160830 fx conviction update profit protection adjustments

Marketing Communication

FX Convictions

Group Economics Macro & Financial Markets

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30 August 2016

Profit protection adjustments  We maintain our long USD versus JPY and long HUF versus EUR

Roy Teo

 …but we bring our stop losses (profit protection) closer to the

Senior FX Strategist Tel: +65 6597 8616

current market level…

roy.teo@sg.abnamro.com

 …so that we protect the positive performance so far

Long USD versus JPY; profit protection adjustment Since initiation on 23 August, our long USD versus JPY call has yielded 2% as financial markets have started to price in that Fed rate may hike sooner rather than later. Ahead of the US non-farm payrolls this Friday, we expect financial markets to buy the dollar on any dips.

Inflation in July 2016; lowest level since March 2015

Options market demand to hedge a weaker JPY rising

%

Level

Reverse scale %

1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 Jan-10

-25

130

-15

125

-5

120

5

115

15

110

25 Jul-11

Jan-13

Jul-14

Jan-16

CPI ex food energy ex VAT YoY% (lhs)

1 0 -1 -2

105 100 Jan-14

-3 Jul-14 USD/JPY (lhs)

JPY NEER YoY% (rhs) Source: BoJ

Risk reversal skew

Jan-15

Jul-15

Jan-16

Jul-16

1mth USD/JPY risk reversal (rhs)

Source: Bloomberg

Separately, the pressure for the Bank of Japan to step up its monetary stimulus program has increased with inflation in July declining to the lowest level since March 2015. Demand in the options market to hedge potential weakness in the JPY has surged in recent weeks. We expect the JPY to decline further as investors unwind speculative long JPY positions in the coming weeks. Exporters and domestic life insurers are likely to hedge their overseas receipts if the JPY weakens. As a result, the upside in USD/JPY will likely be limited. Our short term target is 107 and we have raised our stop loss (profit protection) from 99 to 101.

Insights.abnamro.nl/en

2

FX F Convictio ons –Profit protection adjustments a s - 30 Augus st 2016

We keep in place ou ur HUF long versus v EUR We also keep our HUF F long versus EUR E in our high h conviction vieews in place. However, H we have low wered our stop loss from 312 to 310 to prote ect the current positive perforrmance. For more details please reffer to our FX Convictions C – Add HUF long vversus EUR.

Our op pen positions s and stop los ss levels Open pos sitions

High convviction views Open Last pricee Position base currency Open EURHUF 315.25 309.03 Short since 12 May 20016 12.02 USD/JPY 100.18 102.30 Long since 23 Augustt 2016 17.25

Stop loss l 310.000 101.000

Source: ABN AMRO Group p Economics

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