (16 October).

US – NIFB small business optimism (13 October), retail sales, PPI and business inventories (14 October), CPI, Philadelphia Fed business outlook and the Empire State manufacturing survey (15 October), industrial production and the University of Michigan survey (16 October).

EUR/USD seems to still be in a consolidation phase

Technical Analysis Chart: EUR/USD (Daily)


1.110

1.140

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15

EU

R/U

SD

EUR/USD 50 dma 100 dma 200 dma

Key technical indicators and forecast*

Technical Indicator Action

RSI (14) Neutral

Oscillator (5,10) Neutral

MACD (12,26,9) Sell

ADX (14) Buy

Momentum (14) Neutral

Key Levels Level Importance

Secondary Resistance 1.180 High

Primary Resistance 1.140 Medium

Spot 1.137 –

Primary Support 1.110 Medium

Secondary Support 1.060 Low

Forecast Consensus

Q4 2015 1.08

Q1 2016 1.09

Q2 2016 1.07

Q3 2016 1.07

* Please see Appendix on Pg 11 for explanation on technical


50 dma 100 dma 200 dma1.1208 1.1152 1.1145



USD/JPY

We remain bullish on USD/JPY as a cluster of support lines just below current levels is likely to aid a recovery.

Performance

USD/JPY ended up (0.30%) over the previous week. Wage growth slowed in August and summer bonuses stood lower than the past year, boding ill for consumer spending. The services sector expanded much slower in September than the previous month as new businesses slackened. The BoJ left rates unchanged at last week’s monetary policy meeting, but maintained that further easing was likely if demand gets sluggish.

Technical Analysis

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

We remain bullish on USD/JPY. The pair appears to have stabilised around current levels after the initial sharp fall from the high of 125. The cluster of supports that lie below the 118.0 mark, along with the positive divergence forming on the daily momentum technical indicator, suggests there is a good chance of a recovery.

We would review our outlook if the pair moves below 118.5.

Key Signposts

Bank lending, consumer confidence and machine tool orders (13 October), PPI and money supply (14 October), industrial production, capacity utilisation and the Reuters tankan index (15 October).

USD/JPY likely to resume its uptrend once consolidation ends

Technical Analysis Chart: USD/JPY (Daily)


118.50

122.00

98

102

106

110

114

118

122

126


US

D/J

PY

USD/JPY 50 dma 100 dma 200 dma



RSI (14) Buy

Oscillator (5,10) Neutral

MACD (12,26,9) Buy

ADX (14) Buy





Spot 120.16 –

Primary Support 118.50 High

Secondary Support 117.00 Medium

Forecast Consensus

Q4 2015 125

Q1 2016 123

Q2 2016 124

Q3 2016 125



50 dma 100 dma 200 dma121.26 122.39 120.89



AUD/USD

We remain bearish on the AUD/USD pair as we do not expect the past week’s rebound to sustain.

Performance

AUD/USD ended up (4.13%) over the previous week. The central bank held rates steady for a fifth month. New vehicle sales rose in September. Trade balance deteriorated more than expected in August. Home loans rebounded in August but by less than expected.

In China, there were no key economic releases.

Technical Analysis

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

We remain bearish on AUD/USD (from neutral earlier). The pair recovered further last week, mainly led by a short squeeze. The pair is testing the upper band of the intermediate upward sloping channel. Hence, we believe the recent rebound offers an opportunity to sell, given our negative long term view.

We would review our outlook if the pair rebounds above 0.74.

Key Signposts

Australia – NAB business confidence (13 October), consumer confidence (14 October), consumer inflation expectations, employment change and the unemployment rate (15 October).

China – Trade balance, exports and imports (13 October), CPI and PPI (14 October).

AUD/USD likely to resume its structural downtrend

Technical Analysis Chart: AUD/USD (Daily)


0.700

0.740

0.66

0.71

0.76

0.81

0.86

0.91

0.96


AU

D/U

SD

AUD/USD 50 dma 100 dma 200 dma



RSI (14) Sell

Oscillator (5,10) Sell

MACD (12,26,9) Neutral

ADX (14) Neutral

Momentum (14) Buy




Spot 0.733 –


Secondary Support 0.680 High

Forecast Consensus

Q4 2015 0.72

Q1 2016 0.70

Q2 2016 0.69

Q3 2016 0.68



50 dma 100 dma 200 dma0.7171 0.7369 0.7605



USD/SGD

We remain bullish on USD/SGD as the longer-term uptrend appears intact.

Performance

USD/SGD ended down (-2.67%) over the previous week. Business optimism plunged to near contraction levels this quarter. Forex reserves rose slightly in September from the previous month.

Technical Analysis

Major technical indicators, on balance, are divergent.

However, we remain bullish on USD/SGD. The pair has seen a sharp pullback from its high of 1.430 and is close to the previous swing lows of 1.390. We remain bullish over a slightly longer-term horizon and, hence, believe the recent correction offers an opportunity to go long. Momentum indicators also suggest the pair is moving into oversold territory and is likely to rebound.

We would review our outlook if the pair moves below 1.387.

Key Signposts

GDP and MAS Statement of Monetary Policy (14 October), retail sales (15 October), non-oil exports (16 October).

USD/SGD undertone remains bullish

Technical Analysis Chart: USD/SGD (Daily)


1.387

1.410

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) Sell

Oscillator (5,10) Buy


ADX (14) Buy

Momentum (14) Sell




Spot 1.400 –

Primary Support 1.387 High

Secondary Support 1.374 Medium

Forecast Consensus

Q4 2015 1.41

Q1 2016 1.44

Q2 2016 1.45

Q3 2016 1.45



50 dma 100 dma 200 dma1.4088 1.3811 1.3662



GBP/USD

We remain neutral on the GBP/USD pair as short-term trend signals are mixed.

Performance

GBP/USD ended up (0.90%) over the previous week. The services PMI dropped to its lowest level in 2.5 years. House prices fell 0.9% in September from the previous month. Manufacturing output picked up in August after falling sharply in July. The BoE’s monetary policy committee decided to leave rates unchanged and indicated no hurry to hike rates.

Technical Analysis


We remain neutral on GBP/USD. The short-term technical setup for the pair has turned slightly negative after it slipped below 1.520. However, unless the pair decisively breaches 1.550 on the upside, or falls back below 1.515, we expect the pair to trade in a tight range.

We would review our outlook if the pair falls below 1.515 or moves above 1.550.

Key Signposts

CPI, PPI, BoE credit conditions and bank liabilities surveys (13 October), average earnings, unemployment rate and employment change (14 October).

GBP/USD is likely to settle in a sideways range

Technical Analysis Chart: GBP/USD (Daily)


1.515

1.550

1.42

1.46

1.50

1.54

1.58

1.62

1.66

1.70

1.74


GB

P/U

SD

GBP/USD 50 dma 100 dma 200 dma



RSI (14) Buy

Oscillator (5,10) Buy


ADX (14) Sell

Momentum (14) Sell



Primary Resistance 1.550 High

Spot 1.533 –


Secondary Support 1.500 High

Forecast Consensus

Q4 2015 1.55

Q1 2016 1.54

Q2 2016 1.54

Q3 2016 1.54



50 dma 100 dma 200 dma1.5418 1.5486 1.5322



XAU/USD (Gold)

We turn bearish on XAU/USD (from neutral earlier) as the pair is approaching key trend-line resistance.

Performance

XAU/USD ended up (1.57%) over the previous week. Gold prices were firm after the Fed meeting minutes were viewed as dovish. Subdued economic data in the US saw the US dollar drift lower.

Technical Analysis


We turn bearish on the XAU/USD pair (from neutral earlier). Gold continued to rebound higher last week, re-tracing its previous fall. The confluence of the 200DMA (1,177) line and the resistance trend line extending across 1,170 is likely to halt the rally, in our view. Hence, we turn bearish given the rebound is approaching the upper end of this band.

We would review our outlook if the pair moves above 1,170.

Key Signposts

Inflation data both in the US and Euro area is likely to impact sentiment towards gold this week.

Gold is approaching key resistance

Technical Analysis Chart: XAU/USD (Daily)


1,100

1,170

1,000

1,050

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) Buy

Oscillator (5,10) Sell

MACD (12,26,9) Buy

ADX (14) Sell



Secondary Resistance 1,200 High

Primary Resistance 1,170 Medium

Spot 1,158 –

Primary Support 1,100 Medium

Secondary Support 1,080 High

Forecast Consensus

Q4 2015 1,125

Q1 2016 1,130

Q2 2016 1,115

Q3 2016 1,125



50 dma 100 dma 200 dma1156.71 1126.22 1141.73



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 turn neutral on USD/ZAR (from bearish earlier)

Technical Analysis: USD/ZAR


We turn bearish on NZD/USD (from neutral earlier)

Technical Analysis: NZD/USD


6.302

6.440

5.85

5.95

6.05

6.15

6.25

6.35

6.45

6.55


US

D/C

NH

USD/CNH 50 dma 100 dma 200 dma

13.000

14.000

9.0

10.0

11.0

12.0

13.0

14.0

15.0


US

D/Z

AR

USD/ZAR 50 dma 100 dma 200 dma

0.648

0.682

0.60

0.70

0.80

0.90

1.00

Aug-13 Dec-13 Mar-14 Jul-14 Nov-14 Mar-15 Jun-15 Oct-15

NZ

D/U

SD

NZD/USD 50 dma 100 dma 200 dma

50 dma 100 dma 200 dma6.3971 6.3039 6.267

50 dma 100 dma 200 dma13.3479 12.853 12.3442

50 dma 100 dma 200 dma0.6457 0.6649 0.7082



We remain neutral on USD/CHF

Technical Analysis: USD/CHF


We remain neutral on USD/SEK

Technical Analysis: USD/SEK


We turn neutral on USD/CAD (from bearish earlier)

Technical Analysis: USD/CAD


0.950

0.990

0.79

0.83

0.87

0.91

0.95

0.99

1.03

Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Apr-15 Jul-15 Oct-15

US

D/C

HF

USD/CHF 50 dma 100 dma 200 dma

8.055

8.860

6.2

6.7

7.2

7.7

8.2

8.7

9.2

Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Apr-15 Jul-15 Oct-15

US

D/S

EK

USD/SEK 50 dma 100 dma 200 dma

1.282

1.320

0.96

1.01

1.06

1.11

1.16

1.21

1.26

1.31

1.36

1.41

Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Feb-15 Jun-15 Oct-15

US

D/C

AD

USD/CAD 50 dma 100 dma 200 dma

50 dma 100 dma 200 dma8.4207 8.415 8.4129

50 dma 100 dma 200 dma1.3187 1.2896 1.2629

50 dma 100 dma 200 dma0.9702 0.957 0.9531



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

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Feb-10 Jul-11 Dec-12 May-14 Oct-15

EU

R/U

SD

%

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

0

4

8

12

16

20

Jan-11 Mar-12 May-13 Jul-14 Oct-15

2W Implied Volatility

75

85

95

105

115

125

135

0.0

0.2

0.4

0.6

0.8

1.0


US

D/J

PY

%

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

0

5

10

15

20

25



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)

0

5

10

15

20

25



1.15

1.20

1.25

1.30

1.35

1.40

1.45

-1.5

-1.0

-0.5

0.0

0.5


US

D/S

GD

%

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

0

4

8

12

16

20



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)

0

4

8

12

16

20





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

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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.

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fx strat 12 10 2015 pvb - standard chartered · 2015-10-16 · aud/usd likely to resume its...

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