EFTA01449249.pdf

16 May 2013 FX Blueprint: Dashing Buck Additionally, after the Central Bank of Mexico (closing:1830, entry:1819) and waiting for some suspended the "stabilization" mechanism, we would potential retracement to re-enter. not be surprised if a new "reserve accumulation" rule is installed if the speed of appreciation increases. While Figure 3: Capital flows help to cover growing current any potential negative effects in the currency will likely account deficits be short lived (barring any disappointment in the • Patrol° Flows reform agenda) we have recommended tactically Increaser/the GOP • FCrl taking profits in our long held short USD/MXN • Current Acclaim 60% °Sum recommendation (closing: 11.96, entry: 12.68). 40% Investors willing to position for residual upside could benefit from still reduced volatility by entering some bullish options strategies (either 1x2 USD/MXN put :2 0C:% 1111111 1111 spreads or knock-outs). Andean currencies may suffer relatively more from 40% weakening fundamentals, but we think that the 40% downside may be limited. 40% HUE RUB WOICZK COP PEN BPI TRY aP ILS PIN ZAP In particular, we do not see much upside potential in the CLP, but the combination of elevated yield and San- Daurn** &et relatively low volatility makes it an attractive carry proposition for those willing to position for the global The PEN finally suffered a meaningful correction on the recovery. Nevertheless, as fundamentals gradually back of some news regarding the potential acquisition weaken, the risk of intervention is also fading away. of a stake in a private oil company by a public one and The recent correction in commodity prices, especially weakening external accounts. But after briefly touching copper, has driven the CLP away from intervention 2.65, the currency recovered to the 2.60 level. Barring levels (perceived to be around 460), to the extent that any external surprises, and taking into consideration some statements by CB president Vergara vouching for the new boost to global liquidity, PEN should remain a weaker currency took the market by surprise. relatively anchored on the back of strong FDI flows but Depending on its persistence, this novel shock to the the change in CB intervention is evidently beginning to terms of trade could worsen an already complicated have the desired effect of increasing the volatility of the current account balance. Additionally, economic currency. Considering the almost non-existent carry, activity seems to be entering the long awaited we recommend remaining neutral on USD/PEN. deceleration path. In our view, the carry trade on EUR/CLP is an attractive alternative to position for All in all the tide is beginning to change in LatAm FX. loose monetary policies at the core (current: 618, entry: While some currencies still offer some attractive carry 616, target: 602, stop: 626). (BRL or even CLP) and other have some (medium-term) upside potential (MXN), gradually weakening In Colombia, policymakers under-delivered in terms of fundamentals could increase the relevance of FX market intervention after signaling that the currency differentiation. was unacceptably expensive. Nevertheless, some noise remains due to proposed changes in pension funds' minimum return calculation. While it is difficult to Mauro Roca, New York +1 determine the potential impact of this measure (early Jose Vieira, New York +1 calculations point to a range of I bn to 5bn of USD demand), this should not have an important direct short-run impact in the COP (beyond market anticipation). With the currency trading around away from the perceived 1800 intervention threshold, we have recommended taking profits in long USD/COP See Erntvging Markey Monthly: Row Mown, may 10 2013 ' The daft by the Superintendent of Pension Funds suggests It could Induce pension funds to follow a minimum share of foreign assets. which is slightly above current portfolios' allocation. Page 18 Doutscho Bank AG/London CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0104582 CONFIDENTIAL SDNY_GM_00250766 EFTA01449249