K O L

DAILY FX OUTLOOK
Monday, November 24, 2014
Major FX Themes – The week ahead

The dollar again traded on two tracks again at the end of last week as a
result of dissimilar reactions to central bank dovishness. Dovish comments
from the ECB’s Draghi noting that inflation expectations were declining to
very low levels dragged the EUR-USD lower down past 1.2400 and resulted
in the common currency underperforming across the board. For added
effect, Draghi also stressed that “We will do what we must to raise inflation
and inflation expectations as fast as possible…”

On the other end of the map, China’s surprise interest rate cut on Friday
boosted the growth complex, with the AUD-USD jumping higher and trading
briefly above 0.8700. Specifically, the PBOC reduced its 1y benchmark
lending rate by 40bps to 5.60% while the 1y benchmark deposit rate was
reduced by 25bp to 2.75%.

On other fronts, the JPY garnered partial support after Finance Minister Aso
noted that the yen’s decline in the past week had been rapid, although he
also added that the market should determine the yen’s rate, and that this
was not a matter requiring intervention.
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
With the promise of greater global liquidity from global central banks and the
consequent gain in global equity markets, markets were cheered with the
FXSI (FX Sentiment Index) dipping significantly within Risk-Off territory
towards Risk-Neutral territory on Friday. On the CFTC front, the implied
aggregate net long dollar bias by non-commercial as well as leveraged
accounts increased in the latest week with the dollar dynamic fairly well
entrenched.

At the onset of the week, the EUR may continue to stumble in the wake of
Draghi’s remarks while global sentiment (and the cyclical currencies) may
continue to derive support from expectations that the PBOC may continue to
stand ready to ease further (note softer NDIRS along the 2-5y sector). What
seems to be the constant then is the expectation of a tightening Fed into
2015 and any indications to this effect in the current week may generate
further lift for the greenback, especially against a backdrop of softening
global yield curves elsewhere.
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Emmanuel Ng
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ngcyemmanuel@ocbc.com
Asian FX

EM currencies were similarly polarized on Friday, with the Asians picking
higher in sync with the cyclical G7 currencies while EMEA EM softened in
24 November 2014
Daily FX Outlook
tandem with the EUR. The ACI (Asian Currency Index) is lower in early
trade on Monday and may continue to derive support against the dollar at
the onset of the week as positive sentiment remains buffered by the PBOC’s
latest rate cuts.

Singapore is due to report 3Q GDP numbers on Tuesday while the USDSGD is expected to drift along with a slightly heavier tone for USD-Asia in
the short term as the broad dollar takes a breather in the region. SGD
NEER-implied USD-SGD thresholds are essentially stable relative to last
Friday with parity considerations fading somewhat for now given that the
index is currently around +0.25% above its perceived parity by our
estimates. Intra-day, expect a 1.2920-1.3015 comfort zone pending further
cues. Elsewhere, USD-MYR is expected to be weighed around the 3.3400
vicinity in line with the rest of the region.
Asian Curreny Index
107
106
105
104
103
102
101
Current
SGD NEER % deviation
122.83
0.24
USD-SGD
1.2988
17/11/2014
17/10/2014
17/09/2014
17/08/2014
17/07/2014
17/06/2014
17/05/2014
17/04/2014
17/03/2014
17/02/2014
17/01/2014
100
+2.00%
Parity
-2.00%
124.99
122.54
120.09
1.2760
1.3015
1.3281
Source: OCBC Bank
G7

Treasury & Strategy Research

EUR-USD
With the EZ curve bull flattening further on Friday, expect
implicit downside pressure on the EUR-USD to persist with any
disappointment from the November German Ifo due today (note German
and EZ CPI on Thu and Fri respectively) another potential hazard for the
pair. On the CFTC front, net leveraged EUR shorts increased further in the
latest week and note that these numbers also pre-dated Draghi’s latest
comments and the pair may continue to test towards 1.2350 if 1.2400 is not
reclaimed.

USD-JPY
The fairly busy US data calendar (including 3Q GDP on
Tuesday) may dictate mood for the pair this week with hints of official
discomfort towards excessive yen weakness not expected to gain much
traction in the markets. Look towards BOJ MPC minutes due on Tuesday to
shed more color and although TKY is away for a long weekend today, dips
towards 116.90 may be met with buying interest. On the CFTC front, net
leveraged JPY shorts increased in the latest week with markets not
expected to let up just yet on JPY bearishness.

AUD-USD
The AUD-USD may find support on near term dips with the
growth-linked currencies expected to bask in the glow of the PBOC’s latest
rate cuts in the near term. As such, a meaningful test of the 0.8600 support
2
24 November 2014
Daily FX Outlook
may have been averted for now. On the CFTC front, net leveraged AUD
shorts were pared for the second consecutive week, underpinning the
notion that the search for yield remains alive despite the strong dollar
narrative. Directionally, we continue to remain neutral on the pair in the
short term.

GBP-USD
UK 3Q GDP numbers on Wednesday and the pound may
continue to be caught in the downdraft of the EUR in the interim. On the
th
CFTC front, net leveraged GBP longs continued to be pared for the 7
consecutive week to near neutral positioning – implying that spec
interest towards the pound continues to fade. To this end, we think that
the support at 1.5600 remains under threat.
FX Sentiment Index
3.5
3.0
2.5
RISK OFF
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
RISK ON
-1.5
3-Oct-14
3-Apr-14
3-Oct-13
3-Apr-13
3-Oct-12
3-Apr-12
3-Oct-11
3-Apr-11
3-Oct-10
3-Apr-10
3-Oct-09
3-Apr-09
3-Oct-08
3-Apr-08
3-Oct-07
3-Apr-07
3-Oct-06
3-Apr-06
3-Oct-05
-2.0
Source: OCBC Bank
1M Correlation Matrix
DXY
JPY
THB
SGD
MYR
KRW
CHF
TWD
USGG10
PHP
INR
CAD
IDR
CCN12M
CNH
CNY
NZD
AUD
GBP
EUR
DXY USGG10
1.000
0.750
0.953
0.729
0.949
0.846
0.920
0.700
0.920
0.673
0.906
0.580
0.873
0.696
0.785
0.441
0.750
1.000
0.743
0.492
0.706
0.413
0.698
0.666
0.652
0.643
0.633
0.403
0.576
0.178
0.571
0.191
-0.252
-0.465
-0.786
-0.610
-0.835
-0.503
-0.944
-0.725
CNY
0.571
0.639
0.550
0.570
0.638
0.742
0.292
0.675
0.191
0.354
0.688
0.198
0.627
0.832
0.662
1.000
0.423
-0.259
-0.742
-0.419
SPX MSELCA
0.920
0.722
0.957
0.658
0.944
0.781
0.906
0.595
0.928
0.592
0.906
0.513
0.692
0.719
0.824
0.300
0.786
0.792
0.744
0.398
0.784
0.186
0.540
0.608
0.765
0.578
0.579
0.389
0.420
0.352
0.546
0.262
-0.130
-0.423
-0.636
-0.397
-0.829
-0.442
-0.79
-0.736
CRY
-0.649
-0.720
-0.635
-0.718
-0.741
-0.739
-0.343
-0.647
-0.377
-0.557
-0.622
-0.646
-0.494
-0.553
-0.240
-0.594
-0.214
0.496
0.721
0.47
GC1
-0.797
-0.696
-0.836
-0.641
-0.686
-0.575
-0.842
-0.350
-0.847
-0.564
-0.231
-0.836
-0.612
-0.366
-0.364
-0.206
0.594
0.680
0.414
0.844
CL1
-0.825
-0.906
-0.819
-0.889
-0.897
-0.907
-0.493
-0.842
-0.551
-0.687
-0.829
-0.604
-0.626
-0.658
-0.367
-0.703
-0.178
0.582
0.903
0.63
VIX
-0.809
-0.801
-0.882
-0.707
-0.781
-0.751
-0.673
-0.639
-0.787
-0.580
-0.556
-0.429
-0.841
-0.552
-0.397
-0.453
0.216
0.525
0.649
0.744
ITRXEX
-0.248
-0.116
-0.197
-0.024
-0.099
-0.158
-0.384
-0.038
-0.127
0.086
0.108
-0.142
-0.265
-0.534
-0.432
-0.240
0.099
0.218
0.066
0.364
Source: Bloomberg
Treasury & Strategy Research
3
24 November 2014
Daily FX Outlook
Immediate technical support and resistance levels
EUR-USD
GBP-USD
AUD-USD
NZD-USD
USD-CAD
USD-JPY
S2
1.2332
1.5590
0.8542
0.7686
1.1200
110.53
S1
1.2358
1.5600
0.8600
0.7800
1.1213
117.00
Current
1.2369
1.5649
0.8676
0.7885
1.1231
117.82
R1
1.2400
1.5700
0.8700
0.7893
1.1300
118.00
R2
1.2651
1.6043
0.8770
0.7900
1.1451
118.98
USD-SGD
EUR-SGD
JPY-SGD
GBP-SGD
AUD-SGD
1.2790
1.6000
1.0972
2.0239
1.1200
1.2900
1.6018
1.1000
2.0300
1.1217
1.2992
1.6070
1.1027
2.0331
1.1271
1.3000
1.6100
1.1100
2.0400
1.1300
1.3079
1.6180
1.1580
2.0517
1.1368
1134.50
15.11
1200.00
16.40
1202.60
16.42
1207.64
16.50
1226.90
16.97
Gold
Silver
Source: OCBC Bank
FX performance: 1-month change agst USD
2.0
%
0.0
-2.0
-4.0
-6.0
-8.0
ZAR
RUB
PLN
TRY
HUF
ARS
CLP
MXN
BRL
COP
CNY
TWD
INR
KRW
PHP
IDR
THB
MYR
SEK
SGD
JPY
NOK
CHF
NZD
CAD
AUD
GBP
-12.0
EUR
-10.0
Source: Bloomberg
G10 FX Heat Map
AUD
AUD
NZD
1
NZD
1
EUR
1
1
GBP
1
1
EUR
GBP
1
1
2
9
2
2
1
1
2
2
2
2
2
9
2
2
2
1
1
1
2
2
JPY
JPY
2
2
2
2
CAD
9
2
9
1
2
USD
2
2
2
1
2
SGD
2
2
2
1
CAD
2
USD
SGD
2
1
1
2
1
1
2
2
2
Source: OCBC Bank
Treasury & Strategy Research
4
24 November 2014
Daily FX Outlook
Asia FX Heat Map
USD
USD
JPY
CNY
SGD
MYR
KRW
TWD
THB
PHP
INR
IDR
2
2
2
2
2
2
2
1
2
1
2
1
1
2
2
1
1
1
1
1
1
2
2
9
1
9
1
9
2
9
1
1
1
1
2
9
1
1
1
1
2
2
2
2
1
1
1
1
1
1
9
1
2
1
JPY
2
CNY
2
2
SGD
2
1
1
MYR
2
1
1
9
KRW
2
2
2
2
2
TWD
2
2
2
9
9
2
THB
2
1
9
1
1
2
1
PHP
1
1
1
1
1
2
1
1
INR
2
1
9
1
1
2
1
9
2
IDR
1
1
1
1
1
1
1
1
1
1
1
Source: OCBC Bank
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