BNP FX Weekly

Foreign Exchange
24 May 2012
FX Weekly: EURUSD - A Balancing Act

FX Weekly Outlook G10 Themes FX Technical Analysis FX Recommendations Market Sentiment & Positioning Weekly Currency Summary Economic Calendar Forecasts Contacts 2 3 9 10 11 14 19 21 22
G10 Weekly FX Outlook EURUSD to Pause Eyeing US NFP G10 Themes

Short AUDNZD Set to Retest the Lows
AUDNZD appears very stretched relative to swap spreads while the technical outlook is turning negative. The AUD has lost is status as the king of the commodity currency bloc. We initiate a short AUDNZD recommendation via options at 1.2975, targeting 1.2400. We buy an AUDNZD 3-month put spread 1.3000/1.2400.
Chinas EUR Incentive

Resilience of EURUSD for much of Q1 and into Q2 could be attributed to several factors One key factor is Chinas preference to keep the EUR strong to limit the appreciation of the CNY REER Given the EUR weight in the CNY REER basket, a 10% move in EUR would lead to a 2% move in the REER
Currency Performance vs. USD 1 Week

CA D NOK CHF SEK EUR JP Y GB P NZD A UD -5 -4 -3 -2 -1 0 1 2 3
FX Volatility Focus
FX vol markets are displaying significant Vol-of-Vol, with last weeks rally subsiding in the early part of this week, only to gap sharply higher on Wednesday. FX ATM vols have rallied approx 30% since the beginning of May. Whereas ATM vols have adjusted, butterflies are still underpriced relative to ATM vols. The front end of the volatility surface is at extreme levels of steepness. The back end is very flat in comparison.
FX Recommendations
Buy an AUDNZD 3-month put spread 1.3000/1.2400 Short NZDCAD at 0.8100, targeting 0.7500, stop loss 0.7775 Short GBPSEK at 11.40, targeting 11.00, stop loss 11.55 Short NOKSEK at 1.2045, targeting 1.1650 stop loss 1.2220 Pay AUD OIS, buy AUDUSD 10 week Put Buy 6m GBPJPY vol vs. Sell 12M EURJPY vol
Currency Performance vs. USD 1 Month

EUR NZD A UD GB P JP Y CA D NOK CHF SEK -10 -5 0 5
Market Sentiment & Positioning

Combined long USD positions at a record high EUR gross short positioning has increased to record levels amid ongoing uncertainty in the eurozone IMM long GBP positions remain at elevated levels but FX client survey suggests clients are now reducing exposure Currency Views Current EURUSD USDJPY EURCHF GBPUSD AUDUSD USDCAD 1.2590 79.40 1.2030 1.5700 0.9770 1.0260 1 Month 1.26 82.00 1.20 1.60 1.00 0.99 3 Month 1.28 85.00 1.25 1.58 1.02 0.98
Thursday, 24 May 2012 FX Weekly
Bloomberg BPFR <GO> http://www.GlobalMarkets.bnpparibas.com
This publication is classified as non-objective research
G10 FX Outlook: EURUSD May Pause Eyeing US NFP

Kiran Kowshik +44 20 7595 1495 Steven Saywell +44 20 7595 8487
EURUSD could stabilise next week as EZUS drivers intermingle in a US NFP week But USD out performance intact multi-week as eurozone political brinkmanship begets more uncertainty Look for good levels to initiate bearish EUR cross trades; market grossly under priced for a June ECB rate cut Chinese policy activism could stabilise the commodity FX. Pecking order favours Short AUDNZD
Over the past fortnight, FX markets have been driven almost exclusively by eurozone stress. While we believe this will continue as a multi-week theme to the June 17 Greek elections, next week could see more two way. We are content having booked 4.4% profit on our EURUSD short and moving to the sidelines this week. With the EU meeting behind us, a quiet eurozone debt auction calendar but heavy US data calendar next week (including non-farm payrolls), FX drivers could become more two-way. The consensus is for stronger US data, thus softer outcomes could see EURUSD stabilise with key technical support levels reached and with short EUR-positioning extreme. However, over the next few weeks the USD may receive further support if continued eurozone stress on political brinkmanship sees a continued rush to safe-havens. Ex-Greek PM Papademos apocalyptic comments on the costs of a Greek exit should be seen in a similar context of putting pressure on the Greek populace into re-assessing their support for anti-austerity SYRIZA ahead of the June 17 elections. Greek poll-watching should continue as a game of chicken between the ECB/Germans on the one hand, and Greece, Italy and Spain on the other. The stellar US Treasury and German bund auctions this week (even at very low yields) support this view. The softer flash eurozone PMIs and grim underlying details this week have tipped our economists to forecast a 25bps June rate cut as a central scenario, with another 25bps rate cut penned in by Q3. Given that the rates market is still under pricing this outcome by a large margin (only 12.5bps cuts priced to yearend), this means that the EUR may come under pressure on its declining yield advantage in the weeks ahead. However, we would need weaker activity data to prompt such a move, and the early week focus on inflation/money supply data next week could provide better levels to sell. Fears of a harder landing in China along with eurozone stress have seen commodity currencies under perform of late. Next weeks official May China PMI will be key. But, we would be on guard for a potential recovery (or at least stabilisation) in commodity currencies given strong signals from Chinese policy makers of a more aggressive Chinese fiscal/monetary policy response. However, within the block there remains a pecking order with CAD the top pick (given its link to an outperforming US) over the AUD or NZD (link to Asia and Europe). We therefore maintain our short NZDCAD as it nears its extended 0.7500 target, but also add a short AUDNZD trade via options with swap spreads and technicals providing a sell signal (See page 3).
EURUSD could consolidate as FX focuses more evenly on US data vis--vis EZ stress next week
but multi-week USD strength intact as market seeks safety over value
Look for better levels to sell EUR crosses next week; ECB easing scenario under priced
Chinese policy activism could stabilize the rout in commodity FX
but we respect the pecking order; add short AUDNZD in addition to short NZDCAD
Short AUDNZD Set to Retest the Lows

Steven Saywell +44 (0)20 7595 8487
AUDNZD appears very stretched relative to swap spreads while the technical outlook is turning negative. The AUD has lost is status as the king of the commodity currency bloc. We initiate a short AUDNZD recommendation via options at 1.2975, targeting 1.2400. We buy an AUDNZD 3-month put spread 1.3000/1.2400.
AUDNZD is one of our most actively traded currency pairs, for which we have made two successful sell recommendations over the past six months. We believe that market conditions again represent an excellent opportunity to establish a short exposure. We issue a short recommendation at 1.2975 targeting a move back to the lows at 1.24. AUDNZD has again diverged sharply from the Australian-New Zealand 2-year swap spread (Chart 1). Such large disparities tend to reverse as markets reassess the different views of the rates and FX markets. Part of the shift down in swap spreads has been driven by markets pricing in aggressive rate cuts from the RBA (our economists forecast a further 50bp of easing). Still, with both the RBA and the RBNZ expected to ease policy over coming months, a sharp reversal in the rates market is unlikely over coming months, especially given the ongoing stresses in the eurozone. AUDUSD has clearly been under pressure during the markets recent bout of risk-off trading a clear response to stresses in the eurozone and especially heightened expectations of an imminent Greek exit from the euro. Still, such risk reduction usually affects the commodity bloc generally with little discrimination between the AUD, NZD and CAD. Differences between performances of the members of the commodity bloc tend to be driven by each countrys fundamentals. What has become clear over coming months is the changing pecking order of these three currencies. In our opinion, the CAD has become the new favourite and will probably remain the strongest a position previously occupied by the AUD.
Excellent risk-reward for short AUDNZD
AUDNZD has again diverged sharply from 2-year swap spread
AUD has lost its status as the expected outperformer of the commodity currency bloc
Chart 1: AUDNZD Diverged from Swap Spreads
Chart 2: The Technical Structure is Negative
Source: Reuters EcoWin Pro, Bloomberg, BNP Paribas
Source: Reuters EcoWin Pro, Bloomberg, BNP Paribas
The BNP Paribas STEER model signals near-term NZD outperformance potential
Indeed, our most recent FX Quant Insight publication (22 May 2012) showed the NZD was the most undervalued of all the major currency pairs (Chart 3). Looking specifically at the updated NZDUSD BNP Paribas STEER fair value, NZDUSD has actually dropped below the +/- 1.5 standard deviation corridor, suggesting there are expectations for a rebound (Chart 4). In contrast, AUDUSD is in line with its STEER fair value estimate. The technical outlook for AUDNZD provides considerable support for a significant retracement back to the recent lows of 1.2321. The recent rebound to 1.2990 represents a 61.8% retracement from the December peak at 1.3233. Stalling momentum around these levels would target a move back to the lows at 1.2321. Moreover, a spot failure around this level would establish a double-top pattern on AUDNZD that would further cement expectations for a fall (Chart 2). We would be content to implement a short AUDNZD recommendation via the spot FX market at 1.2975 targeting a move to 1.24. We would probably use a stop above 1.3233 a 2.0% risk. However, the current low level of FX option volatility suggests that playing the trade via options may be advantageous. First, AUDNZD 3-month volatility has fallen sharply from its recent peak in Q3 2011 above 10% to just 6.6% currently. Second, the structure we have chosen costs less than the 2% we would be risking on the spot trade. Accordingly, we initiate a short AUDNZD recommendation via the options market. We buy an AUDNZD 3-month put spread 1.3000/1.2400 cost: 180 pips (1.38% AUD) from a spot reference of 1.30 (max payout 600 pips = 3.3x).
Bearish technical outlook for AUDNZD targets a return to the lows at 1.2321
Short AUDNZD spot is attractive but options appear more attractive
Accordingly, we initiate a 3-month AUDNZD put spread 1.30/1.24 costing 180 pips
Chart 3: NZDUSD the Most Undervalued

2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0
Chart 4: NZDUSD Falls Below STEER Corridor

0.86 0.84 0.82 0.80 0.78 0.76
EU BP RU EU SD R NO U SD K C A EU D RC H G BP F U AU SD D U U SD SD M X US N DJ P EU Y RS EK
US
0.74 27-Feb-2012 27-Mar-2012 Fair Value 27-Apr-2012 NZDUSD
NZ
EU
RG
15-May-2012
22-May-2012
Source: Reuters Ecowin, BIS, BNP Paribas

Thursday, 24 May 2012 FX Weekly 4

Chinas EUR Incentive

Mary Nicola +1 212 841 2492
Resilience of EURUSD for much of Q1 and into Q2 could be attributed to several factors One key factor is Chinas preference to keep the EUR strong to limit the appreciation of the CNY REER Given the EUR weight in the CNY REER basket, a 10% move in EUR would lead to a 2% move in the REER
The most discussed anomaly in the FX space in Q1 and into Q2 was how EURUSD remained range bound despite eurozone woes. Only recent stress from the Greek election pushed EURUSD below 1.2600. The factors explaining the euros resilience range from reserve diversification i.e., central bank buying and bank/corporate repatriation. In fact, the eurozone financial account showed a surge in capital inflows in February, but the trend reversed in March. The financial account aside, reserve diversification may be a pivotal part of EUR resilience given the continued rise in FX reserves, albeit at a slower pace, globally. But, there is an important factor to consider which is Chinas preference for a strong euro as the eurozone remains Chinas largest trading partner and amid a shrinking current account surplus, which declined to 3% in 2011 from 10% of GDP in 2007. The CNY real effective exchange rate (REER) rose 8% from July 2011 to April 2012 (Chart 1), implying that China lost competitiveness against its key trading partners. This time period also corresponds with the steady decline in Chinese CPI which peaked in July 2011. Meanwhile, eurozone CPI held steady around 2.5-3.0%. According to some academic studies, the exchange rate pass-through is a 1% appreciation of the nominal effective exchange rate (NEER) results in a 0.132% decline in CPI and 0.495% PPI over the long run. With the inflation differential a crucial factor in the deterioration of Chinas competitiveness, a stronger euro becomes ever more important. According to the BIS REER (as shown in Chart 2), the EUR comprises 19.4% of the total basket, followed by the USD with 19%, the JPY at 15.9%, the KRW with 7.9%, the TWD at 5.8%, and the GBP with 2.8%. Given the strength of the correlation between GBPUSD and EURUSD which is greater than 70%, the EUR
Keeping the EUR strong is key for China
CNY REER showing China losing competitiveness against key trading partners
Chart 1: CNY Real Effective Exchange Rate

20.0
Chart 2: CNY REER FX Weights
15.0
10.0
5.0
0.0 EUR
USD
JPY
KRW
TWD GBP
SGD
CAD
MXN
THB
weight is as much as 22%, holding inflation constant. The weights of the REER would suggest that for every 1% move in EURUSD and GBPUSD, the CNY REER moves as much as 0.22%.
Weight of EUR in CNY REER suggests a 1% move in EUR leads to a 19.4% of 1 percentage pt move
Given the relationship between FX spot levels and the REER (holding inflation constant), the recent near 7% drop in EURUSD to the recent low of 1.2584 from 1.35, therefore, would imply a 1.4% increase in the CNY REER. The corresponding decline in GBPUSD would mean that the total increase in the CNY REER would be as much as 1.5%. The impact of the FX moves may seem marginal, but with Chinas trade balance declining, net exports could potentially be an even larger drag on the Chinese economy. The abysmal February trade deficit of USD31.5, the largest since 1989, raised concern that China may see only a small trade surplus or even a trade deficit for 2012. But, the cumulative trade balance for China up until April is USD19.59bn; this is still larger than the cumulative sum of the previous two years for Q1 plus April. Concerns about an even deeper negative impact on net exports provide China an even greater incentive to keep its REER stable. Chinas previous response to ensuring the strength of its export sector was to repeg the CNY to the USD. From July 2008 when the global financial crisis began to unfold and the CNY was repegged to the USD to February 2009 the peak of the CNY REER in 2009, the CNY REER rose 15%, corresponding to the significant drop in EURUSD (Chart 3) rather than the plunge in Chinese inflation (Chart 4). The REER rose significantly as the CNY remained stable while the other trade partner currencies weakened vs. the USD. The relationship between EURUSD and the CNY REER suggests that the value of the EUR remains more important than the USD for Chinese officials. Chinas preference to keep the EUR well supported remains an important factor. For some time, the pain trade was EURUSD higher and arguably still is. While repatriation and FX reserve diversification remains key to the EUR holding up, the fact is that Chinas motivation to keep the EUR supported in light of its slowing economy could likely be a dominating factor. This may remain the case as long as the EUR crisis avoids going over the edge of a cliff. Chart 4: CNY REER vs. China CPI % y/y
Slowdown in net exports augmenting incentive to keep CNY weak
Repeg does not necessarily prevent CNY REER appreciation
Worsening of EUR crisis makes China support irrelevant
Chart 3: EURUSD vs. CNY REER
Source: Reuters Ecowin, Bloomberg, BNP Paribas
The Current State of the FX Volatility Market

Vasilis Koutsaftis +1 212 471 7973
FX vol markets are displaying significant Vol-of-Vol, with last weeks rally subsiding in the early part of this week, only to gap sharply higher on Wednesday. FX ATM vols have rallied approx 30% since the beginning of May. Whereas ATM vols have adjusted, butterflies are still underpriced relative to ATM vols. The front end of the volatility surface is at extreme levels of steepness. The back end is very flat in comparison. This creates an opportunity to enter positive vol slide positions. Selling 1x 6m in 6m EURUSD FVA @ 14.50 vs buying 1x 6m in 12m EURUSD FVA @ 14.60 captures 28bps of vol slide in 6 months, while being flat vega.
In this piece we survey the state of the FX volatility market as we approach the end of the 2nd quarter. Over the last several months we have been pointing to the cheapness of FX vols relative to (i) the amount of systemic risk, (ii) historical levels of FX vols and (iii) the level of FX vols relative to equity vols or credit spreads. Over the last week we saw vols rallying higher, pausing at the beginning of this week, only to gap higher on Wednesday. Whereas it is hard to argue that ATM vols are far from fair levels given market positioning, we reiterate that butterflies remain underpriced relative to ATM vols (Chart 1) and are therefore attractive vehicles to position for further de-leveraging. Furthermore, as Chart 2 demonstrates, EURUSD and GBPJPY appear particularly attractive as they combine (i) attractive butterfly/ATM vol ratios and (ii) very reactive FX spot relative to S&P (as a measure of broader risk aversion). In G10 gamma space, NZD crosses and USDSEK are good candidates for holding long gamma positions as they combine (i) gamma that performs almost in line with implieds, (ii) risk premia that are at their lowest levels over the last 2
FX ATM vols have rallied 30% since early May.
butterflies on the other hand have not yet repriced..
In front end vol space, we favour pairs with performing gamma and flat vol surfaces
Chart 1: G10 3m 25d butterflies/3m ATM vols
Chart 2: G10 Butterfly/ATM Vols vs Correlation between FX and S&P
years, (iii) very flat vol surfaces (Chart 3). Similarly in EM, EURPLN, USDPLN, EURBRL appear attractive gamma longs to position for a severe unwind of EM longs, as they also combine the trio of favourable characteristics (i) gamma that performs almost in line with implieds, (ii) risk premia that are at their lowest levels over the last 2 years, (iii) very flat vol surfaces. A trade that we have discussed in the recent past, exploits the steepness of the front end of the volatility surface vs the relative flatness of the back end of the volatility surface, with the 1 year tenor being the pivot point (Chart 4).
While we also propose exploiting the steepness of the front end relative to the flatness of the back end to collect the positive vol slide.
Initially we constructed the trade in the form of a forward starting vol surface steepener (sell 6m in 6m FVA/buy 1y in 6m FVA), that allowed for mild positive vol slide, while maintaining a long vega position. Given the rally in FX vols, we modify the form of the trade in a way that makes it flat vega, but with significant positive vol slide. Specifically selling EURUSD 6m in 6m FVA @ 14.50 vs buying 6m in 12m EURUSD FVA @ 14.60, for zero cost, captures 28 bps of positive vol slide, while being net flat vega. The trade is long 26 bps of 6m vega, short 109 bps of 12m vega and 83bps of 18m vega. The trade looses money if the 12 month vols outperform 6m and 18 month vols to an extend that exceeds the rolldown effect. To be more precise, either the 1y-6m spread has to move higher (difficult in our view because we start from already very steep levels), or the 18m-1y spread has to move lower, which is rather difficult to happen as well. On the other hand, a flattening of the front end of the curve would benefit the trade.
For a more detailed discussion
For a more detailed discussion of these and other trades, please see BNPP FX Vol Focus (22 May 2012).
Chart 3: G10 3m Risk Premia vs Vol Slide
Chart 4: 18m-12m and 12m-6m Implied Vol Spreads
FX Technical Analysis
Christian Sn +33 (0)1 43 16 97 17
NOKSEK in a ST consolidative mood after it stalled at key 1.2025/32/44 resistance NZDCAD could develop a ST bottoming/rising bias from key 0.7566-78/0.7719 area
NOKSEK Stalled at key 1.2025/44 level, risk of developing a corrective falling 4th wave
The rebound from 1.1654 (ST 61.8% level) rekindled the possibility of a MT rising scenario of a main rising wave C of ABC to develop. However, it failed to overcome critical resistance at 1.2025/32/44 (wave A top, March top and MT 61.8% level). A break above 1.2025/32/44 was needed to strengthen this rising wave C scenario towards 1.2368 (LT 61.8% level). However, the failure to do so could now trigger a ST consolidative move towards 1.1876 (ST 38.2% level) within a th falling 4 wave scenario. This scenario is strengthened by the overbought RSI.
Source Bloomberg
NZD/CAD Weak break below key 0.7719 support opens up 0.7566/78 downside target
The move below 0.7719 (MT double top neckline) within the falling 3rd wave is weak. This break raises the potential for MT bearish pressure to the critical 0.7566/78 level (weekly LT rising wedge support & MT 61.8% level) However, we now have rising divergences on the oversold daily RSI which warns us of a ST technical rebound to come. A move back above the key 0.7719 level & a break above falling channel resistance at 0.7773 is at least needed to develop this ST technical correction, potentially towards 0.7882.
Source Bloomberg
FX Recommendations
New Trades Portfolio
We initiate a short AUDNZD recommendation via options at 1.2975, targeting 1.24. We buy an AUDNZD 3-month put spread 1.3000/1.2400. For a more detailed discussion on this see the article Short AUDNZD Set to Retest the Lows on page 3
The latest BNP Paribas STEER models (published 22 May 2012) are still highlighting GBPSEK could move lower over the coming month. GBPSEK fair value currently stands at 11.04.
Closed Trades
Our short EURUSD trade recommendation reached its extended target at 1.2625. We choose to lock in profit of 4.4% and go to the sidelines on the pair. We took profit on our short EURJPY 99/107 DNT at 34% having entered at 12%.
Open Positions (Spot) Entry Date Position Entry Rate Target Rate Stop Loss Returns (%) Weeks Held Spot Carry Total
19-Apr-12 17-May-12
Short NZDCAD Short NOKSEK
0.8100 1.2045
0.7500 1.1650
0.7775* 1.2220
5 1
4.62 -0.15 4.47 0.92 0.00 0.92
Open Positions Quant Recommandations Entry Date Position Entry Rate Target Rate Stop Loss Returns (%) Weeks Held Spot Carry Total
17-May-12
Short GBPSEK
11.40
11.00
11.55
1.59 0.02 1.61
Open Positions (Options) Return (% Premiums) % Return on Current MTM Premium
Entry Date
Strategy
05-Jan-12 Buy 6M GBPJPY vol vs Sell 12M EURJPY vol in equal vega amounts Pay August AUD OIS at 3.48% in 10k PV01, Buy 5 July 1.0150 Put 15 mn for 1.18% AUD (Spot ref: 1.0375) Buy an AUDNZD 3-month put spread 1.3000/1.2400 cost: 180 pips 24-May-12 (1.38% AUD) from a spot reference of 1.30 (max payout 600 pips = 3.3x). * Upper end of downtrend channel (currently 0.7775). 26-Apr-12
+1.25 vol -104K -
10
Market Sentiment and Positioning

James Hellawell +44 (0)20 7595 8485 Steven Saywell +44 (0)20 7595 8487
Net short EUR positioning approaching previous extremes
Combined long USD positions at a record high EUR gross short positioning has increased to record levels amid ongoing uncertainty in the eurozone IMM long GBP positions remain at elevated levels but FX client survey suggests clients are now reducing exposure
The latest CFTC positioning survey, capturing positioning on 15 May, shows that risk aversion remains the dominant theme as speculative and CTA-type investors continue to buy USD against all G10 currencies, with the exception of JPY. Overall net combined long USD positions increased significantly by 85K contracts last week to 105K this week the highest since 1999. Long USD positioning is currently close to two standard deviations away from its long-term average (Chart 4), suggesting that positioning is now extreme The tension about the fate of the eurozone continues. The latest data from the CFTC also showed that non-commercial investors continued to express negative views on the eurozone by further shorting the EUR. Negative EUR sentiment has now surpassed levels that were seen back in January when Greece faced a possible default. Non commercial investors holding long EUR positions have also reduced exposure, suggesting a uniformly bearish outlook. The net short EUR contracts now stand at a record 173K (41% of open interest) an increase of 29K contracts from the previous week and cumulatively an increase of 3K contract seen back in January 2011. This exposure may limit the scope for speculative investors to continue to extend short EUR positioning. For the sixth week running, the CTFC report has shown a continued bias towards a weaker CHF with non-commercial investors having increased CHF bearish positions. Net short CHF positioning increased to 27k from 16k. This is
Net short EUR positioning surpassed its peak in January
Chart 1 : BNP Overbought / Oversold Indicator*

10 8 6 4 2 0 -2 -4 -6 -8 -10 BNP Paribas 2012 - All Rights Reserved
Chart 2 : BNP Momentum Indicator

18 15 12 9 6 3 0 -3 -6 -9 -12 -15 BNP Paribas 2012 - All Rights Reserved
JPY SEK NOK CHF CAD USD AUD GBP EUR

+8 equals strongest reading/-8 equals weakest reading Previous weeks readings shown in grey
SEK NOK CHF AUD JPY CAD EUR USD GBP

+16 equals strongest reading/-16 equals weakest reading
Source: BNP Paribas
Source: BNP Paribas
*BNP Paribas FX BNP Overbought / Oversold Indicator are derived from our system of technical trading models and are designed to provide an indication of the overall strength of individual currencies. Readings at extreme bullish or bearish levels have historically proved to be good leading indicators of corrections or turning points in the underlying spot rate.
11
the largest CHF net short position since July 2007 when CHF was a dominant funding currency. The CHFs extreme bearish positioning is likely in part driven by the extreme bearish EURUSD view and the SNBs peg limiting scope for CHF to strengthen.
Sterling susceptible to long covering rally given push from real money flow
We are seeing limited changes overall in our FX sales desks client survey over the past week However, the notable exception has been with GBP, where we have seen a substantial reduction in GBP longs over the week. In contrast, we note that the CFTC report continues to show non-commercial investors still sizeably net long GBP positioning was steady at 25k, thereby remaining at the largest net long position since May 2011. The decline in cable from 1.60 to 1.58 since the IMM reporting period and our FX Client survey suggests that positioning may have lightened more recently. While our system of medium term models was cautious on the currency last week, GBP has since suffered a rapid reversal of fortunes. With the AUD now developing strong negative momentum, we expect the GBP to continue to remain under pressure. It is a similar story for SEK; last week it ranked as the weakest currencies within our proprietary sentiment indicator but with the outlook looking increasingly bullish. Since then, the SEK has undergone the sharpest reversal over the past week as the currency has now climbed to the top of the rankings. SEK is exhibiting strong positive momentum.
Our model signal on GBP moves from cautious to outright bearish
ditto for the SEK
12
Chart 3: Positions as a percent of Open Interest

200000
CHF EUR JPY AUD GBP NZD CAD -50 -40 -30 -20 - 10 0 10 20 30 40 50
Chart 4 : Net USD positioning

84.00 +2 std. dev 100000 0 -100000 -200000 -300000 -400000 13-May-11 -2 std. dev 70.00 68.00 13-May-12 Dollar Index 82.00 80.00 78.00 76.00 74.00 72.00
24-May-12 Last Week
13-Aug-11
13-Nov-11
13-Feb-12
USD positions (net)
Chart 5 : EUR Net Positioning

150000 100000 50000 0 -50000 -100000 -150000 -200000 13-May-11 1.26 13-May-12 EURUSD 1.41 +2 std. dev 1.46 1.51
Chart 6 : EURUSD 3m Risk Reversal

-1.0 -1.5 -2.0 -2.5 -3.0
1.36
+2 std. dev
-3.5 -4.0 -4.5 -5.0 23-May-11 -2 std. dev
-2 std. dev 1.31
13-Aug-11
13-Nov-11
13-Feb-12
23-Aug-11
23-Nov-11 EURUSD Risk Reversal
23-Feb-12
EUR positions (net)
Chart 7 : GBP Net Positioning

60000 +2 std. dev 40000 20000 0 -20000 -40000 -60000 -80000 -2 std. dev 1.66 1.64 1.62 1.68
Chart 8 : GBPUSD 3m Risk Reversal

0.0 -0.5 -1.0 -1.5
1.60
+2 std. dev
-2.0
1.58 1.56 1.54 1.52 13-May-12 GBPUSD
-2.5 -3.0 -3.5 23-May-11 -2 std. dev
-100000 13-May-11
13-Aug-11
13-Nov-11
13-Feb-12
23-Aug-11
23-Nov-11 GBPUSD Risk Reversal
23-Feb-12
GBP positions (net)
Chart 9 : CHF Net Positioning

30000 20000 10000 0 -10000 -20000 -2 std. dev -30000 13-May-11 13-Aug-11 13-Nov-11 13-Feb-12 1.00 13-May-12 USDCHF +2 std. dev 0.70 0.75 0.80 0.85 0.90 0.95
3.0
Chart 10 : USDCHF 3m Risk Reversal

+2 std. dev 2.0 1.0 0.0 -1.0 -2 std. dev -2.0 -3.0 23-May-11
23-Aug-11
23-Nov-11 USDCHF Risk Reversal
23-Feb-12
CHF positions (net)
Source: Reuters Ecowin, CFTC
13
Chart 11 : JPY Net Positioning

100000 80000 60000 40000 20000 0 -20000 -40000 -60000 -80000 13-May-11 -2 std. dev +2 std. dev 75 76 77 78 79 80 81 82 83 84 85 13-May-12 USDJPY
-1.5 -2.0 -2.5 1.5 1.0 0.5 0.0 -0.5 -1.0
Chart 12 : USDJPY 3m Risk Reversal

+2 std. dev
-2 std. dev
13-Aug-11
13-Nov-11
13-Feb-12
-3.0 23-May-11
23-Aug-11
23-Nov-11 USDJPY Risk Reversal
23-Feb-12
JPY positions (net)
Chart 13 : AUD Net Positioning

100000 +2 std. dev 80000 1.05 60000 40000 20000 0.95 0 -2 std. dev -20000 13-May-11 13-Aug-11 13-Nov-11 13-Feb-12 0.90 13-May-12 AUDUSD 1.00 1.10
Chart 14 : AUDUSD 3m Risk Reversal

-1.0 -2.0 -3.0 -4.0 -5.0 -6.0 -7.0 -8.0 -9.0 23-May-11 -2 std. dev +2 std. dev
23-Aug-11
23-Nov-11 AUDUSD Risk Reversal
23-Feb-12
AUD positions (net)
Chart 15 : CAD Net Positioning

80000 60000 40000 20000 0 -20000 -40000 13-May-11 -2 std. dev 13-Aug-11 13-Nov-11 13-Feb-12 0.93 0.95
Chart 16 : USDCAD 3m Risk Reversal

5.0 4.5
+2 std. dev
4.0
0.97 0.99 1.01
3.5 3.0 2.5 2.0 1.5
+2 std. dev
1.03 1.05 13-May-12 USDCAD
1.0 0.5 0.0 23-May-11 23-Aug-11 -2 std. dev
CAD positions (net)
23-Nov-11 23-Feb-12 USDCAD Risk Reversal
Chart 17 : NZD Net Positioning

30000 25000 20000 15000 10000 5000 0 -5000 -10000 13-May-11 -2 std. dev 0.70 13-May-12 NZDUSD 0.75 0.80 +2 std. dev 0.85 0.90
Chart 18 : NZDUSD 3m Risk Reversal

0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0 -7.0 -8.0 23-May-11 -2 std. dev +2 std. dev
13-Aug-11
13-Nov-11
13-Feb-12
23-Aug-11
23-Nov-11 NZDUSD Risk Reversal
23-Feb-12
NZD positions (net)
Source: Reuters Ecowin, CFTC, BNP Paribas
14
Weekly Currency Summary

G10
USD
The USD should remain supported by safe haven flows as eurozone induced uncertainty persists. Recent US surveys have pointed towards a softening in US growth and next weeks US data is likely to see this trend continue. But, the deterioration is unlikely to be severe enough to trigger further easing by the Fed at the end of June once Operation Twist end. For now, this provides limited scope for the USD to weaken. EURUSD has fallen to our target of 1.2625, but the market is likely to remain comfortable with maintaining its short EUR positions ahead of the June 17 Greek elections unless polls start to indicate a clearer election result. The market remains aggressively short EUR, and technically EURUSD is at a pivotal support level, reducing the attractiveness of continuing to hold a short EUR position at this time. EURCHF remains close to its 1.20 floor although a dramatic fall in risk-reversals (indicating that the premium of put options have increased) suggest that the market is placing a higher probability of the floor being broken. We expect the SNB to defend the floor, but Eurozone risks will keep EURCHF close to 1.20. Meanwhile diversification of interventions by the SNB will be supportive for USD and GBP. Soft UK data in recent weeks and higher expectations for further QE have not weighed on GBP. Rather, GBP continues to benefit from its safe-have status relative to the rest of Europe. As eurozone risks remain elevated, GBP is likely to outperform the EUR but underperform against the USD. Next weeks US NFPs will be the key release for USDJPY. With our economist expecting the pace of job creation in May to remain similar to April US Treasury yields are likely to remain underpressue, which will also weigh on USDJPY. The market remains short JPY, meaning that disappointing US data and a break below 79 in USDJPY could trigger short covering. USDCAD is likely to remain driven by general risk sentiment stemming from Europe. Meanwhile, we expect CAD to remain the outperformer against AUD and NZD due to more favourable exposure to the US vs. exposure to Asia. We are targeting a fall in NZDCAD to 0.75. AUD has struggled over the past week as risk sentiment worsened. With no real conclusion in sight on the Eurozone situation, AUD will likely remain under pressure. Recent China data suggests that Chinas policy response will have to be aggressive which could help stabilise the AUD. Our short NZDCAD position targeting 0.75 has worked in our favour and should continue to do so. The current risk environment coupled with the concerns surrounding China growth will continue to hurt NZD especially given the relative market liquidity in NZD. NZD remains dependent on events out of the eurozone. While a stellar GDP report this week highlights Norways economic outperformance, the resilience of the NOK recently suggests that it is likely to underperform the SEK going forward and we target NOKSEK falling to 1.1650. SEK has recovered this week as risk stabilised and after having been significantly oversold last week (according to STEER fair-value). We continue to favour long SEK vs GBP and NOK. Next weeks retails sales, confidence surveys and GDP could trigger the market to unwind its rate cut expectations and further support SEK.
EUR
CHF
GBP
JPY
CAD
AUD
NZD
NOK
SEK
15
Converging Europe, Russia, Africa and Israel
PLN
Macroeconomic indicators such as IP, PPI and core inflation are coming in line with expectations and EURPLN remains driven by global risk sentiment. Retail sales and unemployment on Friday are expected to soften, which could increase the pressure on the zloty as domestic demand was the main factor supporting growth and driving expectations of higher rates. Q1 GDP data next Thursday and the possibility of more concentrated EUR sales by the Finance Ministry should help the zloty to outperform regional peers. We still expect CNB to cut 25bp at the end of June as the deeper than anticipated Q1 GDP contraction is very likely to have swayed the majority of the MPC members to support further easing. However, the mixed comments from MPC members recently put into question the size of the upcoming monetary easing. In any case the declining consumer and business confidence will keep CZK under pressure. The risk off environment turned the HUF into one of the biggest underperformers over the past week. From an economics point of view that might be justified because of the ever declining domestic demand. However, the government is still set to vote the revised CB law during the first week of June, which will allow them to start IMF negotiations as soon as 23 June. EURHUF above 300 looks like an attractive short for the short term. The markets concerns related to Greece exiting the eurozone have very serious implications for RON assets because of the heavy presence of Greek banks in Romania. The increase of EURRON to 4.46 does not seem inappropriate in this way, although the central bank appears confident in its abilities to manage the situation in case of an escalation of the problems with the Greek banks. EURRON is likely to continue its upward drift towards 4.50. RUB continues to depreciate as it had to catch up with the decline in oil prices. Long RUB positions should be largely squared now as the market is already pricing a tightening of the RUB liquidity in the near future. This becomes evident when looking at the RUB basis being paid at the front end and the Finance Ministry cancelling the planned OFZ bond auction. We expect CBR to start aggressive interventions if RUB continues with the abrupt depreciation so we keep short RUB with tight stop and target at 35.70 against the basket. The exception days policy introduced this week does not seem to help the TRY to outperform anymore as the broad-based risk aversion prompted the reduction of long TRY positions. CBRT will probably keep the wide interest rate corridor after its meeting on 29 May, but might consider allowing banks to hold more of their reserve requirements in hard currency. This could ease the liquidity conditions, but is unlikely to help the lira to outperform regional peers. In the meantime USDTRY is a buy on dips. BoI is widely expected to hold fire on Monday, although the FRA strip is pricing a cut before the end of year. Considering BoIs activist approach to monetary policy, the pricing of the cut might shift forward soon. When that happens the ILS will probably come under pressure as it has been largely isolated from the depreciation of the EUR and the CEE currencies. We remain short ILS against a basket and would consider adding to it should BoI be more dovish on Monday. The SARBs repo rate decision and cautious stance is likely to coincide with the period when market volatility declines. However, the macro uncertainties related to the eurozone remain unresolved and the risk rallies should still be used as opportunities to sell. The Q1 GDP, private sector credit, PPI and trade balance data next week are unlikely help the ZAR to recover much of the losses registered over the past week, but at the current levels we are less bearish toward the ZAR.
CZK
HUF
RON
RUB
TRY
ILS
ZAR
16
Latam
BRL
Following the sharp BRL sell-off, the BCB decided to halt the currency depreciation by selling USD via derivatives auctions more aggressively and anticipating the amount that was coming due and becoming net short USD on derivatives. It is clear that they are not comfortable with USDBRL at current levels and they would like to see a slightly stronger BRL. The currency should outperform its peers in the upcoming sessions. The CLP depreciated sharply over the past couple of weeks, realigning its dynamics to its peers and moving in tandem with copper prices. In this regard, the fragile outlook on commodities is likely to keep the copper prices at current levels, which is not supportive of the CLP. The volatility is so acute on the MXN that the Banxico was forced to auction the USD 400mn in the spot market after the USDMXN moved higher above Tuesday's fixing (FIX); they ended up selling USD 258mn. The uncertainty coming from EU woes will continue to affect MXN's price action and any core positions on the currency should be made via options. We opened a long USDCOP recommendation as the COP was lagging the deterioration seen on Latam currencies as a whole. Despite the recent catch-up, the COP is still the best performer in 2012 and we believe there is more pressure in the short term. The deterioration on the PEN continued through the week, which led the BCRP to intervene in the FX market selling the equivalent to USD 223mn of 2-m CDRs (certificate of deposits linked to USD) while it also provided USD via repo operations. We believe the monetary authority will continue to intervene to somewhat ease the depreciation on the currency. The government was authorized by the National Assembly's finance committee to sell around USD 16bn in debt this year without parliament's approval on conditions. The issuance of sovereign bonds abroad by the government to feed the markets with USD should continue at least until after the presidential elections in October 2012. PDVSA proposed an issuance of USD 3bn bonds due 2035. Implied yield on the short end of NDF curve surged over the past couple of weeks and the curve inverted, with the 1m NDF implying more than 50% depreciation of the ARS, while the 1y implies around 35%. Nevertheless, the government does not want a sharp depreciation of the currency and so it imposed several restrictions to the purchase of USD since Q411.
CLP
MXN
COP
PEN
VEF
ARS
17
Asia
SGD
MYR
A strong April CPI reading failed to stall the SGDs decline. Core CPI eased to 2.7% y/y from 2.9%y/y in March shaping expectations that the MAS may ease monetary policy if the eurozone heads to a full blown crisis. Industrial production due 25 May as well monetary activity on 31 May will provide insight on the Singaporean economy. USDSGD 1.2875 is a key level it needs to stay below to prevent a test of 1.3000. The break above 3.1500 meets trendline resistance at 3.1635, a break there opens the way to 3.18. Malaysias strong external surplus argues for a strong MYR. Foreign fund inflows for the targeted end-June IPO of Felda Global Venture - worth USD 3bn - with book building starting 31 May means relative MYR out performance. Clearly, the MYR is able to hold its own against Europes growing crisis: we remain short EURMYR. Spot USDIDR continued its slow grind higher, testing 9,400. The near-term trend remains dependent on Eurozone events. May CPI, consumer confidence and April trade data are out on 1 June. Resistance is seen at 9,440 and then 9,540. Trading volumes remain thin. USDTHB rallied as the risk-off bias took hold despite the fact that growth rose 11%q/q in Q1 and the BoT upped its 2012 growth forecast to 6%. Until more clarity from Europe is see, the risk towards 32.00 remains. Spot USDPHP shot up, hurtling towards 44.00. News and events on the domestic front remain thin, and the PHP continues to track broader developments. Q1 GDP reading on Friday offers a glimpse on economic activity. A strong print favours the relative outperformance of the PHP and for spot to face resistance near 44.50. Failure to trade above a technical hurdle at 7.7720 (200-day MA) prompted profit taking. Chinese players were aggressive sellers of USDHKD. April retail sales, monthly budget and money supply prints are due on May 31. We expect USDHKD to trade between 7.7600 and 7.7700 in the week ahead. USDCNY fixing remains dictated by broader USD moves. With concerns over Chinas growth, CNY NDFs continue to price in CNY depreciation. The internationalisation of the RMB continues, with deeper cooperation between Hong Kong and London. Note, too the HKMA scrapped the 20% RMB NOP limit applicable to AIs, allowing them to set their own internal limit in consultation with the HKMA. This had a limited impact; there has been waning interest in CNH deposits as investors re-assess opportunities in China. We stay with our long 3X6M CNY DF position with a positive carry of 50 bp/month, entered at 200 pips, with a target at 300 pips, stop at 150 pips. April exports orders and industrial production contracted more than expected, leaving the TWD exposed to more weakness. Outflows from equities weighed on TWD. We continue to run a short 12Mx24M USDTWD NDF entered at -0.250 with a stop at -0.170 and a target of 0.490. On the technical side, we run short USDTWD tech trade entered at 29.51, with a stop at 29.80 and target at 29.10. We expect the 200-day MA resistance to hold in on the back of exporter selling and CBC defense to curb any excess volatility. USDKRW broke above 1180 on poor risk sentiment. Equity outflows further weighed on the KRW. The FSS said that European funds accounted for 72.5% of all the money that left Korea. FSS revealed that the foreign currency funding of domestic banks as measured by the 3M foreign currency liquidity ratio and the 7-day and 1-month maturity mismatch ratios -far exceeded their recommended levels. USDINR traded to an all-time-high of 56.41 as risk deteriorated. RBI regulatory efforts failed to arrest the INR weakness. The RBI imposed limits on INR trading. The RBI also advised banks dealing in foreign currency to bring down their trading limits by end of June. However, these measures only address the symptoms, not the causes, for the rupee's fall. The root cause of the INR's weakness remains its twin-deficit problem. Unless this is addressed, which seems unlikely, the INR will continue to remain the weakest link amongst Asian currencies.Q1 GDP is due on 31 May and April trade prints are due on 1 June. With inflation falling to single digits, Viet assets continue to out perform holding the VND steady. The macro improvement has already turned the fortunes around for the VND.
IDR
THB
PHP
HKD
CNY
TWD
KRW
INR
VND
18
Economic Calendar: 25 May 1 June

Fri 25/05 GMT 23:30 23:30 23:30 23:30 (24/05) 06:00 06:45 07:00 08:30 07:00 08:00 09:00 09:30 13:55 Local 08:30 08:30 08:30 08:30 08:00 08:45 09:00 10:30 09:00 10:00 11:00 11:30 09:55 Japan CPI National y/y : Apr Core CPI National y/y : Apr CPI Tokyo y/y : May Core CPI Tokyo y/y : May Previous 0.5% 0.2% -0.3% -0.6% Forecast 0.4% 0.1% -0.2% 0.0% Consensus 0.4% 0.1% -0.3% -0.5%
Germany France Eurozone Spain Italy US
GfK Consumer Confidence : Jun 5.6 5.5 5.6 Consumer Confidence : May 88 89 88 ECB's Praet Speaks at International Capital Market Association in Milan Eurocoin : May -0.08 PPI y/y : Apr 3.3% 2.7% 2.7% Retail Sales m/m : Mar 0.6% Wages m/m : Apr 0.0% Philadelphia Fed's Plosser Speaks at Bundesbank Monetary Policy Conf. in Eltville, Germany Michigan Sentiment (Final) : May 77.8 (p) 76.0 77.8 Germany, France, Netherlands, Belgium, Norway, Switzerland, US BoJ Minutes Retail Sales (sa) m/m : Apr 0.2% ISAE Business Confidence : May 89.5 ECB's Knot Speaks in Lisbon Household Consumption y/y : Apr Unemployment Rate (sa) : Apr Retail Sales y/y : Apr Retail Sales y/y : Apr Consumer Confidence (sa) : May PPI (nsa) y/y : Apr Unemployment Rate AKU (sa) : Mar CBI Reported Sales : May CPI (Prel) m/m : May CPI (Prel) y/y : May HICP (Prel) m/m : May HICP (Prel) y/y : May S&P/Case-Shiller Home Price Index : Mar Consumer Confidence : May 3.4% 4.5% 10.3% -3.9% 4.7 0.2% 3.2% -6 0.2% 2.1% 0.1% 2.2% 134.2 69.2
Mon 28/05 07:30 08:00 10:15 Tue 29/05 23:30 23:30 23:50 (28/05) 07:00 07:15 07:30 08:00 10:00 12:00 12:00 12:00 12:00 13:00 14:00 01:30 06:45 16:00 07:00 07:30 08:00 08:00 08:00 08:00 08:00 08:00 10:00 15:30 08:00 08:00 08:30 09:30 09:00 09:00 10:00 09:30 10:00 11:15 08:30 08:30 08:50 09:00 09:15 09:30 10:00 11:00 14:00 14:00 14:00 14:00 09:00 10:00 11:30 08:45 18:00 09:00 09:30 10:00 10:00 10:00 10:00 10:00 10:00 12:00 17:30 10:00 10:00 09:30 10:30 10:00 10:00 11:00
Holiday Japan Sweden Italy Eurozone Japan
-0.2% 88.7
n/a 89.1
2.4% 4.4% 5.7% -6.2% 2.0 0.0% 3.2% -0.1% 1.9% -0.1% 2.2% 68.5 0.0% -18.0% 1.0% 2.0% 0.5% 92.0 -19.3 -9.5 -2.7 3.4% 3.1%
2.4% 4.4% 6.0% n/a n/a n/a 3.2% 0.0% 2.1% 0.0% 2.2% 70.0 n/a n/a n/a n/a n/a 92.5 -19.3 -10.0 n/a 3.5% 3.2%
Spain Sweden Norway UK Germany
US
Wed 30/05
Australia France Spain Sweden Eurozone
Italy UK Portugal
Retail Sales m/m : Apr 0.9% Housing Starts (3-mths) y/y : Apr -11.0% Jobseekers (ILO def) m/m : Apr 0.6% HICP Flash y/y : May 2.0% GDP (Final, sa) q/q : Q1 -1.1% Economic Sentiment : May 92.8 Consumer Sentiment (Final) : May -19.3 (p) Industrial Sentiment : May -9.0 Services Sentiment : May -2.4 M3 y/y : Apr 3.2% M3 3m y/y : Apr 2.8% EU Issues Economic-Policy Recommendations to All States ECB's Draghi Speaks at Brussels Think Tank PPI m/m : Apr 0.3% 2.7% PPI y/y : Apr Net Consumer Credit : Apr GBP0.4bn Mortgage Approvals : Apr 49.9k Consumer Confidence : May -53.3 Economic Climate Indicator : May -4.7 -4.8% Retail Sales y/y : Apr
0.1% 2.2%
n/a n/a
-52.3 -4.4 -8.0%
n/a n/a n/a
19
Economic Calendar: 25 May 1 June

Wed 30/05 (cont) GMT 09:15 09:15 09:30 14:00 17:20 17:30 20:30 23:01 (30/05) 23:50 (30/05) 05:00 05:45 05:45 06:45 06:45 06:45 06:45 07:00 07:00 07:55 07:55 08:00 08:00 09:00 09:00 09:00 09:00 09:00 11:30 12:00 12:15 12:30 12:30 13:45 07:30 08:00 09:00 08:00 08:30 12:30 12:30 12:30 12:30 12:30 12:30 12:30 14:00 14:00 14:00 21:00 28-31/05 29-30/05 Local 11:15 11:15 11:30 10:00 12:20 13:30 16:30 00:01 08:50 14:00 07:45 07:45 08:45 08:45 08:45 08:45 09:00 09:00 09:55 09:55 10:00 10:00 11:00 11:00 11:00 11:00 11:00 07:30 08:00 08:15 08:30 08:30 09:45 09:30 10:00 11:00 10:00 09:30 08:30 08:30 08:30 08:30 08:30 08:30 08:30 10:00 10:00 10:00 17:00 Previous Forecast 0.1% 0.0% CPI m/m : May 3.2% 2.8% CPI y/y : May Switzerland KoF Leading Indicator : May 0.40 0.30 US Pending Home Sales m/m : Apr 4.1% -1.5% Dallas Fed's Fisher Speaks on Economy in San Antonio, Texas New York Fed's Dudley Speaks on Regional Economy in New York Boston Fed's Rosengren Speaks in Worcester, Massachusetts Belgium UK Japan Gfk Consumer Confidence : May Industrial Production (Prel, sa) m/m : Apr -31 1.3% 0.4% 0.8% 6.2% 0.1% 0.8% 0.2% n/a 0.4% n/a 0.0% -10k 6.8% n/a n/a 2.6% 0.1% 3.3% 0.1% 3.6% Consensus n/a n/a 0.40 -0.1%
Thu 31/05
Housing Starts y/y : Apr 5.0% 6.2% Switzerland GDP (sa) q/q : Q1 0.1% 0.3% 1.3% 1.1% GDP y/y : Q1 France PPI m/m : Apr 0.5% 0.2% PPI y/y : Apr 3.7% 2.9% Retail Sales m/m : Apr -2.9% -0.7% Retail Sales y/y : Apr -2.0% -0.8% Germany 1.6% 0.5% Retail Sales (Real, sa) m/m : Apr Retail Sales (Real, sa) y/y : Apr 2.3% Unemployment (Chg, sa) : May 19k 5k Unemployment Rate : May 6.8% 6.8% Norway Retail Sales (nsa) y/y : Apr 9.6% 5.9% Unemployment Rate (nsa) : May 2.6% 2.4% Eurozone HICP (Flash) y/y : May 2.6% 2.5% Italy CPI (NIC, Prel) m/m : May 0.5% 0.0% CPI (NIC, Prel) y/y : May 3.3% 3.2% HICP (Prel) m/m : May 0.9% -0.1% HICP (Prel) y/y : May 3.7% 3.4% US Challenger Layoffs : May 11.2% Cleveland Fed's Pianalto Speaks on Monetary Policy in Cleveland, Ohio ADP Labour Change : May 119k 125k GDP (Prel, saar) q/q : Q1 2.2% 2.0% Initial Claims 370k 370k Chicago PMI : May 56.2 56.8 Switzerland PMI Manufacturing : May Eurozone PMI Manufacturing (Final) : May Unemployment Rate : Apr Italy Unemployment Rate q/q : Q1 UK CIPS Manufacturing : May Canada GDP q/q : Q1 GDP (monthly) m/m : Mar US Personal Income m/m : Apr Personal Spending m/m : Apr Non-farm Payrolls (Chg) : May Unemployment Rate : May Average Hourly Earnings m/m : May Construction Spending m/m : Apr ISM Manufacturing : May ISM Prices Paid : May Total Vehicle Sales : May UK Germany Nationwide House Prices Index y/y : May Import Prices y/y : Apr 46.9 45.0 (p) 10.9% 8.8% 50.5 1.8% -0.2% 0.4% 0.3% 115k 8.1% 0.2% 0.1% 54.8 61.0 14.38mn -0.9% 3.1%
131k 1.8% n/a 57.5
Fri 01/06
45.0 10.9% 9.3% 49.8 1.8% 0.5% 0.2% 0.2% 125k 8.1% 0.1% 0.5% 54.0 55.0
n/a 11.0% n/a 50.0 n/a n/a 0.3% 0.3% 150k 8.1% 0.0% 0.3% 54.0 58.5
During Week
2.7%
Source: BNP Paribas
2.7%
Release dates and forecasts as at c.o.b. prior to the date of publication: See Daily Economic Spotlight for any revision
20
FX Forecasts*
USD Bloc EUR/USD USD/JPY USD/CHF GBP/USD USD/CAD AUD/USD NZD/USD USD/SEK USD/NOK EUR Bloc EUR/JPY EUR/GBP EUR/CHF EUR/SEK EUR/NOK EUR/DKK Central Europe USD/PLN EUR/CZK EUR/HUF USD/ZAR USD/TRY EUR/RON USD/RUB EUR/PLN USD/UAH EUR/RSD Asia Bloc USD/SGD USD/MYR USD/IDR USD/THB USD/PHP USD/HKD USD/RMB USD/TWD USD/KRW USD/INR USD/VND LATAM Bloc USD/ARS USD/BRL USD/CLP USD/MXN USD/COP USD/VEF USD/PEN Others USD Index *End Quarter Q2 '12 1.28 85 0.98 1.58 0.98 1.02 0.81 7.11 5.98 Q2 '12 109 0.81 1.25 9.10 7.65 7.46 Q2 '12 3.20 24.6 282 7.20 1.80 4.32 29.31 4.10 8.0 104 Q2 '12 1.24 3.00 8800 30.40 42.00 7.80 6.30 29.00 1100 53.00 21000 Q2 '12 4.56 1.95 490 13.00 1740 4.30 2.65 Q2 '12 81.62 Q3 '12 1.35 80 0.95 1.69 0.97 1.06 0.88 6.76 5.63 Q3 '12 108 0.80 1.28 9.12 7.60 7.46 Q3 '12 3.26 24.8 290 7.65 1.76 4.33 30.28 4.40 8.0 100 Q3 '12 1.22 2.97 8700 30.00 41.00 7.80 6.26 28.70 1090 52.50 21000 Q3 '12 4.68 1.90 480 12.40 1730 4.30 2.63 Q3 '12 77.58 Q4 '12 1.40 78 0.93 1.75 0.95 1.12 0.90 6.43 5.36 Q4 '12 109 0.80 1.30 9.00 7.50 7.46 Q4 '12 3.00 24.1 285 8.00 1.75 4.29 28.55 4.20 8.0 95 Q4 '12 1.20 2.93 8600 29.50 40.00 7.80 6.21 28.50 1080 52.00 21000 Q4 '12 4.85 1.85 470 11.90 1750 4.30 2.62 Q4 '12 75.02 Q1 '13 1.35 78 0.96 1.73 0.95 1.10 0.88 6.67 5.56 Q1 '13 105 0.78 1.30 9.00 7.50 7.46 Q1 '13 3.19 24.5 285 7.65 1.79 4.33 29.30 4.30 8.0 98 Q1 '13 1.18 2.90 8500 29.20 39.50 7.80 6.16 28.30 1050 51.50 21000 Q1 '13 5.00 1.85 477 11.80 1765 7.00 2.62 Q1 '13 76.93 Q2 '13 1.35 75 0.96 1.73 0.96 1.08 0.87 6.67 5.56 Q2 '13 101 0.78 1.30 9.00 7.50 7.46 Q2 '13 3.22 24.0 283 7.50 1.80 4.35 29.67 4.35 8.0 100 Q2 '13 1.17 2.87 8500 29.00 39.00 7.80 6.14 28.00 1050 51.00 21000 Q2 '13 5.15 1.90 482 11.90 1780 7.00 2.63 Q2 '13 76.60 Q3 '13 1.30 75 1.00 1.71 0.97 1.06 0.88 7.02 5.85 Q3 '13 98 0.76 1.30 9.12 7.60 7.46 Q3 '13 3.31 23.5 287 7.40 1.84 4.35 29.52 4.30 8.0 100 Q3 '13 1.16 2.85 8500 28.70 38.50 7.80 6.12 27.80 1050 50.50 21000 Q3 '13 5.35 2.00 487 12.10 1790 7.00 2.64 Q3 '13 78.74 Q4 '13 1.30 80 1.04 1.71 0.97 1.05 0.84 7.02 5.85 Q4 '13 104 0.76 1.35 9.12 7.60 7.46 Q4 '13 3.15 23.3 282 7.20 1.84 4.37 30.04 4.10 8.0 102 Q4 '13 1.15 2.80 8500 28.40 38.00 7.80 6.11 27.50 1050 50.00 21000 Q4 '13 5.55 2.05 494 12.20 1800 7.00 2.64 Q4 '13 79.54 Q1 '14 1.30 80 1.04 1.76 0.97 1.05 0.84 7.02 5.85 Q1 '14 104 0.74 1.35 9.12 7.60 7.46 Q1 '14 3.00 23.1 285 7.81 1.84 4.35 29.60 3.90 8.0 100 Q1 '14 1.20 2.80 8500 28.40 38.00 7.80 ----27.50 1050 45.00 21000 Q1 '14 5.70 2.07 497 12.28 1831 7.00 2.65 Q1 '14 79.29 Q2 '14 1.30 85 1.04 1.76 0.96 1.00 0.80 7.02 5.85 Q2 '14 111 0.74 1.35 9.12 7.60 7.46 Q2 '14 2.96 23.0 280 7.68 1.85 4.33 29.25 3.85 8.0 99 Q2 '14 1.20 2.80 8500 28.40 38.00 7.80 ----27.50 1050 45.00 21000 Q2 '14 5.85 2.09 500 12.35 1838 7.00 2.66 Q2 '14 79.87 Q3 '14 1.29 85 1.05 1.77 0.96 1.00 0.80 7.07 5.89 Q3 '14 110 0.73 1.35 9.12 7.60 7.46 Q3 '14 3.06 22.8 275 7.74 1.87 4.25 30.08 3.95 8.0 95 Q3 '14 1.20 2.80 8500 28.40 38.00 7.80 ----27.50 1050 45.00 21000 Q3 '14 6.05 2.12 502 12.43 1844 7.00 2.67 Q3 '14 80.22 Q4 '14 1.29 85 1.05 1.77 0.96 1.00 0.80 7.07 5.89 Q4 '14 110 0.73 1.35 9.12 7.60 7.46 Q4 '14 2.95 23.0 270 7.74 1.88 4.25 30.96 3.80 8.0 90 Q4 '14 1.20 2.80 8500 28.40 38.00 7.80 ----27.50 1050 45.00 21000 Q4 '14 6.25 2.15 505 12.50 1850 7.00 2.67 Q4 '14 80.22
21
FX Global Strategy Contacts

G10 Foreign Exchange
Steven Saywell James Hellawell Kiran Kowshik Mary Nicola Vasilis Koutsaftis Michael Sneyd Head of FX Strategy Europe Quantitative Strategist FX Strategist FX Strategist FX Options Strategist FX Strategist London London London New York New York London 44 20 7595 8487 44 20 7595 8485 44 20 7595 1495 1 212 841 2492 1 212 471 7973 44 20 7595 1307 Steven.saywell@uk.bnpparibas.com james.hellawell@uk.bnpparibas.com kiran.kowshik@uk.bnpparibas.com mary.nicola@americas.bnpparibas.com vasilis.koutsaftis@ americas.bnpparibas.com michael.sneyd@uk.bnpparibas.com
Emerging Markets FX & IR Strategy

Chin Loo Thio FX & IR Asia Strategy Singapore 65 6210 3263 chin.thio@asia.bnpparibas.com Jasmine Poh FX & IR Asia Strategy Singapore 65 6210 3418 jasmine.j.poh@asia.bnpparibas.com Bartosz Pawlowski Head of FX & IR Strategy CEEMEA London 44 20 7595 8195 bartosz.pawlowski@uk.bnpparibas.com Dina Ahmad FX & IR CEEMEA Strategist London 44 20 7595 8620 dina.ahmad@uk.bnpparibas.com Diego Donadio FX & IR Latin America Strategist Sao Paulo 55 11 3841 3421 diego.donadio@br.bnpparibas.com Thiago Alday FX & IR Latam America Strategist Sao Paulo 55 11 3841 3421 thiago.alday@br.bnpparibas.com Production and Distribution please contact: Diana Seifert, Foreign Exchange, London. Tel: 44 20 7595 8486, Email: diana.seifert@uk.bnpparibas.com
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Foreign Exchange

FX Weekly: EURUSD - A Balancing Act

G10 Weekly FX Outlook EURUSD to Pause Eyeing US NFP G10 Themes

Chinas EUR Incentive

Currency Performance vs. USD 1 Week

Currency Performance vs. USD 1 Month

Market Sentiment & Positioning

Thursday, 24 May 2012 FX Weekly

Bloomberg BPFR <GO> http://www.GlobalMarkets.bnpparibas.com

This publication is classified as non-objective research

G10 FX Outlook: EURUSD May Pause Eyeing US NFP

Chinese policy activism could stabilize the rout in commodity FX

Thursday, 24 May 2012 FX Weekly

Bloomberg BPFR <GO> http://www.GlobalMarkets.bnpparibas.com

This publication is classified as non-objective research

Short AUDNZD Set to Retest the Lows

Excellent risk-reward for short AUDNZD

AUDNZD has again diverged sharply from 2-year swap spread

Chart 1: AUDNZD Diverged from Swap Spreads

Chart 2: The Technical Structure is Negative

Source: Reuters EcoWin Pro, Bloomberg, BNP Paribas

Source: Reuters EcoWin Pro, Bloomberg, BNP Paribas

Thursday, 24 May 2012 FX Weekly

Bloomberg BPFR <GO> http://www.GlobalMarkets.bnpparibas.com

This publication is classified as non-objective research

Short AUDNZD spot is attractive but options appear more attractive

Chart 3: NZDUSD the Most Undervalued

Chart 4: NZDUSD Falls Below STEER Corridor

0.74 27-Feb-2012 27-Mar-2012 Fair Value 27-Apr-2012 NZDUSD

Source: Reuters Ecowin, BIS, BNP Paribas

Source: Reuters Ecowin, BIS, BNP Paribas

This publication is classified as non-objective research

Chinas EUR Incentive

Keeping the EUR strong is key for China

Chart 1: CNY Real Effective Exchange Rate

Chart 2: CNY REER FX Weights

Source: Reuters Ecowin, BIS, BNP Paribas

Thursday, 24 May 2012 FX Weekly

Bloomberg BPFR <GO> http://www.GlobalMarkets.bnpparibas.com

This publication is classified as non-objective research

Slowdown in net exports augmenting incentive to keep CNY weak

Repeg does not necessarily prevent CNY REER appreciation

Worsening of EUR crisis makes China support irrelevant

Chart 3: EURUSD vs. CNY REER

Source: Reuters Ecowin, Bloomberg, BNP Paribas

Source: Reuters Ecowin, Bloomberg, BNP Paribas

Thursday, 24 May 2012 FX Weekly

Bloomberg BPFR <GO> http://www.GlobalMarkets.bnpparibas.com

This publication is classified as non-objective research

The Current State of the FX Volatility Market

FX ATM vols have rallied 30% since early May.

butterflies on the other hand have not yet repriced..

Chart 1: G10 3m 25d butterflies/3m ATM vols

Chart 2: G10 Butterfly/ATM Vols vs Correlation between FX and S&P

Source: Reuters Ecowin, Bloomberg, BNP Paribas

Source: Reuters Ecowin, Bloomberg, BNP Paribas

Thursday, 24 May 2012 FX Weekly

Bloomberg BPFR <GO> http://www.GlobalMarkets.bnpparibas.com

This publication is classified as non-objective research

For a more detailed discussion

Chart 3: G10 3m Risk Premia vs Vol Slide

Chart 4: 18m-12m and 12m-6m Implied Vol Spreads