GLOBALFXSTRATEGY

DAILYFXUPDATE
Thursday,April24,2014

CAMILLASUTTON,CFA,CMT ChiefFXStrategist,ManagingDirector T.416.866.5470 camilla.su on@sco abank.com

EUROZONEPMIRISING

EURLIMITEDABOVE1.40ASDRAGHILAYSOUTPLANS
USDismixed,lackingabroadthemeandinsteadtradingoofdomes cstories(RBNZ,CPI,Draghi,upcomingrisks,etc.). CAD is at leading into Gov Poloz speechwe expect him to balance thestrongerthanexpecteddomes cdatawiththeimpactofCAD. EUR is at a er President Draghi denes intended policy ac on for dierentscenariosand eslevelofEURintopoten alpolicyac on. EURexpectedtotradewithinitsrecent1.3673to1.3967range. GBPisquiet,tradinginnarrow6sessionrange. JPYisinfamiliarrangeleadingintoCPIdatathatisexpectedtormon energy,foodandforTokyotheconsump ontax. AUD is weak as impact of CPI s ll weighing; however on a rela ve ba sistheRBAislikelytohikeearly,whichshouldsupportAUD. NZDisso a erRBNZannouncesexpected25bptshiketo3.0%. USDCNYrisestofreshhighof6.2504increasingmarketconcern. April 30th holds tremendous risks with the Fed, Euro ash CPI, BoJ economicprojec ons,ChinasPMIandU.S.Q1GDP. FX Market Update Markets are adding to risk posi ons into the NA open as earnings con nue to suggest that global growth is improving (Caterpillar raising outlook, GE, Facebook & Apple beat, etc). Todays durablegoodsandjoblessclaimsareimportant(seecalendaronpage3) but it is the April 30th FOMC mee ng that is important. Yesterday there was a slew of media ar cles sugges ng that Fed policy con nues to ta per and that it is the interest rate story that is the important piece nowwecouldntagreemore.C.S. USDCAD (1.1020) CAD traded in a ght 22point range during the Asian and European sessions, a repeat of a familiar pa ern. However the risks today are signicant, par cularly as Governor Poloz will deliver a speech to the Sask Trade & Export Partnership tled, Canadas hot and noteconomy. The speech will be released at 2:30pm EST, deliv eredat2:45pmESTwithapressconferenceat4pmEST.C.S. The BoCDatainCanadahassurprisedhigherandfearsoftheeconomy failing to shi towards exports and business investment are in the early stagesoffading;howeverGovernorPolozsfocusonCADisonlybuilding (note that in the July 2013 MPR CAD was referenced 8 mes, then 9 mesinOctober2013,then19 mesinJanuary2014andthen27 mes in April 2014). Typically he references CAD in the context of its impact on exports, followed by how important exports are to the economic future;howeverhehas also arguedthatCADhasanimpactonina on. Today, we expect Governor Poloz to try and balance the be er than expected data with the importance of CAD on exports. The BoC is likely comfortable with a USDCAD trading between 1.09 and 1.12(see bo om chart); but uncomfortable when USDCAD moves too low as it will weigh on the domes c fundamentals of exports and uncomfortable when it movestoohighasitwillso enina onarypressures.C.S. USDCAD outlookweexpectUSDCADtotradeeithersideof1.10inthe nearterm. CAD is supported by improving domes c data and strength

Eurozone manuPMI

Eurozone services PMI

Source:Bloomberg&Sco abankFXStrategy

EUREXPECTEDTOTRADEIN1.36731.3967RANGE

Source:Bloomberg&Sco abankFXStrategy

USDCADBOCLIKELYCOMFORTABLEAT1.10

Source:Bloomberg&Sco abankFXStrategy

GLOBALFXSTRATEGY

Thursday,April24,2014
back of diverging central policy, a a en ing in central bank balance sheets, a shi insen ment&rela vefundamentals.C.S. GBPUSD (1.6793) GBPisquiet,tradingin a 6session 79point range of 1.6763 to 1.6842, failing to react to strong CBI re ported sales. Upcoming risks include retail sales&broadermarketdevelopments.C.S. USDJPY (102.40) USDJPYistradingwithin its familiar range, between its 50 and 100 day MA (102.39 and 102.96, respec vely). IntomorrowsAsiansessiontheriskwillbe focused on data releases. Na onal CPI for March is expected to rise to 1.6%y/y with exfood rising to 1.4%y/y, much of the up ward pressure on ina on has come from food and energy, leaving a signicant hur dle ahead before the BoJ will meet its 2% goal. However the impact of the consump ontaxwillbegintoleak inwithTokyoCPI released today reec ng April and accord ingly including the impact of the consump ontaxitisexpectedtojumpupto3.0%y/ y on headline and 2.8%y/y ex fresh food. The CPI release is an important risk for USDJPY as is the April 30th BoJ economic projec ons. We expect USDJPY to rise to 109byyearend.C.S. NZDUSD (0.8575) NZD is down 0.2% into the NA open as the RBNZ hiked rates to 3.0% was fully priced in and there were few changes in the statement. For NZD, theRBNZdidnotethatahighNZD leadsto lower ina onary pressures and repeated, as it did in the March statement, that the high NZD is a headwind to the tradable sector and believes the level of NZD is not sustainable in long run. In addi on it high lights that the speed and extent to future OCR hikes depends on economic data and ina onary pressures. We expect NZD to stabilize from here, a er having rallied almost 9% from its February lows, as the markethasalreadypricedintwomorerate hikesinthenext12months.C.S.

ening global growth; but is weighed down by bearish short & medterm sen ment and the tone fromGovernorPoloz.C.S. EURUSD (1.3820) EUR is at entering the NA session, a er ini ally rallying on stronger than expected German IFO and then retracing as President Draghi delivered an important speech (see link) where he moved closer to announcing the publica on of ECB minutes and highlighted how and when the ECB might act on policy. For the ECB, con ngencies for a monetary reac on in clude: 1) a ghtening of monetary policyfrom shortterm rates, global bond markets or FX that could be tackled through conven onal methods; 2) a further impairment in the transmission of monetary policy, par cularly through the bank lending channel, that could be tackled with an LTRO or ABS purchase program; and 3) a worsening in the mediumterm outlook for ina on whichwouldwarrantQE.C.S. ECB policy and the EURYesterdays rising Eurozone manufacturing and services PMI suggest thatthegrowthoutlookinEuropecon nuestorm;evenasdisina onarypressurespersist.This putstheECBinaawkwardposi ons,par cularlyasthe mingofEasterisdistor ngCPIreadings. However,therhetoricfromtheECBhasbeenclear,thatEURisincreasinglypartofthediscussion around price stability and that an elevated EUR will be met with conven onal policy ac on. This suggest to us EUR upside is limited at 1.40; however by detailing that QE would only be used to counteract a worsening in the mediumterm ina on outlook, it pushes out the risk of QE and could slow some of the capital ows into EUR that were moving in to frontrun any QE decision. Again limi ng EURs upside above 1.40. We expect EUR to trade comfortably within its recent 1.3673 to 1.3967 range in the nearterm; un l there is a catalyst to push it outside. Nearterm risksareApril30thwheretheEuroashCPIisreleased,theFOMCwillmeet,theBoJwillrelease itsupdatedeconomicoutlookandChinawillreleaseitsPMI.C.S. EUR outlook: in the nearterm we expect EUR to trade within its recent 1.3673 to 1.3967 range (see chart). Un l there is a shi in nearterm capital ows or sen ment (judged through CFTC dataandop onpricing)EURisunlikelytomateriallyweaken;butitsabilitytotradeabove1.40is limited (see above paragraph). By yearend we expect EUR to have depreciated to 1.30 on the

TECHNICALS:BUY/SELLSIGNALSANDPIVOTLEVELS
30 Day HistVol USDCAD 6.1 EURUSD 4.3 GBPUSD 4.0 USDCHF 4.9 USDJPY 6.3 AUDUSD 7.3 USDMXN 6.0 DXY(USDindex) 3.8 EURCAD 6.7 GBPCAD 5.6 AUDCAD 6.4 CADMXN 5.4 BoCNoonRate Spot 1.1024 1.3822 1.6794 0.8830 102.41 0.9273 13.07 79.80 1.5237 1.8514 1.0223 11.86 1.1032 MACD buy sell buy buy buy sell buy buy buy buy sell sell 9 &21 dayMA buy buy buy sell sell buy buy na buy buy buy sell DMI sell buy buy sell sell buy buy sell buy buy buy buy RSI 52 55 61 48 49 51 48 46 54 59 52 46

Apr24,2014
Pivot1st Support 1.1010 1.3796 1.6759 0.8808 102.16 0.9235 13.05 79.69 1.5208 1.8475 1.0185 11.83 Pivot1st Resist. 1.1045 1.3851 1.6832 0.8853 102.68 0.9344 13.10 79.92 1.5280 1.8565 1.0302 11.88

Source:Scotiabank& Bloomberg

SuggestedReading ECBQE:realprospectorfantasygame?,R.Atkins,FT(April24,2014)ECBpolicymakersarespeakingopenlyaboutpossibleQE.Ifverbal interven onsfailtoweakenEUR&dea onrisksmount,theimplementa onofQEmaynothavethesameeectsasintheUSorJapan. Itsspring me,TheEconomist(April23,2014)TheEurozonePMIssuggestthatgrowthmaypickupevenmoreinthesecondquarter.QEis likelytobethelastresort,withtherststepsconsis ngofafurthersmallcutinitsmainlendingrate. Australiandollartumblesa erdatascotchesrateincreaseexpecta ons,J.Ramage,WSJ(April24,2014)TheAustraliandollartumbleda er mutedina ondatascotchedinvestors'expecta onsthatthecentralbankwouldraiseinterestrates. ECBwouldconsiderassetpurchases,B.Blackstone,WSJ(April24,2014)TheEuropeanCentralBankwouldconsiderbroadbasedpurchases ofassetsiftheoutlookforfutureconsumerpricegrowthweakenstoomuch,ECBPresidentMarioDraghisaidThursday. 2

GLOBALFXSTRATEGY

Thursday,April24,2014

TODAY'SRELEASES&SPEAKERS Time Country Release Period Consensus (EST) 08:30 US DurableGoods Orders Mar 2.0% 08:30 US Initial Jobless Claims 19 Apr 315K 11:00 US Kansas CityFedManf.Activity Apr 8 12:15 EC ECB's Constanciospeaks onbankingunion;Q&Aunknown 14:00 CA CanadianFinanceMinister Oliver Speaks inVancouver;details unknown 14:30 CA BoCGov.Polozspeechtextreleased 14:45 CA BoCGov.Polozspeaks on'Canada's HotAndNotEconomy' 16:00 CA BoCGov.Polozpress conference 19:30 JN Natl CPI YoY Mar 1.6% 19:30 JN Natl CPI ExFood,EnergyYoY Mar 0.7% 04:30 UK Retail Sales Incl.AutoMoM Mar 0.4% 04:30 EC ECBSupervisoryChair Nouyspeaks onsupervision;Q&Aunknown

Last 2.2% 304K 10

Significance med med med med low HIGH HIGH HIGH HIGH HIGH med med

1.5% 0.8% 1.7%

CONTACTSGLOBALFXSTRATEGY
Pleasecontactauthorsdirectlytobeaddedtodistribu onlists

CamillaSu on,CFA,CMT ChiefFXStrategist,ManagingDirector T.416.866.5470 camilla.su on@sco abank.com EricTheoret FXStrategist(G10),AssociateDirector T.416.863.7030 eric.theoret@sco abank.com

EduardoSuarez SeniorFXStrategist(LATAM),Director T.416.945.4538 eduardo.suarez@sco abank.com SachaTihanyi SeniorFXStrategist(ASIAexJapan),Director T.852.2861.4770 sacha. hanyi@sco abank.com

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