MARKET SUMMARY Daily Currency Update -

Daily Currency Update - 14 November 2014
DAILY CURRENCY UPDATE
14 November 2014
Price Action
MARKET SUMMARY
MACRO OVERVIEW: European markets finish modestly higher while US stocks are mixed.
US stocks see divergent performance across sectors. Crude oil prices are down sharply
and Brent futures are over 30% lower than their recent peak in June. The S&P 500
energy sector falls over 2%, reflecting lower oil prices, while a better-than-expected
earnings report from Wal-Mart helps to boost the S&P 500 consumer staples sector. Small
caps also underperform with the Russell 2000 small caps index down 0.9%. Moves in major
European sovereign bonds are muted with a mild fall in yields seen in German and French
bonds, while UST yields decline 2-4bps across the curve.
CABLE SEES FRESH LOWS: The previous day’s dovish Bank of England Quarterly
Inflation report continues to keep sterling under pressure and GBP/USD declines to a
new low for the year. G10 FX Strategist Valentin Marinov believes the BoE will welcome
this latest sterling weakness. “The November QIR indicated that BoE's main concern
remains imported disinflation…past GBPUSD appreciation could be among the key FX
drivers of weak UK inflation in recent months”, he says. There is little response on markets
to the slightly disappointing US initial jobless claims data. Meanwhile, NY Fed president
Dudley hits the wires overnight, saying that lifting US interest rates too soon poses a
bigger risk than raising them too late. Although a known dove, his comments help the
NZD and AUD gain some traction overnight.
BRENT FUTURES AT FOUR YEAR LOWS: The mood in iron ore remains bearish, with
prices continuing to breach support levels previously thought strong. Opportunistic Chinese
steel mill restocking is not occurring at low prices and highlights how difficult near-term steel
conditions must be on the ground. Metal markets are weaker, with China’s gold jewelry,
coin and bar demand falling nearly 40% in the third quarter according to the World
Gold Council. Crude oil markets fall heavily with WTI crude oil trading below USD75/bbl,
down USD2.50/bbl overnight, despite US crude inventories falling 1.7 million barrels in the
week to 7 November.
1 Year Forward
Spot
1M High
1M Low
EUR/USD
1.2474
1.2886
1.2358
USD/JPY
115.77
116.10
105.23
GBP/USD
1.5703
1.6227
1.5694
USD/CHF
0.9637
0.9742
0.9368
USD/CAD
1.1378
1.1467
1.1082
AUD/USD
0.8708
0.8911
0.8541
AUD/JPY
100.81
101.21
91.76
NZD/USD
0.7871
0.8034
0.7661
USD/SGD
1.2921
1.2977
1.2676
USD/TWD
30.62
30.67
30.33
Onshore
Offshore
30.05
30.37
USD/KRW
1097
1103
1046
1099
1106
USD/CNY
6.1261
6.1446
6.1083
6.2639
6.2846
USD/INR
61.56
61.93
60.91
66.19
65.09
USD/IDR
12205
12282
11974
13035
13055
USD/PHP
44.86
45.13
44.54
45.36
45.27
Source: Bloomberg
CHINA’S DATA POINTS TO SOFT Q4 GROWTH: China’s activity data remains weak in October, suggesting that the downward trend in growth is unlikely to change in
Q4. Industrial production increases 7.7% y/y in October, down from 8% in September, pointing to a sluggish heavy industry activity owing to the slowdown in the property sector.
Fixed asset investment and retail sales also slow modestly. Economic fundamentals suggest that the potential growth of the economy is slowing. It is reported that China’s top
leadership may lower the growth target of next year to 7.0% in the Central Economic Work Conference in December. This might be a wise policy move to achieve a balanced
and sustainable growth model and to pave the way for structural reforms.
Looking ahead, let’s end the week some volatility with flash Q3 GDP prints across the Eurozone, along with the US retail sales report for October.
USD & JPY
USD
USD/JPY High Low Chart
Key Events In the Past 24 Hours – Fed’s Dudley More Positive
115.78
 Says expects Fed to start raising rates sometime in 2015 though urges patience
 Says inflation expectations to move up towards Fed's 2% target
 October statement shows policy to be data dependent
105.23
116.1
Price Action
 Dudley’s comments appear more positive on the US economy with labor market slack now ‘meaningful’ rather than ‘significant’.
 There is much less emphasis on impediments to growth. However, he still remains dovish on rates and USD shows little reaction to his comments.
JPY
 USDJPY trades around the 115.55 level when the headline "JAPAN LDP SENIOR OFFICIAL SAYS IT APPEARS ABE HAS DECIDED TO CALL ELECTION" (JIJI news) hits the wires.
USDJPY trades higher to the 115.85 level on the report with renewed interest seen in topside USDJPY options from macro funds.
 Later on, Governor Kuroda points the oil price fall as an overall plus for the Japanese economy. Since this year's highs, despite the weaker JPY, oil in JPY terms has fallen some 20%
(18% on WTI and just over 20% on Brent).
 Prior to the BoJ easing on October 31st, such comments may have caused a selloff in USDJPY. But the markets ignore the comments made overnight as they are not seen getting in
the way of BoJ easing.




The sharp rise in USD/JPY is making it difficult for lifers to buy Australian bonds that have in the past looked at the 95 level in AUD/JPY or lower to buy.
Indeed, a sharp rise above 100 in AUD/JPY could trigger knock-out options embedded in annuity insurance products.
The medium-sized lifers that sell annuity insurance for individuals now have a total JPY3.9trn in AUM (as of March), which surpasses that of the nine major lifers (JPY2.6trn).
Considering that assets held in AUD-denominated annuity insurance products are not currency-hedged, this would require monitoring trends among medium-sized lifers.
CitiFX Technicals
USDJPY – As The JPY Story Unfolds
 The USDJPY rally remains similar to that seen in late 2012 / early 2013. It
suggests we could see 125+ by the end of January 2015.
 The events in relation to the price action are also similar (not the same)
now that we entertain the possibility of another election in Japan.
 JPY crosses are also trending higher and we refresh charts to include the
major levels to watch.
 Beyond Japan, we are focused on developments in US fixed income
markets where higher yields may once again play an important role for
USDJPY as we move to 2015.
Page 1
Daily Currency Update - 14 November 2014
What happened in the past 24 hours
US
US
Japan
Japan
Japan
Indicator
Actual
Citi
Initial Jobless Claims, thou
Beneficiaries, mn
Industrial production, %MoM, SepF
PPI %YoY, Oct
Machine Orders %MoM, Sep
290
2.39
2.9
2.9
2.9
275
2.37
----
Consensus
Prior
280
2.349
-3.3
-1.0
278
2.35
2.7
3.6
4.7
What’s happening in the next 24 hours
US
US
Indicator
Citi
Import Prices, %MoM, Oct
Retail Sales, %MoM, Oct
-1
0.1
Consensus
Prior
-1.5
0.2
-0.5
-0.3
EUR, GBP, CHF
EUR
EUR/USD High Low Chart
Key Events In the Past 24 Hours – The ECB’s Survey of Professional Forecasters for Q4 Growth and Inflation
1.2474
 Long-term inflation forecast (for 2019) fall from 1.9% to 1.8%, back to the level seen in Q2, which matches some readings for 200001 as the lowest in this dataset (which began in 1999); 2015: 1.0% from 1.2% and 2016: 1.4% from 1.5%.
 Growth forecasts are also revised down (from 1% to 0.8% for 2014, 1.5% to 1.2% for 2015, 1.7% to 1.5% for 2016).
1.2358
1.2886
GBP/USD High Low Chart
Price Action
 EUR though still remains fairly bid overnight after not being able to sustain moves below 1.2400.
 The price action continues to see consolidation after making the low post-NFP last Friday, with higher lows and lower highs on the
hourly chart with support seen around 1.2390 and next resistance at 1.2515.
 Cross/EUR also remains bid, with the best EUR performances seen against NZD and JPY while turnover in EURGBP is seen above
average overnight with CitiFX flows showing a large 59% bias towards the upside.
 Despite the supply however, EURGBP trades bid overnight back above 0.7900 to around 0.7950.
1.5703
1.6227
1.5694
USD/CHF High Low Chart
0.9637
0.9368
0.9742
GBP
 The dovish BoE inflation report released this week dominates sentiment in sterling as the June 2013 high at 1.5750 is taken out as is the 1.5722 level which is the 61.8% Fib of the rally
from 1.4814 to 1.7192 with cable making fresh lows at 1.5690/ 57.
 The market looks to sell rallies to 1.5850 for now as the November QIR indicates that the BoE's main concern lies with imported disinflation. CitiFX flows show a small net demand for
cable, but selling accounts for 59% of the CitiFX flows activity on the EURGBP cross.
 Next major support lies at 1.5500/50 on GBPUSD as leveraged and real money accounts lead the selling while demand for cable seems more one-off.
What happened in the past 24 hours
Germany
Germany
Switzerland
Indicator
Actual
Citi
HICP Final, %YoY, OctF
Consumer Prices, %YoY, OctF
Producer & Import Prices, %MoM, Oct
0.7
0.8
-0.1
0.7
0.8
--
Consensus
Prior
0.7
0.7
-0.3
0.7
0.8
-0.1
What’s happening in the next 24 hours
Germany
UK
Euro Area
Euro Area
Euro Area
Indicator
Citi
GDP Flash, %QoQ
Construction Output, %MoM, Sep
GDP Flash, %QoQ
HICP, Final, %YoY
Core CPI, %YoY
0.2
-0.1
0.4
0.7
Consensus
Prior
0.1
4
0.1
0.4
0.7
-0.2
-3.9
0.1
0.3
0.8
AUD, NZD, CAD
AUD
AUD/USD High Low Chart
Key Events In the Past 24 Hours – RBA's Kent comments on AUD
 AUD remains above most estimates of its fundamental value and doesn’t rule out intervention, particularly given the substantial
declines in commodity prices over the course of this year.
 RBA sees Australian growth picking up to above-trend pace by 2016 bit mining investment to fall more rapidly in coming year while
non-mining investment may not pick up as strongly as in past economic cycles
 Low interest rates should spur household spending growth and ultimately non-mining investment
0.8707
0.8541
0.8911
NZD/USD High Low Chart
0.7872
Price Action
0.7661
 AUDUSD drops lower on RBA Kent’s comments on intervention but steadies just above the 0.8700 level and just above significant
support at 0.8670/80. Resilience of AUD suggests that are currently in a period of consolidation that may see it re-test 0.8800 level.
 On crosses, investors are eyeing GBPAUD that has collapsed through significant support levels (100 and 200 DMAs).
0.8034
USD/CAD High Low Chart
1.1378
CAD
1.1082
1.1467
USDCAD trades as high as 1.1328 and then goes lower to test the (reloaded) bids at 1.1300 that holds firmly after which it breaks
above 1.1355/60 even as CitiFX flows show a 54% bias to selling USDCAD led by real money and bank names. Canadian new housing
price index up 1.6% YoY in September though a touch lower than 1.7% expected, is encouraging for CAD bulls but the market trades to fresh session highs in USDCAD for 2 reasons:

Reuters reports a delay in the US House plan to vote on the Keystone Pipeline project to tonight. This was expected last night.

Traders also think that the oil price action and FX positioning in CAD are playing a factor.
What happened in the past 24 hours
New Zealand
New Zealand
Canada
Indicator
Actual
Citi
Business Manufacturing PMI, Oct
Food Prices, %MoM, Oct
New Housing Price Index, %MoM, Sep
59.3
0.0
0.1
----
Consensus
Prior
--0.2
58.1
-0.8
0.3
What’s happening in the next 24 hours
Canada
Indicator
Citi
Manuf. Shipments, %MoM, Sep
--
Consensus
1
Prior
-3.3
ASIA
What happened in the past 24 hours
China
China
China
Indicator
Actual
Citi
Fixed assets ex rural, YTD %YoY, Oct
Retail Sales, %YoY. Oct
Industrial Production, %YoY, Oct
15.9
12.0
7.7
15.7
-7.9
Consensus
16..0
12.0
8.0
Prior
16.1
12.0
8.0
Page 2
Daily Currency Update - 14 November 2014
DISCLAIMER
“Citi analysts” refers to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. (“CGMI”) and voting members of the Citi Global
Investment Committee.
Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document.
The information in this document has been obtained from reports issued by CGMI. Such information is based on sources CGMI believes to be reliable.
CGMI, however, does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute CGMI's judgment as of the
date of the report and are subject to change without notice. This document is for general information purposes only and is not intended as a
recommendation or an offer or solicitation for the purchase or sale of any security or currency. No part of this document may be reproduced in any
manner without the written consent of Citibank N.A. Information in this document has been prepared without taking account of the objectives, financial
situation, or needs of any particular investor. Any person considering an investment should consider the appropriateness of the investment having regard
to their objectives, financial situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment.
Investments are not deposits, are not obligations of, or guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or
by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested. Investors
investing in funds denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past
performance is not indicative of future performance, prices can go up or down. Some investment products (including mutual funds) are not available to
US persons and may not be available in all jurisdictions. Investors should be aware that it is his/her responsibility to seek legal and/or tax advice
regarding the legal and tax consequences of his/her investment transactions. If an investor changes residence, citizenship, nationality, or place of work,
it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and
regulations as and when such becomes applicable. Citibank does not provide legal and/or tax advice and is not responsible for advising an investor on
the laws pertaining to his/her transaction.
COUNTRY SPECIFIC DISCLOSURES
Australia
:
Hong Kong
:
India
:
Indonesia
:
Korea
:
Malaysia
People's Republic of China
:
:
Philippines
:
Singapore
:
Thailand
:
United Kingdom
:
This document is distributed in Australia by Citigroup Pty Limited ABN 88 004 325 080, AFSL 238098. For a
full explanation of the risks of investing in any investment, please ensure that you fully read and understand the
relevant Product Disclosure Statement prior to investing.
This document is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL"). Prices and
availability of financial instruments can be subject to change without notice. Certain high-volatility investments
can be subject to sudden and large falls in value that could equal the amount invested.
This document is distributed in India by Citibank N.A. Investment are subject to market risk including that of
loss of principal amounts invested. Products so distributed are not obligations of, or guaranteed by, Citibank and
are not bank deposits. Past performance does not guarantee future performance. Investment products cannot be
offered to US and Canada Persons. Investors are advised to read and understand the Offer Documents carefully
before investing.
This report is made available in Indonesia through Citibank, N.A. Indonesia Branch. Citibank, N.A. Indonesia Branch is
regulated by Otoritas Jasa Keuangan.
This document is distributed in South Korea by Citibank Korea Inc. Investors should be aware that
investment products are not guaranteed by the Korea Deposit Insurance Corporation and are subject to
investment risk including the possible loss of the principal amount invested. Investment products are not
available to US persons.
This document is distributed in Malaysia by Citibank Berhad.
This document is distributed by Citibank (China) Co., Ltd in the People's Republic of China (excluding the
Special Administrative Regions of Hong Kong and Macau, and Taiwan).
This document is made available in Philippines by Citicorp Financial Services and Insurance Brokerage Phils.
Inc, Citibank N.A. Philippines, and/or Citibank Savings Inc. Investors should be aware that Investment products
are not insured by the Philippine Deposit Insurance Corporation or Federal Deposit Insurance Corporation or
any other government entity.
This report is distributed in Singapore by Citibank Singapore Limited (“CSL”). Investment products are not
insured under the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act 2011 of
Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.
This document contains general information and insights distributed in Thailand by Citigroup and is made
available in English language only. Citi does not dictate or solicit investment in any specific securities and similar
products. Investment contains certain risk, please study prospectus before investing. Not an obligation of, or
guaranteed by, Citibank. Not bank deposits. Subject to investment risks, including possible loss of the principal
amount invested. Subject to price fluctuation. Past performance does not guarantee future performance. Not
offered to US persons.
This document is distributed in U.K. by Citibank International plc., it is registered in England with number
1088249. Registered office: Citigroup Centre, Canada Square, London E14 5LB. Authorised and regulated by
the Financial Services Authority.
Page 3