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Forex NewsUSD CHF JPY
EUR benefits from the slowdown of the USrecovery
EURCHF slightly higher - ongoing uncertainty
Risk aversion and low US yields support yen
3 August 2010
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Forex News – Macro/Fixed Income Research – 5 August 2010
Page 2
US dollar Analyst: Gudrun Egger
The euro continued to appreciate in the past two weeks against the US dollar, gaining another 2.5% to 1.32EURUSD. The signals indicating a slowdown in the economic recovery of the US are becoming clearer. Althoughthe purchase manager indices (ISM) published yesterday exceeded market expectations, the sub-componentswere definitely advising caution. The production index in particular, but also the index of order intake indicated aweakening economic expansion. Not only the growth dynamics of the US industrial sector were coming as aletdown, but private consumption had also lost some of its momentum, as was reflected by the recently publishedQ2 US GDP data. This could in the medium term lead to an increase in the pressure to consolidate the US budget,given that a scenario where the US economy will be able to rapidly grow out of its debt is becoming increasinglyunlikely. The published US data have a negative impact on the expectations of market participants, and thus theproblems within the Eurozone are somewhat relegated to the sidelines. Indeed the Eurozone GDP growthforecasts are already at very low levels and should not be subjected to any further substantial downward revisions.For the coming weeks we expect a continued depreciation in the US dollar against the euro to around 1.35.
Swiss franc Analyst: Mildred Hager
The euro has slightly strengthened vs. the Swiss franc. Nevertheless, the risk of renewed franc strengthening hasnot totally disappeared. It should be taken into account that the renewed turmoil on the financial markets could leadto safe haven flows to the franc once more. The franc remains close to parity vs. the USD. The CPI decreasedfurther in July and inflation is now at 0.4%, after a revised June figure of 0.5%. Thus, the exchange rate might havehad an effect. The question remains if and when the SNB might make out renewed deflationary threats forSwitzerland and take all necessary measures. As the bank has already expanded its balance sheet significantly inthe past, this might only happen in extremis. The outlook for the EURCHF exchange rate is still accompanied by
such high uncertainty that we stick to bandwidths for the forecasts. On one hand, there still seem to be enoughfactors supporting strengthening pressures on the franc. On the other hand, it should be taken into account that thefranc is currently quoting at historically very strong levels, implying that part of the latest strengthening might havebeen short-term and sentiment-driven. The last movements proved in an impressive way the extent to whichextreme events can be beyond expectations, which is particularly true in the currently extraordinary marketenvironment.
Japanese yen Analyst: Mildred Hager
The yen remains close to USDJPY 86, in consonance with lower US rate expectations and yields. Growthexpectations seem to be dampened generally; thus, the yen reflects both increased risk aversion and theexpectedly low interest rate differential. The yen might even strengthen further, and this picture should only changeonce the recovery in the US gains enough momentum to improve the prospects for the labor market and interestrates, which is currently not anticipated to happen very soon on the markets.
Bandwidths for next two weeks
The following bandwidths were prepared based on market estimates of future exchange rate risks (implicitvolatility). Starting with today’s exchange rate, an upper and a lower limit can be estimated for the exchange ratetwo weeks from now. This covers the most likely scenarios.
We have charted the forecasted bandwidth with the actual exchange rate. The markets expect much widerfluctuations in the future as well. Thus, the forecasting risk has increased.
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Forex News – Macro/Fixed Income Research – 5 August 2010
Page 3
EURUSD
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
0 1 . 0 8 . 2 0 0 8
1 5 . 0 8 . 2 0 0 8
2 9 . 0 8 . 2 0 0 8
1 2 . 0 9 . 2 0 0 8
2 6 . 0 9 . 2 0 0 8
1 0 . 1 0 . 2 0 0 8
2 4 . 1 0 . 2 0 0 8
0 7 . 1 1 . 2 0 0 8
2 1 . 1 1 . 2 0 0 8
0 5 . 1 2 . 2 0 0 8
1 9 . 1 2 . 2 0 0 8
0 2 . 0 1 . 2 0 0 9
1 6 . 0 1 . 2 0 0 9
3 0 . 0 1 . 2 0 0 9
1 3 . 0 2 . 2 0 0 9
2 7 . 0 2 . 2 0 0 9
1 3 . 0 3 . 2 0 0 9
2 7 . 0 3 . 2 0 0 9
1 0 . 0 4 . 2 0 0 9
2 4 . 0 4 . 2 0 0 9
0 8 . 0 5 . 2 0 0 9
2 2 . 0 5 . 2 0 0 9
0 5 . 0 6 . 2 0 0 9
1 9 . 0 6 . 2 0 0 9
0 3 . 0 7 . 2 0 0 9
1 7 . 0 7 . 2 0 0 9
3 1 . 0 7 . 2 0 0 9
1 4 . 0 8 . 2 0 0 9
2 8 . 0 8 . 2 0 0 9
1 1 . 0 9 . 2 0 0 9
2 5 . 0 9 . 2 0 0 9
0 9 . 1 0 . 2 0 0 9
2 3 . 1 0 . 2 0 0 9
0 6 . 1 1 . 2 0 0 9
2 0 . 1 1 . 2 0 0 9
0 4 . 1 2 . 2 0 0 9
1 8 . 1 2 . 2 0 0 9
0 1 . 0 1 . 2 0 1 0
1 5 . 0 1 . 2 0 1 0
2 9 . 0 1 . 2 0 1 0
1 2 . 0 2 . 2 0 1 0
2 6 . 0 2 . 2 0 1 0
1 2 . 0 3 . 2 0 1 0
2 6 . 0 3 . 2 0 1 0
0 9 . 0 4 . 2 0 1 0
2 3 . 0 4 . 2 0 1 0
0 7 . 0 5 . 2 0 1 0
2 1 . 0 5 . 2 0 1 0
0 4 . 0 6 . 2 0 1 0
1 8 . 0 6 . 2 0 1 0
0 2 . 0 7 . 2 0 1 0
1 6 . 0 7 . 2 0 1 0
3 0 . 0 7 . 2 0 1 0
1 3 . 0 8 . 2 0 1 0
USDJPY
70
80
90
100
110
120
0 1 . 0 8 . 2 0 0 8
1 5 . 0 8 . 2 0 0 8
2 9 . 0 8 . 2 0 0 8
1 2 . 0 9 . 2 0 0 8
2 6 . 0 9 . 2 0 0 8
1 0 . 1 0 . 2 0 0 8
2 4 . 1 0 . 2 0 0 8
0 7 . 1 1 . 2 0 0 8
2 1 . 1 1 . 2 0 0 8
0 5 . 1 2 . 2 0 0 8
1 9 . 1 2 . 2 0 0 8
0 2 . 0 1 . 2 0 0 9
1 6 . 0 1 . 2 0 0 9
3 0 . 0 1 . 2 0 0 9
1 3 . 0 2 . 2 0 0 9
2 7 . 0 2 . 2 0 0 9
1 3 . 0 3 . 2 0 0 9
2 7 . 0 3 . 2 0 0 9
1 0 . 0 4 . 2 0 0 9
2 4 . 0 4 . 2 0 0 9
0 8 . 0 5 . 2 0 0 9
2 2 . 0 5 . 2 0 0 9
0 5 . 0 6 . 2 0 0 9
1 9 . 0 6 . 2 0 0 9
0 3 . 0 7 . 2 0 0 9
1 7 . 0 7 . 2 0 0 9
3 1 . 0 7 . 2 0 0 9
1 4 . 0 8 . 2 0 0 9
2 8 . 0 8 . 2 0 0 9
1 1 . 0 9 . 2 0 0 9
2 5 . 0 9 . 2 0 0 9
0 9 . 1 0 . 2 0 0 9
2 3 . 1 0 . 2 0 0 9
0 6 . 1 1 . 2 0 0 9
2 0 . 1 1 . 2 0 0 9
0 4 . 1 2 . 2 0 0 9
1 8 . 1 2 . 2 0 0 9
0 1 . 0 1 . 2 0 1 0
1 5 . 0 1 . 2 0 1 0
2 9 . 0 1 . 2 0 1 0
1 2 . 0 2 . 2 0 1 0
2 6 . 0 2 . 2 0 1 0
1 2 . 0 3 . 2 0 1 0
2 6 . 0 3 . 2 0 1 0
0 9 . 0 4 . 2 0 1 0
2 3 . 0 4 . 2 0 1 0
0 7 . 0 5 . 2 0 1 0
2 1 . 0 5 . 2 0 1 0
0 4 . 0 6 . 2 0 1 0
1 8 . 0 6 . 2 0 1 0
0 2 . 0 7 . 2 0 1 0
1 6 . 0 7 . 2 0 1 0
3 0 . 0 7 . 2 0 1 0
1 3 . 0 8 . 2 0 1 0
EURCHF
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1 8 .
0 8 .
2 0 0 8
1 8 .
1 0 .
2 0 0 8
1 8 .
1 2 .
2 0 0 8
1 8 .
0 2 .
2 0 0 9
1 8 .
0 4 .
2 0 0 9
1 8 .
0 6 .
2 0 0 9
1 8 .
0 8 .
2 0 0 9
1 8 .
1 0 .
2 0 0 9
1 8 .
1 2 .
2 0 0 9
1 8 .
0 2 .
2 0 1 0
1 8 .
0 4 .
2 0 1 0
1 8 .
0 6 .
2 0 1 0
EURCHF 95%-Bandwidths for 2W EURCHF
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Forex News – Macro/Fixed Income Research – 5 August 2010
Page 4
EURUSD
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
Aug.08 Jän.09 Jun.09 Nov.09 Apr.10
3m US Libor and Spread to Euribor
-4
-2
0
2
4
6
Aug.08 Jän.09 Jun.09 Nov.09 Apr.10
USD 3m LiborSpread to Euribor
EURJPY
90
100
110
120
130
140
150
160
170
180
Aug.08 Jän.09 Jun.09 Nov.09 Apr.10
3m JPY Libor and Spread to Euribor
-6
-4
-2
0
2
Aug.08 Jän.09 Jun.09 Nov.09 Apr.10
JPY 3m Libor
Spread to Euribor
EURCHF
1.3
1.35
1.4
1.45
1.5
1.55
1.6
1.65
1.7
Aug.08 Jän.09 Jun.09 Nov.09 Apr.10
3m CHF Libor and Spread to Euribor
-4
-2
0
2
4
Aug.08 Jän.09 Jun.09 Nov.09 Apr.10
CHF 3m Libor
Spread to Euribor
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Forex News – Macro/Fixed Income Research – 5 August 2010
Page 5
Forecasts: Exchange Rates
End of Month Current Sep-10 Dec-10 Mar-11 Jun-11EURUSD 1.323 1.30 1.35 1.33 1.30
EURJPY 113.8 117.0 121.5 122.4 123.5
USDJPY 86.01 90.0 90.0 92.0 95.0
EURCHF 1.372 1,25 - 1,45 1,2 - 1,45 1,2 - 1,5 1,15 - 1,5
Forecasts: 3m interest rates
End of Month Current Sep-10 Dec-10 Mar-11 Jun-11
EURO 0.90 0.90 1.00 1.20 1.50
Japan 0.24 0.25 0.25 0.25 0.25
USA 0.44 0.60 0.80 1.00 1.30
Switzerland 0.17 0.25 0.25 0.50 0.50
Spread vs Euribor -0.73 -0.65 -0.75 -0.70 -1.00 Appendix: EURCHF fan chart
The following chart illustrates expected exchange rate movements of the EURCHF. Based on option prices fordifferent maturities and strike prices, an implicit probability distribution function can be estimated for the differenthorizons. This in turn permits the estimation of bandwidths within which the exchange rate is expected to quote
with a certain probability. We plot the bandwidths corresponding to 50%, 70% and 95%.
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Forex News – Macro/Fixed Income Research – 5 August 2010
Page 6
Contacts
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Forex News – Macro/Fixed Income Research – 5 August 2010
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