EFTA01458610.pdf

Deutsche Bank Markets Research Global Foreign Exchange Date FX Spot 25 September 2015 Alas Puttee Macro strategist FX Forecasts and Valuations George Sesvolos Don't throw in the towel Macro Strategist Now is not the time to 'throw in the towel' on the strong US dollar trade that in broad USD trade weighted terms likely has at least another 10% to go The scenario analysis below outlines how the risk environment, notably events in China, will dictate the extent to which dollar strength is concentrated in EM and commodity FX, or rotates back to the major 610 currencies as well. It's still far too early to throw in the 'strong USD towel'. Instead, 'the rotation' story highlighted in the January 2015 FX forecasts and valuation publication still applies. In the big picture, dollar strength continues to migrate. It started with the yen, moved to 'the Fragile 5', the EUR, commodity currencies, and the spotlight is now shining brightly on non-Japan Asia FX, with serious ramifications for most EM and commodity currencies. What has been notably absent in the latest phase is USD vigor against other G4 currencies, which deserves special attention to ascertain the conditions when this could reassert itself, but this should not distract from the dollar's strength seen elsewhere. Table I: States of the world and the EUR 'S -curve' Stets 4: risk extremely newest Ste 1: risk unchanged/postern • Fed reacts by easing (negative rates) • Fed tightens, ECB & BoJ on hold • ECB & BoJ add to QE • Broad USD gains USD stronger then sharply weaker • EM& Commodity FX do not further • EMFX "V" (slump then partial sharp underperform EUR by much recovery) • EUR/USD tests 1.05 (EUR/USD down -10 big • FX volatility extremely elevated figures for every 100bps the 2Y spread moves • EUR/USD : risk off -)parity in favor of USD) Fed res . • nds 9 1.20+ Stead 3: dek comisesnIty negatin Stets 2: risk nobly, modestly negative • Fed steady • Fed steady, ECB steady • ECB & BOJ add to GE • USD slightly weaker vs. G3 • USD stronger vs. G3 • USD/Majors volatility is contained • EUR/USD to 1.05 then test parity • G4 FX outperforms EM and Commodity FX • EUR/USD 1.08.1.15 range bound EUR/USD S-Curve i i i USD positive I E lift pewit Ivo I EUR positive I Stoto 4 Steno 3 tote 2 Stator USD 'legal rv'> Risk 4 , 4•44,ely . Risk Risk modestly Risk negative I consistently negative unchanged or 1 negative passive Scarce De,.eneAe Sera Deutsche Bank Securities Inc. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0118599 CONFIDENTIAL SDNY_GM_00264783 EFTA01458610