EFTA01449242.pdf

16 May 2013 FX Blueprint Dashing Buck Overview Asia, not the US, has provided the biggest surprises of an extremely negative current account deficit dynamic. 2013 so far. Chinese FX reserve accumulation has The franc meanwhile will suffer from a resumption of grown at a pace not seen since 2010. Much seems to portfolio outflows from Swiss-based investors. We sell be due to speculative dollar sales, but whatever the both GBP and CHF (vs EUR and USD). reason, the likely rebalancing has provided support for non-dollar reserve currencies such as the euro and Rest of C; 0 Australian dollar. The other surprise has been the scale Swedish disinflation and Norwegian household debt of the Japan "shock" with Abenomics proving to be issues should lead to central bank biases that support a the most radical set of policies since the depression-era. long NOK/SEK trade. Finally in GI0, we like to go long The yen has fallen markedly; competitor nations such CAD against the JPY and NZD on the back of Canadian as Korea have seen their currencies weaken, while growth catching up to US growth, a stabilisation in the suppliers to Japan such as Thailand and Malaysia have housing market and en upturn in natural gas prices. seen their currencies strengthen. Through all of this the We are neutral on the Australian dollar, but given the dollar has marched higher even with the market recent sharp decline would consider buying AUD wavering over an early move to tapering by the Fed upside options, which appear cheap making the risk- and still absent equity re-allocations to the US. return look attractive. Dollar Break -Out Time Asia China+ Japan The resilience of the dollar should be taken as a signal The yen-centric Asia FX trade, short Korean won and that the dollar is in the midst of a major uptrend. Over long Malaysian ringitt, should continue to perform well. the coming months, economic data will likely improve As well as competition from Japanese companies. after a soft patch, which should keep real yields well Korea will likely suffer from portfolio re-allocations to supported. More importantly, despite continued US Japan. Malaysia meanwhile should benefit from a pick- equity market outperformance, international investors up in bond and equity inflows after the recent election. have still favoured the Euro-area, Japan and EM Asia As for CNY. at annualized appreciation pace of 12%, over the US in terms of flows. This is unlikely to we are concerned. The state of the economy does not continue. Chinese reserve accumulation should also justify that, and measures to clamp down on slow down, not least because of measures by speculative inflows should reduce the appreciation authorities to clamp down on speculative inflows. The pressure. Moreover, a band-widening should, if euro will no doubt lose out with such a backdrop. anything, lead to CNN' weakness. We like to sell CNN' Additionally, the ECB has re-opened discussions of via options. easing, while the Fed is contemplating how to wind down easing. On the flow side, lower euro risk premix Rest of EM should see much less repatriation, and if anything a Of the remaining currencies, we find the Brazilian real greater allocation to foreign assets by Euro-area attractive thanks to its carry and policy support for a investors. We go long the dollar trade-weighted index range in the currency. We go tactically neutral on the and short EUR/USD. Mexican peso. Big picture the currency looks attractive, but positioning is crowded. In EMEA, we look for Japan 3 hoi.k additional strength in the Israeli shekel after its recent Though many want to fight the trend, we continue to sell-off on the back of a strong economy. We remain stick resolutely to a bearish yen view. The next three to negative on the Hungarian forint and South African four months should see a wave of events and rand, and positive on the Turkish lira. We enter option- announcements that will reinforce the potency of based trades to express those views. Abenomics, whether through elections, structural reforms or monetary policy. Expectations will remain How We Did one of the key channels through which Abenomics will Turning to how our trades performed from January's influence the direction of the economy. The flow blueprint, it is clear that our weaker yen and stronger picture also remains negative for the yen thanks to euro calls were key factors behind our overall return of M&A outflows and the potential for further unwinds in +3.8%. Carry trades also performed well. Our biggest past inflows to short-term Japanese instruments. We winner was long USD/JPY (up 17%) while our biggest stay short the yen against the dollar. loser was short a 1 year USD/PHP NDF (-1.5%). The trades made 3.8% on average with a hit ratio of 78%.. GBP. CHF. Nowhere To Hate Two other currencies should lose out to an unwind of 511a/ Hafeez London, +44 (20)7547 1489 safe-haven inflows: sterling and the Swiss franc. The negative sterling picture is aggravated by the fact that recent strong data will not change BoE policy, while the negative net investment income balance points to Past performance is not inthcatrve of future per1OO713t1Ct Page 2 Deutsche Bank AG/London CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0104566 CONFIDENTIAL SDNY_GM_00250750 EFTA01449242