Foreign Exchange

London 08:00

FX Daily Strategist: Europe

EURUSD vs EURCHF
1.65 1.60 1.55 1.50 1.45 1.40 1.35 1.30 1.25 1.20 EURUSD 1.15 Jun Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun 08 09 10 11 EURCHF

FX to remain highly skittish/low flow ahead of Wednesday EURUSD and EURCHF downsides look the more vulnerable barring clear signs Greek Budget will pass USDJPY topside resistance above Y81.00 could be reinforced by strong IP data Wednesday.

After a smart recovery in EURUSD in afternoon European/NY morning trade, markets have settled down ahead of tomorrows Greek budget vote. A decent showing by US stocks came despite mediocre US personal Income and spending data and a sharp fall in the Dallas Fed manufacturing survey. The latter, while not correlating highly with the main ISM survey due on Friday, is seen to highlight the risk that the ISM could fall below the 50 boom/bust threshold. Uncertainty persists ahead of the Greek budget vote: street protests are likely to grow ahead of a nervous vote as a 48-hour general strike begins today, putting further pressure on any wavering MPs. The governments majority of five could be trimmed to just one if the threats by four Pasok lawmakers to vote against are carried out, but we hold to our view that the measures are likely to pass. But ahead of the outcome it is inevitable that FX indeed all asset markets will remain highly skittish. Without any clear evidence out of the Budget debate on Tuesday that passage is much more likely than not, the downside on EURUSD (and EURCHF) is likely to remain the weaker side of the ranges. On EURCHF, reports that left-leaning Swiss parliamentarians were pressing for the SNB to re-peg the CHF to the EUR appeared to have some supportive impact. The arguments for the latter are guaranteed to get short shrift from the SNB, being an affront to its independence and after the losses suffered in 2010 from efforts to step EURCHF depreciation and we doubt the story will gain momentum. In addition to the obvious impact on the CHF safe haven bid from Wednesdays Greek budget vote, Wednesdays KoF index is going to be important as a fresh read on how the economy is coping with latest CHF strength. Key data for Tuesday is Germany preliminary cost of living for June and the latest read on US consumer confidence from the Conference Board. Though the latter slumped to 60.8 in May from 66.0, we expect a further decline in June, to 58.0, given slower employment growth, weaker stocks and the generally poor run of data of late. Stocks/risk ignored weak numbers Monday however, so may do likewise today. On German Cost of Living we look for headline to remain at 2.3% but for core to tick up to 2.5% from 2.4%. Watch also for EUR-supportive comments from Chinese Premier Wen, visiting Chancelllor Merkel in Berlin. Strong retail sales data from Japan add to the theme of an earlier-than-expected economic rebound after the March tsunami. Next up is tomorrows industrial production and the June Tankan survey on Friday. Though the yen has been highly flowsdriven of late (on both sides) stronger IP data will strengthen USDJPY resistance at the bottom of the daily ichimoku chart at 81.06.

Source: Reuters Ecowin Pro. Despite clear evidence of decoupling in recent months, the near term fate of EURCHF from current record low levels is seen residing with EURUSD and the prospect of a partial unwind of safe haven support for CHF should the Greek budget pass on Wednesday.
GMT 07:30 07:30 08:00 08:00 08:00 Country SE (May) SE (May) IT (Jun) IT (May) IT (May) Release Mkt Last Retail Sales % (nsa y/y) 5.2 Retail Sales % (sa m/m) 1.6 ISAE Business C 100.8 101.3 PPI % (y/y) 5.2 PPI % (m/m) 0.6 Current Account -4.9 -9.6 bn GBP GDP (Final) % 1.8 1.5 (y/y) GDP (Final) % 0.5 -0.5 (q/q) Italy to sell bonds/floating rate notes CPI % (y/y) 3.4 CPI % (m/m) 0.3 HICP (Prel) % 0.1 -0.2 (m/m) CPI (Prel) % (y/y) 2.3 2.3 CPI (Prel) % 0.1 0.0 (m/m) HICP (Prel) % 2.5 2.4 (y/y) S&P/Case-Shille 138.2 Consumer Confid 61.0 60.8 Jobseekers (ILO % (y/y) Jobseekers (ILO % (m/m) -11 Treasury Auctions 5-Year Notes Treasury Auctions 5-Year Notes ECBs Trichet Speaks at Brussels Conference

08:30 GB (Q1) 08:30 GB (Q1) 08:30 GB (Q1) 09:00 IT 09:15 BE (Jun) 09:15 BE (Jun) 12:00 DE (Jun) 12:00 DE (Jun) 12:00 DE (Jun) 12:00 DE (Jun) 13:00 14:00 16:00 16:00 17:00 17:00 US (Apr) US (Jun) FR (May) FR (May) US US

18:45 EU

This is not classified as objective research. Please refer to important information at the end of the report.
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Market: According to WCRS, USD was up to 0.26% stronger vs. all G10 FX in Asian session, except for the JPY (+0.11%). SEK, NZD, GBP (-0.20%) were on the weaker side followed by NOK (-0.18%). But these look like retracements with yesterday seeing SEK the biggest winner (+0.89%). USD/Asia is mixed, with KRW, MYR (both +0.22%), CNY (+0.12%), in the green, while TWD; PHP and INR were pretty flat. THB (-0.23%) and SGD (0.10%) in the red. Asian equities are mixed with Japan, S.Korea, Malaysia, Thailand about +0.50% higher, but Hong Kong and China are closer to -0.30% lower, and India worse -0.50%. This after firmer US stocks (DJIA ending NY +109 points albeit losing 50 points in the last hour of trade, S&P 500 +0.92%, NASDAQ +1.33%). Commodities mixed; energy complex all near 0.40% lower, but gas the same proportion higher. In precious, gold flat while silver and platinum are 0.40% higher. In softs, corn, wheat, soybean higher while sugar, cotton lower. The Day Ahead (Via MNI news) European data: German June flash HICP data is expected, although no firm release time is yet available. At 0645GMT, French May housing starts data are released. French May registered jobseekers data is released at 1600GMT. ECB President Trichet, member Wellink and Bank of Korea Gov. Kim hold a joint press conference at 1100GMT, following 6th High-Level Seminar of Central Banks in the East-Asia Pacific Region and the Eurozone. UK data starts at 0830GMT, with the release of 3rd Q1 GDP estimate and the Q1 Balance of Payments. At 0900GMT, UK BOE Governor King, along with Tucker, Dale, Posen and Miles speak to Treasury Select Committee on the May inflation report. At 1000 GMT, the UK May Land Registry data is released. US data starts at 1145GMT, with 25 June week ICSCGoldman Store Sales numbers. At 1255GMT the June 25 week Redbook average is out. At 1300GMT, the S&P/Case-Shiller Home Price Index for April is released, followed at 1400GMT by the Conference Board's June Consumer Confidence data. Latter expected to rise to 61.0 after falling to 60.8 in May. The other sentiment data already released for June suggest solid improvement. June Richmond Fed Manufacturing Index hits screens. At 1615GMT, US Treasury Secretary Geithner and Indian FinMin Pranab Mukherjee give a briefing on U.S.-India Economic and Financial Partnership in Washington. FED Fisher gives a speech on the US economy in Round Rock, Texas at 1700GMT. NEWS Europe

Investors' optimism about the prospect of a broad plan with European Union guarantees to roll over Greek debt that could involve private creditors and diminish the chance of default helped boost the euro. European governments have said they want private creditors to roll over as much as 30 billion ($42.57 billion) worth of Greek government bonds that come due by 2014. The proposal drafted by French banks and insurers calls for half of the proceeds from maturing Greek bonds to be reinvested in 30-year Greek bonds. Furthering the credibility of that plan, the European Central Bank said it was receptive to the French proposal on Greece, if voluntary. (WSJ) European financial institutions have sketched out a plan to extend a substantial portion of Greeces maturing sovereign debt for up to 30 years, as creditors coalesced around a French-led replica of the Brady bonds used to bail out Latin America 22 years ago. Close to 50 people, many from the French and German banking and insurance industries, attended a meeting in Rome to discuss the proposal from French banks, centred on a voluntary agreement to extend half of the debt maturing over the coming three years into new 30year bonds. (FT) China, Germany to talk euro; ECB says China no rescuer and EU needs no rescue. Wen arrives in Berlin on Monday for a two-day visit showcased by the first full inter-government consultations between Germany and China. That will put their bilateral ties on the same footing as Germany's links to its closest partners such as France, Spain, Italy, Poland, Russia and, more recently, India. Two finance ministries to discuss euro, forex. Germany braced for more Chinese investment. (Reuters) Talks about how to get private investors to contribute toward a new bailout for Greece widened Monday to include a possible buyback of Greek government bondsbut people at a meeting in Rome discussing the issue said there were no guarantees the ideas wouldn't lead to a default by the heavily indebted nation. (WSJ) Ailing Greece Tries National Tag Sale: For the taking: four wide-body Airbus jets, a state lottery, a state horseracing concession and sports book, stakes in a casino, several ports, a national post office, two water companies, a nickel miner and smelter, a munitions maker, electricity and gas monopolies, a telecommunications operator, shares in a half dozen banks, hundreds of miles of roads, a defunct airport, old Olympic venues and thousands of acres of land, including magnificent stretches of Greece's famed coast. (Reuters) There is room for collaboration between European banks and the Greek government over the country's the debt crisis, a top Italian banker said on Tuesday. (Reuters) Insurance companies across Europe are sitting on large portfolios of bonds issued by financially shaky governments and banks, raising concerns that some

Foreign Exchange Strategy Tuesday, 28 June 2011 http://www.GlobalMarkets.bnpparibas.com

insurers could fall victim to the Continent's financial crisis. (WSJ) A source "close to German banks" tells Reuters: "The French suggestion would be a possible compromise, which on the one hand underscores the voluntariness of a maturity prolongation and should prevent triggering a credit event, while on the other hand also granting reasonable incentives so private creditors can accept it." A second source says that the topic will be discussed with the Finance Ministry today. German banks, which say they have up to 20 billion euros ($28.3 billion) of exposure to Greece, have called for the state to guarantee their risk with taxpayer money should they participate in some form of a debt rollover. EU's Juncker should not exclude the possibility of intervening on Greek interest rates, he said in a television interview on Sunday. "Intervening from the EU side on the level of interest rates in Greece is an idea which need not be excluded," he told French-language television station TV5 Monde's Internationales programme. The risk of continued private-sector customer deposit outflows is "a key" credit negative for Greek banks, and such flows would cause a severe cash shortage if they rapidly increased beyond 35% of deposits, Moody's Investors Service said Monday. Writing in the firm's Weekly Credit Outlook, senior analyst Nondas Nicolaides said the credit rating agency estimated outflows had totaled around 8% of deposits since the beginning of 2011, based on discussions with rated Greek banks and public information. (WSJ) Switzerland/ Scandinavia SNB pushed to peg Swiss Frac, seen asserting independence: The SNB pushed to peg the swiss franc by the left wing. Industrial lobby back calls for temporary Swiss franc peg. The SNB was seen resisting franc peg. The CHF has gained 8.9% against the eUR this quarter. (WSJ) Senior creditors are facing more losses in the Danish banking sector after another of the countrys small lenders was taken into state control, highlighting Denmarks push to make bondholders share the cost of bank failures with taxpayers. (FT) UK Britain is facing a tsunami of house repossessions as soon as interest rates start to rise, one of the country's leading bankers has warned, the Guardian says. Richard Banks, the chief executive of UK Asset Resolution (UKAR), the body that runs the 80bn of mortgages bailed out by the taxpayer during the banking crisis, also said in an interview with the Guardian that the Labour government's pleas at the start of the crisis for lenders to keep families in their homes was forcing some homeowners further into debt, the paper says. Foreign Exchange Strategy Tuesday, 28 June 2011 http://www.GlobalMarkets.bnpparibas.com

The number of graduates applying for each job has doubled since 2009, the Independent says. Figures out today reveal that although the number of available jobs is slowly increasing, the largest employers now receive an average of 83 CVs for each single vacancy, with some top companies inundated by as many as 150 applications per job, the paper says. US The US dollar will lose its status as the global reserve currency over the next 25 years, according to a survey of central bank reserve managers who collectively control more than $8,000bn, the FT says. More than half the managers, who were polled by UBS, predicted that the dollar would be replaced by a portfolio of currencies within the next 25 years, the paper says. Fed's Hoenig-Large firms imperil financial system, fundamentally inconsistent with capitalism. Hoenig has persistently criticized firms that are viewed as meriting government protection after government bailouts during the recent financial crisis. He has also raised concerns about the consolidation of assets in a small number of very large firms in the financial industry. (Reuters) Fed's Kocherlakota-US tax code hurts stability. The current U.S. tax code allows households to deduct interest payments on home mortgages and corporations to deduct interest payments on debt. Policymakers could make new crises less likely to occur if they limit such deductions, which subsidize the kind of excessive borrowing that helped trigger the recent financial crisis, Kocherlakota said. (Reuters) US Data RECAP: US Personal income in May rose by 0.4% MoM vs. +0.3% expected; personal spending 0.0% vs. +0.1% expected. Headline PCE deflator unchanged at 2.5% yr/yr but core PCE deflator +0.3% vs. +0.2% expected and +1.2% YoY from 1.0% and 1.1% expected. Dallas Fed Manufacturing Activity slumped to -17.5 from -7.4 in May and -3.2 expected. China China is likely to raise benchmark interest rates within one month, given the probability that headline inflation will continue to accelerate this month and its record of often increasing rates after sudden rises in its central bank bill issuance, the official Xinhua News Agency said. China is also likely to increase the RRR again in September and December this year, according to the report, which appeared in the bond market analysis section of a Xinhua website. (Reuters) China's benchmark money market rate (7-day repo rat) plunged more than 100 basis points in early trade on Tuesday as the People's Bank of China indicated that it might inject money into the financial system again this week to help ease the market's lingering squeeze. (Reuters) Chinese Premier Wen Jiabao acknowledged that the country is likely to miss its 4% target for inflation this

year, but said it could keep the rate below 5%, marking the government's latest backtracking on inflation even as it insists it can push the level down later this year from recent highs. (WSJ) China's Wen also calls for greater democracy, reforms, even though Beijing has clamped down on dissent this year following scattered online calls for a "Jasmine" revolution similar to uprisings in the Arab world. (Reuters) China said local governments owe debt equal to more than a fourth of the country's economic output, the first time Beijing has put a number on such debt. The National Audit Office said local-government debts total some CNY 10.7trn (USD 1.65trn), or 27% of China's 2010 GDP. The report was billed as a comprehensive tally of such debt, much of which was incurred during a two-year stimulus-spending binge ordered by Beijing to fight the effects of the global recession. Some analysts say the National Audit Office's figure failed to count certain kinds of local government debt, meaning the actual total could be even higher. (WSJ). Finance Minister Xuren said central government expenditures exceeded revenue in 2010, resulting in a fiscal deficit of CNY 800bn (USD 123.52bn), about CNY 50bn less than the annual budget. (ChinaDaily) Chinese Premier Wen Jiabaos decision to buy more euro-denominated bonds is aimed at diversifying the countrys huge foreign-exchange reserves, Financial News reported, citing a government researcher. (Bloomberg) China has expressed "quite full support" for French Finance Minister Christine Lagarde in her bid to run the International Monetary Fund, People's Bank of China Gov. Zhou Xiaochuan said, furthering the already strong prospect that she will win the job. (WSJ) In a burst of patriotism, China's central bank swore loyalty to the country's Communist leaders on Monday by vowing to "always walk with the Party". (PBoC) The top legislature on Monday started its second reading of an amendment to the country's individual income tax law. The amendment revealed would keep the monthly tax exemption income threshold at 3,000 yuan ($461.5), the same threshold specified during the first reading. (ChinaDaily) China-UK tie ups: Trade deals worth $4.3 billion were signed as Premier Wen Jiabao met British Prime Minister David Cameron on Monday. (ChinaDaily). Separately, Diageo, the UK drinks group, is to acquire one of Chinas best- known liquor makers in a deal that paves the way for one of the first foreign acquisitions of a big Chinese listed company. Western governments have long pressed Beijing to be more open to foreign investment, and the Diageo deal marks the first time a foreign company has gained control of an important Chinese brand. (FT) China could order dozens of Airbus jetliners, worth up to $5 billion at list prices, during a visit by Premier Wen Jiabao to Berlin, according to sources, but the Foreign Exchange Strategy Tuesday, 28 June 2011 http://www.GlobalMarkets.bnpparibas.com

deals are clouded by a spat between Beijing and Europe over aviation carbon tariffs. (Reuters) Japan Japan's fiscal reform delay is credit negativeMoody's, sees quick economic rebound from disaster but may be facing a third "lost" decade. Moody's has highest rating on Japan versus S&P, Fitch, and will decide on ratings by end August. (Reuters) PM Kan says wants to pass deficit bonds bill, renewable energy bill before resigning, conducts minor cabinet reshuffle, while political stalemate risks slowing recovery. (Reuters) Tokyo Electric (Tepco) halted 1.5 hours after start on Monday new, glitch-prone system key to cooling down damaged reactors due to a water leakage, a setback in efforts to avoid dumping highly contaminated water into the ocean. The system, using French technology started running on Monday afternoon after having encountered multiple setbacks in test runs in the recent weeks. (Reuters) Japanese retail sales managed to rise for the 2nd straight month by 2.4% after a 4.1% gain in the month prior, whilst on the yr, sales were still down 1.3% y/y but less than Apr's 4.8% decline and a record 8.5% fall in Mar. May's annual fall was also far less than forecasts on a 2.6% decline. The worst appears over for consumption, and could soon return to pre-quake levels as supply constraints continue to ease. Australia/ New Zealand/Canada RBAs Debelle sees no asset problems with banks housing lending, says Australian banks have more than enough collateral to deal with any liquidity event. Debelle also says sees very little sign of stress in Australian bank funding. (Reuters) Other Asia S. Korea posted a strong current account surplus in May: surplus widened to USD 2.26bn from USD 1.278bn in April, its strongest reading in 7 months. But capital and financial account deficit however widened sharply to USD 4.0bn in May after two consecutive months of surpluses in April (USD 395mn) and March (USD 524mn), leaving the basic balance in deficit of USD 1.74bn in May. Korea business sentiment index (BSI) softened in July, easing 3 points from June to 101.3 in July. On a seasonally adjusted basis, the BSI picked up by 0.8 points to 100.5. Philippine trade deficit of USD 1.195bn in April, little changed from a deficit of USD 1.2bn (revised up from USD 1.17bn) posted in March. India growth rate poised to overtake Chinas within 23 years, despite a near-term slowdown, says top Indian economic advisor, Kaushik Basu. Basu said that

allowing foreign investment in India's long-coveted retail sector would help temper inflation and provide better management of food supplies. (Reuters) Indonesia's vice fin min says expects fuel subsidy limitation this year and expects budget deficit to be kept max at 2.1 pct of GDP. (Reuters) S&P: 40 Asia Pacific Major Banks Examined In Latest Report generally demonstrated resilience during the global financial crisis, with the sector performing satisfactorily overall, says Standard & Poor's in its latest industry report card. (Reuters)

Foreign Exchange Strategy Tuesday, 28 June 2011 http://www.GlobalMarkets.bnpparibas.com

Dont Bank on HIA II to Help the Dollar

Homeland Investment Act (HIA) saw about USD 300bn of US corporate profits repatriated from overseas in 2005. A rerun as part of a US budget deal could have an even bigger impact than 2005, though we are skeptical it is going to happen One of the arguments being advanced in favour of a dollar revival in coming quarters is that the United States Congress and President may be about to rerun the 2004 Homeland Investment Act (which allowed US corporations to bring profits back from overseas at a highly preferential 5.25% corporation tax rate). This could form part of an eventual budget deal between Democrats and Republicans that allows the debt ceiling to be raised ahead of the early August deadline, after which the government is at risk of defaulting on its obligations. Lobbyists pushing for a repeat of 2005 are very hard pressed to credibly justify a rerun as liable to create employment. The evidence from 2004 is that more than 90% of the estimated USD 300bn of profits repatriated by US corporations from overseas either went to share buy backs (most of it) or extraordinary dividend payments. (See: Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act, by the National Bureau of Economic Analysis, June 2009). This was despite the legislated purposes of the HIA: job creation, business investment or R&D expenditure. Lobbyists' strongest (only?) argument is that a return of HIA would boost share prices of companies repatriating profits (either because of higher dividend payments or accelerated share buybacks). This may, then, have and indirect benefit on consumer spending via the wealth affect of higher share prices, while the government would benefit both from the tax take it will get from repatriated profits as well as the tax due on higher dividend payouts. The impact on share prices is, nevertheless, ambiguous; ratings agencies have previously warned that by reducing cash buffers in the form of retained earnings overseas, some companies are at risk of suffering downgrades to their financial strength ratings. While we dont expect HIA II to fly, its worth remembering the 2005 experience, since the scale of return flows was large and the FX impact significant. Data from the Bureau of Economic Analysis suggest that about USD 300bn was repatriated from overseas. Prior to the 2005 repatriations, survey evidence drawn from major corporations suggested that perhaps half of the funds likely to be repatriated were held in foreign currencies. HIA flows showed up in national accounts as a reduction in US FDI abroad (see Chart 1); hence, a big swing from negative to positive occurred in 2005, concentrated in the second half of the calendar year. Of the total amount, the bulk was seen to have been held within the EU (see Chart 2) and mostly in euros (Sterling and some Asian local currencies were also in the mix). In excess of USD 100bn of additional EURUSD demand was likely to have occurred in 2005. This had meaningful FX market impact, temporarily breaking the USD downtrend, which began in 2001 and which Foreign Exchange Strategy Tuesday, 28 June 2011 http://www.GlobalMarkets.bnpparibas.com

Chart 1: USD TWI versus US FDI flows

125 120 115 110 105 100 95 90 85 80 75 98 FDI flows (USD) (2Q mav)(rhs) 00 02 04 06 08 10 0 -25 -50 -75 USD-TWI (lhs) HIA related FDI flows 100 75 50 billions 25

Source: Reuters Ecowin Pro

Chart 2: US FDI Abroad Total vs. EU

400 300 200 USD (billions) 100 0 -100 -200 -300 -400 -500 -600 00 01 02 03 04 05 06 07 08 09 10 Total US FDI abroad US FDI into EU

Source: Reuters Ecowin Pro resumed in 2006. Were HIA II to come into effect, we would be quick to suggest it could again have impact, all the more so in so far as estimates of accumulated US corporate profits held overseas since 2005 suggest flows could be at least as large as in 2005 and possibly as much as USD 600bn.

Daily Currency Summary

G3
Respite for EUR Monday on one particularly large flow rumoured (but never confirmed) to be for a Middle East sovereign. Earlier negative sentiment engendered by reports that as many as four PASOK deputies are considering not voting for the governments medium-term fiscal plan in Parliament (on Wednesday) were somewhat softened by other reports suggesting that a handful of opposition deputies might vote in favour if it would otherwise fail. Reports that French banks had reached outline agreement with the French government of a voluntary roll-over of 70% of their Greek debt did not harm either, though the ratings agencies had not as of NY close offered any view as to whether they would regard the proposed roll-over as a credit event. Data points to keep an eye on: Eurozone inflation data (German preliminary Cost of Living on Tuesday and flash Eurozone HICP) on Thursday, and too latest Eurozone sentiment indicators on Wednesday. 1.4074 is key support USDJPY continues to remain largely flows-driven, trading without any respect for the latest drop in US Treasury yields to new 2011 lows. Weak stops above 80.60 saw the run up to the 80.90s but Y81.00 was not seriously challenged during Mondays session. The flows buffeting JPY are as much about foreign inflows as Japanese outflows. Nikkei reports that overseas Central Banks sharply increased their holdings of JGBs and other JPYdenominated assets in 2010; their exposure rose JPY 7trn to JPY 35trn according to BoJ data. This further highlights the headwinds facing USDJPY and the risk of a fresh downturn as and when factors currently supporting a broad based USD rebound subside. Data interest in Japan starts Tuesday with industrial production, for signs of the veracity of the post-earthquake rebound in activity. Some relief for yen crosses Monday aided by both the EURUSD and earlier USDJPY run-ups. While the run up in EURJPY is likely to extend should the Greek Budget pass on Wednesday, the small bounce in commodity currency/yen crosses looks much less convincing has failed to arrest the underlying downtrends in place since the beginning of the month.

EURUSD

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Latest Bank of England minutes have tended to confirm that the dovish contingent on the MPC is gaining the upper hand, consistent with our view there will likely be no rate increase through 2012. Current Account data Tuesday will be of interest, but perhaps more interesting will be comments from BoE members (King, Tucker, Dale, Posen, Miles) to the Treasury select committee at 0900 GMT. EURGBP still likely to rise more readily with rallies in EURUSD than vice versa leaving GBPUSD at risk of remain bogged down beneath 1.6000. If the dollar retains its firmer footing in coming data there is serious risks of a near term move down initially to the low 1.58s. EURCHF found some respite Monday from a firmer EURUISD and reports suggesting left-leaning Swiss parliamentarians were pressing fro the SNB to re-peg the CHF to the EUR. The arguments for the latter are guaranteed to get short shrift from the SMN, being an affront to its independence and after the losses suffered in 2010 form efforts to step EURCHF depreciation and we doubt the storey will gain momentum. In addition to the obvious impact on the CHF safe haven bid from Wednesdays Greek budget vote, Wednesdays KoF index is going to be important as a fresh read on how the economy is coping with latest CHF strength. Somewhat ironic to see NOKSEK slipping lower even though oil prices seemed to be finding some respite Monday. After the sharp falls on Thursday/Friday last week. The boost to the highly growth and risk sensitive SEK on a EURUSD bid and higher US stock markets seems to account for NOK underperformance. EURNOK still stuck in an effective 7.75-7.90 range with the lower side still the more vulnerable to bad news out of Greece than the upside on good news given NOK will do well if risk sentiment can sustain Mondays improvement Some respite for SEK Monday as risk sentiment got a boost from US stocks and the flow driving EURUSD higher, despite the slightly smaller than expecetd May trade surplus of SEK5.7bn. Retail sales data Tuesday of passing interest, then household lending and wages later in the week. SEK volatility apt to remain high in coming sessions with risk sentiment subject to either sharp improvement or deterioration depending on Greece plays out.

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USDCAD testing but not convincingly breaking its 200dma on Monday and falling back into the 0.97-0.99 range after the early day breach. Steadier oil and better risk sentiment allowed o the fall back but there remains serious risk of a move to test parity from below should oil turn lower again, risk sentiment deteriorate and/.or Wednesdays CPI data offer comfort that the BoC will stand pat on policy for the time being. Some excitement at the break below 1.0410 Monday and with EURAUD soaring but AUDUSD recovered its poise to trade back to the 1.0450 area. However, we bear in mind that the AUDUSD should be viewed a function of USD strength as much as AUD resilience, and hence refrain from attempt to catch an AUDUSD break below 1.0430 (100dma). Instead, we prefer short GBPAUD as we like to be long AUD selectively. Chinese Premier Wen suggests that the battle with inflation is close to being won and sharply lower money market rates are worth monitoring for their implication that further tightening measures could are likely to be limited. Worse than expected trade data, albeit driven by import strength, and negative early-day risk sentiment hurt NZD before risk currencies in general recovered some poise in later day trade.

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Foreign Exchange Strategy Tuesday, 28 June 2011 http://www.GlobalMarkets.bnpparibas.com

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 '11 1.45 80 0.84 1.63 0.97 1.07 0.84 6.28 5.36 Q2 '11 116 0.89 1.22 9.10 7.77 7.46 Q2 '11 2.72 24.5 280 6.90 1.59 4.25 27.86 3.95 7.9 102 Q2 '11 1.23 3.00 8600 30.00 43.00 7.80 6.47 28.50 1070 45.00 20500 Q2 '11 4.10 1.60 465 11.70 1770 4.29 2.75 Q2 '11 74.21 Q3 '11 1.50 78 0.83 1.65 0.98 1.09 0.82 5.93 4.98 Q3 '11 117 0.91 1.25 8.90 7.47 7.46 Q3 '11 2.60 24.3 275 6.80 1.52 4.20 27.51 3.90 7.8 100 Q3 '11 1.22 2.95 8500 29.80 42.50 7.80 6.40 28.00 1060 45.50 20500 Q3 '11 4.18 1.58 450 11.40 1730 4.29 2.70 Q3 '11 72.30 Q4 '11 1.55 83 0.83 1.68 0.93 1.13 0.84 5.48 4.77 Q4 '11 129 0.92 1.28 8.50 7.40 7.46 Q4 '11 2.48 24.5 275 6.60 1.50 4.15 27.25 3.85 7.8 100 Q4 '11 1.21 2.90 8400 29.50 42.00 7.80 6.31 27.50 1050 45.00 20000 Q4 '11 4.25 1.55 435 11.10 1690 4.29 2.65 Q4 '11 70.76 Q1 '12 1.45 85 0.90 1.59 0.95 1.07 0.81 5.93 5.07 Q1 '12 123 0.91 1.30 8.60 7.35 7.46 Q1 '12 2.69 24.1 269 6.55 1.56 4.20 27.86 3.90 7.5 98 Q1 '12 1.21 2.87 8300 29.30 41.50 7.80 6.25 27.00 1040 44.50 20000 Q1 '12 4.34 1.53 425 11.00 1690 4.29 2.63 Q1 '12 74.87 Q2 '12 1.40 90 0.93 1.56 0.97 1.04 0.80 6.21 5.26 Q2 '12 126 0.90 1.30 8.70 7.37 7.46 Q2 '12 2.75 23.9 265 6.60 1.59 4.25 27.97 3.85 7.5 97 Q2 '12 1.20 2.85 8200 29.00 41.00 7.80 6.21 26.70 1030 44.00 20000 Q2 '12 4.43 1.55 430 10.90 1700 4.29 2.63 Q2 '12 77.62 Q3 '12 1.35 95 1.00 1.53 1.01 0.99 0.76 6.67 5.56 Q3 '12 128 0.88 1.35 9.00 7.50 7.46 Q3 '12 2.81 23.8 265 6.50 1.63 4.15 28.08 3.80 7.5 96 Q3 '12 1.19 2.83 8100 28.70 40.50 7.80 6.17 26.50 1020 43.50 20000 Q3 '12 4.51 1.56 435 11.00 1710 4.29 2.64 Q3 '12 80.72 Q4 '12 1.35 95 1.00 1.53 1.01 0.99 0.76 6.67 5.56 Q4 '12 128 0.88 1.35 9.00 7.50 7.46 Q4 '12 2.78 23.5 260 6.50 1.65 4.10 27.65 3.75 7.5 95 Q4 '12 1.18 2.80 8000 28.50 40.00 7.80 6.13 26.00 1010 43.00 20000 Q4 '12 4.60 1.58 440 11.10 1720 4.29 2.66 Q4 '12 80.72 Q1 '13 1.30 95 1.04 1.53 1.04 0.96 0.74 6.92 5.77 Q1 '13 124 0.85 1.35 9.00 7.50 7.46 Q1 '13 2.85 23.7 260 7.20 1.65 4.20 28.19 3.70 7.5 93 Q1 '13 1.17 2.77 7900 28.30 39.50 7.80 6.23 26.00 1000 43.00 20000 Q1 '13 4.69 1.59 442 11.10 1725 8.80 2.67 Q1 '13 82.99 Q2 '13 1.30 95 1.04 1.53 1.04 0.96 0.74 6.92 5.77 Q2 '13 124 0.85 1.35 9.00 7.50 7.46 Q2 '13 2.77 24.0 255 7.10 1.67 4.20 27.75 3.60 7.5 92 Q2 '13 1.16 2.75 7800 28.00 39.00 7.80 6.20 26.00 1000 42.50 20000 Q2 '13 4.78 1.60 445 11.17 1730 8.80 2.68 Q2 '13 82.99 Q3 '13 1.30 95 1.04 1.53 1.04 0.96 0.74 6.92 5.77 Q3 '13 124 0.85 1.35 9.00 7.50 7.46 Q3 '13 2.85 23.5 260 7.00 1.69 4.10 29.07 3.70 7.5 91 Q3 '13 1.15 2.73 7800 28.00 39.00 7.80 6.17 26.00 1000 42.50 20000 Q3 '13 4.86 1.61 447 11.25 1740 8.80 2.69 Q3 '13 82.99 Q4 '13 1.30 95 1.04 1.53 1.04 0.96 0.74 6.92 5.77 Q4 '13 124 0.85 1.35 9.00 7.50 7.46 Q4 '13 2.85 23.3 260 6.90 1.69 3.95 27.75 3.70 7.3 90 Q4 '13 1.14 2.70 7800 28.00 39.00 7.80 6.15 26.00 1000 42.00 20000 Q4 '13 4.95 1.62 450 11.30 1750 8.80 2.70 Q4 '13 82.99

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FX - Global Strategy Contacts

Foreign Exchange
Ray Attrill James Hellawell Kiran Kowshik Mary Nicola Drew Brick Chin Loo Thio Robert Ryan Jasmine Poh Gao Qi Bartosz Pawlowski Diego Donadio Senior Currency Strategist Quantitative Strategist Currency Strategist Currency Strategist Head of FX & IR Strategy Asia FX & IR Asia Strategist FX & IR Asia Strategist FX & IR Asia Strategist FX & IR Asia Strategist Head of FX & IR Strategy CEEMEA FX & IR Latin America Strategist New York London London New York 1 212 841 2492 44 20 7595 8485 44 20 7595 1495 1 212 841 2492 raymond.attrill@americas.bnpparibas.com james.hellawell@uk.bnpparibas.com kiran.kowshik@bnpparibas.com mary.nicola@americas.bnpparibas.com drew.brick@asia.bnpparibas.com chin.thio@asia.bnpparibas.com robert.ryan@asia.bnpparibas.com jasmine.j.poh@asia.bnpparibas.com gao.qi@asia.bnpparibas.com bartosz.pawlowski@uk.bnpparibas.com diego.donadio@@br.bnpparibas.com

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