Daily Currency Update - 12 November 2014 DAILY CURRENCY UPDATE 12 November 2014 Price Action MARKET SUMMARY OVERVIEW: Markets are relatively calm overnight with US bond markets closed for the US Veterans Day holiday. US stock indices fluctuate around record highs, with the S&P 500, NASDAQ and Dow Jones relatively unchanged from the previous session close. European stock indices extend gains on improving actual and forecast corporate earnings results (including Vodafone) with the Euro Stoxx 50 Index up 0.3%. Most European sovereign bonds rally modestly. The main focus remains on FX markets with USD/JPY rising to a fresh sevenyear high but otherwise USD broadly remains under pressure, reversing previous moves. COMMODITIES: Thermal coal prices rise 0.7%, taking gains for the week to 2% as energy intensive sectors in northern China resume operations after reducing output to improve air quality for the APEC meeting in Beijing. Metal markets firm up with the gold price rising 1.5%. A weaker US dollar provides some support. Crude oil markets are mixed, with WTI crude prices stable but Brent prices falling. The OPEC meeting to review potential crude oil production cuts is still two weeks away (27 November) but market chatter is increasing. 1 Year Forward Spot 1M High 1M Low EUR/USD 1.2474 1.2886 1.2358 USD/JPY 115.82 116.10 105.23 GBP/USD 1.5920 1.6250 1.5791 USD/CHF 0.9647 0.9742 0.9368 USD/CAD 1.1338 1.1467 1.1072 AUD/USD 0.8694 0.8911 0.8541 AUD/JPY 100.69 100.80 91.76 NZD/USD 0.7816 0.8034 0.7661 USD/SGD 1.2921 1.2977 1.2676 USD/TWD 30.58 30.66 30.33 Onshore Offshore 30.30 30.34 USD/KRW 1092 1097 1046 1100 1105 USD/CNY 6.1251 6.1446 6.1083 6.2705 6.2864 USD/INR 61.56 61.95 60.91 66.02 65.11 USD/IDR 12222 12282 11974 13030 13058 USD/PHP 44.94 45.13 44.54 45.40 45.27 JPY: The yen drops to its weakest levels in seven years on speculation that Source: Bloomberg Japan’s Prime Minister Shinzo Abe is considering postponing a planned sales-tax increase and preparing to call early elections next month. According to CitiFX G10 Strategist Osamu Takashima, a year end rate of 120.00 is now on the cards. “The present upward momentum in USDJPY is as strong as the downward momentum was in 1995 when the pair fell sharply from 100 to 80. The similarity indicates it could test 120 by year-end,” he says. AUD: Meanwhile in Australia, NAB’s measure of business conditions records the largest monthly increase rising to +13 in October from +1. Conditions are reported to be at the highest level since February 2008. The improvement in business conditions is broad based with the profitability, trading and employment components all gaining strongly. Looking ahead, we have employment data and the BoE Inflation Report from the UK tonight. USD & JPY USD USD/JPY High Low Chart 115.82  USD extends gains in the European morning following prospects of a snap election in Japan and potential delay of the 105.23 116.1 scheduled consumption tax hike next October with the Nikkei news saying that PM Abe has told party leaders to prepare for possible election.  USDJPY gains about 30-pips to 115.80 on the headline but by the NY session end, CitiFX e-traders note a reversal in USD sentiment though with selling, mainly against EUR which chops around 1.2420 for most of the day, but gains over 70-pips into the MY close to a high of 1.2495. CitiFX Technicals USDJPY trend across the highs at 116.16  The trend across the highs from June: 116.16 (rising by 18 pips/day)  Interim high from October 2007: 117.95  Medium term resistance zone: 121+ JPY  USDJPY trades very bid in Asia yesterday in Japan breaking through the 115.59 high and rallying past 116.00, initially attributed to a decent rally in Japanese equities but later attributed to speculation that PM Abe may be considering delaying the second stage of the implementation of a 10% sales tax, as well as calling a snap election. Page 1 Daily Currency Update - 12 November 2014  Abe is later quoted as saying no decision has they been made, but USDJPY remains firm as LDP member Takashi Sasagawa’s comments hit the wires saying that it is good to ask voters on whether to raise the sales tax and may have started preparations for a snap election.  The key indicator for his decision seems to be the preliminary GDP data for the July-September quarter due on Nov. 17 where economist forecasts are looking for a modest 0.5% rebound on quarter, or an annualized 2.2%, in Q3, after a sharp contraction of 1.8%, or an annualized -7.1%, in Q2.  The cash Nikkei closes at a 7-year high with Nikkei futures posting further gains in after-hours trading.  CitiFX Technicals put out a note overnight pointing to rising resistance at 116.16 on USDJPY and the interim high from October 2007 at 117.95 as the next levels to target and CitiFX strategists now see a target of 120.00 by year end as IMM, Citi PAIN and Citi FX Access positioning indicators show leveraged investors are not heavily short JPY.  Adding to the Yen bearish news is the latest MoF data showing Japanese investors have bought a net JPY1232bn ($10.6bn) in foreign securities in October and excluding banks (that are FX-neutral), net buying amounts to JPY1851bn ($16.0bn), marking the seventh straight month of net buying.  The pace of net buying of foreign securities by Japanese investors remains steady and strong with trust accounts (mainly pension funds) net buyers of foreign securities in October, at JPY833bn ($7.2bn), for the seventh week in a row highlighting that they continue to shift to foreign securities at a rapid pace. What’s happening in the next 24 hours US US US Indicator Citi Wholesale Inventories, %MoM Minneapolis Fed's Kocherlakota (voter, dovish) speaks on monetary policy Philly Fed's Plosser (voter, hawkish) speaks on the economy -- Consensus Prior 0.2 0.7 EUR, GBP, CHF EUR | GBP EUR/USD High Low Chart  Both EUR and GBP rally over 60-pips higher from the London session into the NY close with demand led by leveraged investors while real money and banks sell into the rally though with turnover running at only about half the recent average.  In sterling that closes above 1.5900, it is as much about positioning adjustments ahead of tonight's key BoE Inflation Report. 1.2474 1.2358 1.2886 GBP/USD High Low Chart 1.592 CHF  Meanwhile, CitiFX flows data shows investors have likely stepped up their CHF purchases of late with some of the buying seemingly related to the upcoming conversion of Hungarian FX mortgages.  Focus remains on the FX options market as they bet on higher CHF-volatility from here.  Going into the gold referendum on November 30, Citi strategists think that the ‘No’ vote would likely prevail as the campaign to keep the status-quo grows more vocal.  At the same time, a potential ‘Yes’ vote need not trigger an immediate rethink of the EURCHF-peg and could lead to negative rates, which could have considerable negative impact on CHF. 1.625 1.5791 USD/CHF High Low Chart 0.9647 0.9368 0.9742 What’s happening in the next 24 hours Eurozone Eurozone UK UK UK UK UK UK Indicator Citi Industrial Production, %MoM ECB President Draghi speaks at conference LFS Unemployment, thousands LFS Unemployment Rate, % LFS Unemployment Rate, 1m % Claimant Count Unemployment, thousands Claimant Count Rate, % Avg Earnings Ex Bonus, 3m % 1 0.7 Consensus Prior -1.8 -138 5.9 5.9 -20.00 2.8 1 -5.9 --20.00 2.7 1.1 -154 6 5.9 -18.60 2.9 0.9 AUD, NZD, CAD AUD  AUD remains within striking distance of this week's lows but is unable to make any real traction toward the 0.8570/80 support level that is now eyed to the downside.  Note that Citi Commodity Research team have cut their iron ore forecast to as low as USD50 next year and while the housing data manages to provide a bit of a bid, the bias still favors the downside with interim support levels seen at 0.8610 followed by 0.8580 while the topside is carved out by the 0.8800/10 area. AUD/USD High Low Chart 0.8694 0.8541 0.8911 NZD/USD High Low Chart 0.7816 NZD 0.7661 Key Events In The Past 24 Hours – NZD ticks down on RBNZ’s Financial Stability Report  Says NZD still elevated, above sustainable and unjustified levels  Says won't relax mortgage lending limits for now 0.8034 USD/CAD High Low Chart 1.1338 Price Action  NZDUSD drops some 20-pips to 0.7802 on the headlines but remains in a no man’s land with the only real trading opportunity seen on rallies which continue to find supply.  Targets to sell include the 0.7810/30 area while dips onto the 0.76-handle continue to find some demand. 1.1072 1.1467 What happened in the past 24 hours Australia Indicator Actual House Price Index YoY%, 3Q 9.1 Citi Consensus Prior 8.8 10.1 What’s happening in the next 24 hours Canada Indicator Citi Teranet/National Bank HPI, %MoM, Oct -- Consensus -- Prior 0.3 Page 2 Daily Currency Update - 12 November 2014 DISCLAIMER “Citi analysts” refers to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. 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