FX – SPOT ON

FX Research • 26 July 2010 • Jyske Markets

An overview …
An overview …
Overall expectations and risk scenarios Page 1

FX outlook
Jyske Bank's FX forecasts Pages 2-3
Publisher:
Jyske Markets The past month in review…
Vestergade 8-16
The development in the markets over the past month Page 4
DK - 8600 Silkeborg
FX overview
USD, GBP, CHF, JPY, NOK, SEK, CZK, PLN, HUF, TRY, MXN, BRL, ZAR and CNY Pages 5-21

FX forecasts including consensus estimates

Analysts: How do Jyske bank’s forecasts deviate from consensus? Pages 22-23
Helle Varming
+45 89 89 71 05
Economic forecasts
hv@jyskebank.dk Jyske Bank’s forecast for other assets traded Page 24

Overall expectations Generally, Jyske Bank’s macro-economists still

Linda Vestergård
The markets seem to be getting into the expect a ’broken V recovery’ and believe
+45 89 89 76 62
‘summer mood’; volumes are lower, and the therefore that the recovery will last. However,
Linda.vestergaard
@jyskebank.dk panic relating to the debt crisis in the euro there is not much doubt that the economic
zone has abated considerably in June and July. indicators are now again attracting attention
However, the debt-ridden countries in after a period where the overriding theme in
Kent Bæk Iversen Southern Europe still have to prove that they the markets was the Southern European debt
+45 89 89 76 63 are able to implement the promised budget crisis. If the economic indicators continue to
Kent_iversen disappoint, the nervousness of a W-turn in the
cuts, and that process will take time. Therefore
@jyskebank.dk global economy may intensify, but for the time
we do not expect that the theme has
disappeared for good, and we think there is being we assume that we are merely in a
still a risk of nervousness in this respect over phase in the upswing where growth is slowing
Translation:
the coming months. However, continuous down a bit without the economy sliding into
Translation Services
indications that the consolidation in the another recession.
financial markets proceeds according to plan Risk scenarios
will reduce the uncertainty.
If the current weakening of the US economic
Following a period where focus has solely (or
indicators continues and turns into a more
practically so) been on the problems in Europe,
serious setback for the economy, there is of
the markets are now looking to the rest of the
course also the risk that this will affect the
Read more research
world. The disappointing Chinese as well as US
global economy in general. We assess,
reports about foreign economic indicators have caused market
however, that the greatest risk to global
exchange at players to question whether, actually, the
growth still lies in a flare-up of the financial
www.jyskemarkets.com upswing in the global economy is all that
crisis in the wake of the Greek crisis. This
sustainable in the somewhat longer term or
might be sparked if one or more of the
whether we will be in for yet another economic
Southern European countries were to default
downturn. And indeed, following the most
or to apply for debt restructure. This would
recent interest-rate meeting of the US central
affect the European banks severely, because
bank, the Fed, the monetary-policy committee
they have large holdings of government bonds
emphasised that the risk on downside has
Disclaimer: issued by the Southern European countries.
Please see the last page
increased, and it also stated that it will
introduce further monetary easing if the
economic indicators continue to deteriorate. - We hope you will enjoy reading FX - SPOT ON -

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FX – SPOT ON
FX Research • 26 July 2010 • Jyske Markets

Jyske Bank's FX forecasts

Majors & skandis
Central bank Against
rate EUR USD DKK GBP*
Spot 1.00% - 1.29 7.45 1.19
3M 1.00% - 1.23 7.45 1.20
EUR
6M 1.00% - 1.27 7.45 1.22
12M 1.25% - 1.33 7.45 1.25
Spot 0-0.25% 1.29 - 5.79 1.53
3M 0-0.25% 1.23 - 6.06 1.48
USD
6M 0-0.25% 1.27 - 5.87 1.55
12M 0.75% 1.33 - 5.60 1.66
Spot 0.50% 0.84 1.53 8.86 -
3M 0.50% 0.83 1.48 8.98 -
GBP
6M 0.50% 0.82 1.55 9.09 -
12M 1.00% 0.80 1.66 9.31 -
Spot 0.10% 111.97 86.96 6.66 133.13
3M 0.10% 110 89.43 6.77 132.53
JPY
6M 0.10% 115 90.55 6.48 140.24
12M 0.10% 120 90.23 6.21 150.00
Spot 0-0.75% 1.3443 1.04 5.54 1.60
3M 0-0.75%
CHF
6M 0-0.75% Please see our research report, CHF: stil moving upwards
12M 0-1.00%
Spot 2.00% 7.95 6.18 0.94 9.45
3M 2.00% 8.00 6.50 0.93 9.64
NOK
6M 2.25% 7.95 6.26 0.94 9.70
12M 2.50% 7.90 5.94 0.94 9.88
Spot 0.50% 9.41 7.31 0.79 11.19
3M 0.75% 9.50 7.72 0.78 11.45
SEK
6M 1.25% 9.40 7.40 0.79 11.46
12M 1.50% 9.35 7.03 0.80 11.69
Spot 1.05% 7.45 5.79 - 8.86
3M 1.05% 7.45 6.06 - 8.98
DKK
6M 1.05% 7.45 5.87 - 9.09
12M 1.15% 7.45 5.60 - 9.31
Note: All the cross rates are quoted in accordance with inter-bank conventions except for those in the column
marked with an asterisk (*); these cross rates have GBP as their base currency
Source: Bloomberg/Jyske Bank

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FX – SPOT ON
FX Research • 26 July 2010 • Jyske Markets

Jyske Bank's FX forecasts - continued

Emerging Markets
Central bank Against
rate EUR USD DKK GBP*
Spot 0.75% 25.18 19.54 0.30 29.93
3M 0.75% 25.60 20.81 0.29 30.84
CZK
6M 0.75% 25.50 20.08 0.29 31.10
12M 1.00% 25.50 19.17 0.29 31.88
Spot 3.50% 4.09 3.17 1.82 4.86
3M 3.50% 3.95 3.21 1.89 4.76
PLN
6M 3.50% 3.90 3.07 1.91 4.76
12M 3.75% 3.80 2.86 1.96 4.75
Spot 5.25% 285.68 221.74 0.26 339.52
3M 5.25% 280 228 0.27 337.35
HUF
6M 5.25% 270 213 0.28 329.27
12M 5.25% 270 203 0.28 337.50
Spot 7.00% 1.96 1.52 3.80 2.33
3M 7.00% 1.91 1.55 3.91 2.30
TRY
6M 7.00% 1.91 1.50 3.91 2.32
12M 8.50% 1.93 1.45 3.86 2.41
Spot 4.50% 16.43 12.75 0.45 19.52
3M 4.50% 15.68 12.75 0.48 18.89
MXN
6M 4.50% 15.88 12.50 0.47 19.36
12M 4.50% 15.63 11.75 0.48 19.53
Spot 10.75% 2.27 1.76 3.29 2.69
3M 11.25% 2.25 1.83 3.31 2.71
BRL
6M 11.75% 2.29 1.80 3.26 2.79
12M 12.50% 2.26 1.70 3.30 2.83
Spot 6.50% 9.60 7.45 0.78 11.41
3M 6.50% 9.53 7.75 0.78 11.5
ZAR
6M 6.50% 9.53 7.50 0.78 11.6
12M 6.50% 9.64 7.25 0.77 12.1
Spot 5.31% 8.73 6.78 0.85 10.38
3M 5.31% 8.24 6.70 0.90 9.93
CNY
6M 5.31% 8.38 6.60 0.89 10.22
12M 5.85% 8.58 6.45 0.87 10.72
Note: All cross rates are quoted in accordance with inter-bank conventions except for those in the column
marked with an asterisk (*); these cross rates have GBP as their base currency.
Note: The forecasts for TRY, MXN, BRL, ZAR and CNY are against USD.
Source: Bloomberg/Jyske Bank

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FX – SPOT ON
FX Research • 26 July 2010 • Jyske Markets
The month in review
By Helle Varming
Dollar depreciation due to shift in focus
In July focus shifted a bit from the debt crisis in
Southern Europe to general concerns about a new
downturn for the global economy. Due to
disappointing economic indicators from China and
the US, there was uncertainty about future growth
as labour-market figures, production indicators
and retail sales figures showed trends that caused
concerns. Moreover, after its interest-rate meeting
in June, the Fed expressed concerns and indicated
that further monetary easing may be in the offing if
the indicators continue to weaken. The shift in
focus supported EUR/USD as compared to the
trend in June when EUR was under pressure due to
the rather unambiguous focus on the unrest in
Southern Europe. Moreover, rising money-market
rates due to the stricter liquidity policy on the part
of the ECB has supported EUR, which so far has
appreciated by 4% against USD in July.
Pound sterling could not follow the euro
As stated, the euro strengthened decently in July,
but pound sterling was not able to follow the high
pace. In June, pound sterling saw a bit of support
after it was revealed that a member of the
monetary-policy committee (Andrew Sentance)
had voted in favour of an interest-rate hike at the
interest-rate meeting early in the month.
However, after the interest-rate meeting in July, it
was clear that Sentance is still the only one who
wishes to raise the rate, and there was no more
support in this respect. Hence, it is primarily the
prospects of massive public savings and
uncertainty about the impact on the real economy
that set the agenda, and that also put slight
pressure on pound sterling. Hence EUR/GBP
increased from 81.90 to 84.15 in July.
Japanese yen still at the mercy of market
sentiment
The yen saw a somewhat mixed development over
the month, and it still seems to trade on the back
of the general market sentiment. For instance, the
markets did not react particularly strongly to the
upper-house elections in Japan earlier in the
month; the government suffered a severe blow and
lost its majority. Even though it was not fatal to
the government to lose its majority in the upper
house, it will now become much more difficult to
pass new legislation, and all other things being
equal, the higher political uncertainty should have
a negative effect on the currency. So far the yen
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has only fallen by about 1.5% against the euro over
the past month.
The Swiss franc in a spot of trouble
The Swiss franc got off to a weak start in July
because, for instance, weak inflation figures and
nervousness about the effects of the strong
exchange rage added to speculations that –
despite previous statements – the SNB would
again intervene in the FX markets if the Swiss franc
appreciated at the pace that was seen in June. So
far, the SNB is, however, staying on the sidelines,
and now before the end of the month EUR/CHF is
beginning to fall again. It does not, however, seem
that the Swiss franc will manage to maintain its
depreciation of about 1% against the euro in July.
Changing tracks in Scandinavia
In Scandinavia the Norwegian krone has had a bit
of a turbulent month due to the quiet markets over
the summer, and the lower volume in the markets
paves the way for wider fluctuations. For quite
some time, the Norwegian central bank, Norges
Bank, has differed from other central banks as it
has already raised its deposit rate several times
over the past year, and this has for quite some
time offered support to the Norwegian currency. In
July, however, the Swedish central bank,
Riksbanken, followed the example of the central
banks that have initiated tightening measures and
therefore investors have to some extent switched
from the Norwegian krone to the Swedish krona.
Hence this month, the Swedish krona has
appreciated by almost 1.5% against the Norwegian
krone and by 0.7% against the euro. On the other
hand, the Norwegian krone weakened a bit, by
0.7%, against the single European currency.
Chart 1: selected currencies (1 June
2010 = 100)
103
102
101
100
Indeks
99
98
97
96
2 6 8 12 14 16 20
CHF/DKK JPY/DKK SEK/DKK
GBP/DKK NOK/DKK USD/DKK
Kilde: Reuters EcoWin
FX – SPOT ON
FX Research • 26 July 2010 • Jyske Markets

In short
By Helle Varming fore been to get the public finances back to a
sustainable level. The long-awaited austerity
US dollar - USD budget announced on 22 June was welcomed by
the financial markets and helped to support
The worst panic surrounding the European debt
sterling. The UK will have its work cut out, and
crisis has abated somewhat over recent weeks,
the coming years will show whether the eco-
and market participants have been pleasantly
nomic cure in combination with global growth
surprised at the ability of the Mediterranean
suffice to save the economy in the long term.
countries to obtain funding by auctioning gov-
Moreover, we do not yet know whether the fiscal
ernment bonds.
tightening and its dampening effect on eco-
This helped to buoy up the euro, and the IMM
nomic activity will affect the Bank of England’s
positions show many indications that specula-
(BoE’s) monetary policy. It was slightly surpris-
tive investors have already closed a good deal of
ing when Mr Andrew Sentance who is a member
the short EUR positions accumulated during the
of the monetary-policy committee, voted in fa-
spring. In our view, this indicates that the po-
vour of an interest-rate hike at the monetary-
tential for additional appreciation of the EUR
policy meeting in June. The reason why Mr Sen-
against the US dollar from current levels is
tance voted for higher interest rates was, among
probably limited, and in general we also find it
other things, concern that rising inflation might
too early to sound the all-clear with regard to
be ensconced for a long period. However, we
the European debt crisis. In our view, there will
expect that inflation will slow down, and that
still be a risk of renewed political turmoil after
this fact in addition to the sharp fiscal-policy
the summer holidays, so we also maintain a
tightenings will enable the BoE to adopt a wait-
negative bias for the EUR/USD rate at three
ing stance. Therefore, we still assess that the
months’ term – although we have raised our
BoE will keep interest rates at the record low of
target to 1.23 in the light of the significant euro
0.5% until February 2011. We still expect ster-
appreciation seen over recent weeks. For the
ling to head higher in line with the slow decline
longer term we believe that the euro will regain
of the risk premium which has weighed on GBP
some of what it has lost in step with the reduc-
since the financial crisis peaked. Yet we still find
tion of political risk and the narrowing of the
that uncertainty about future developments
massive risk premium which has weighed on the
indicates that developments will be gradual, and
euro for the first half of 2010. Moreover, we
that there may be a few bumps on the road.
expect USD to depreciate when focus homes in
on the fiscal-policy tightening measures and the Estimate - EUR/GBP:
public debt burden of the US – possibly already 3M: 0.83
up to the mid-term elections in the US in early 6M: 0.82
November. Particularly towards the end of our 12M: 0.80
estimate period will pressure against the dollar
intensify when the growth differences across the Swiss franc - CHF
Atlantic lessen. The Swiss consumer price index surprised on the
Estimate - EUR/USD: downside in June when inflation fell to 0.5% y/y
3M: 1.23 from 1.1%. An annual growth rate of 1% had been
6M: 1.27 expected, and hence inflation turned out to be
12M: 1.33 somewhat lower than expected. The Swiss Na-
tional Bank (SNB) toned down concern about
Pound Sterling - GBP deflation considerably in connection with the
monetary-policy meeting held on 17 June, inti-
The predominant issues with regard to sterling
mating that the SNB has abandoned its interven-
are still the huge public-sector deficits and the
tion policy, so that the franc can float more
growing debt burden. The most important task
freely. However, the rising inflation rate and
for David Cameron’s new government has there-

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FX – SPOT ON
FX Research • 26 July 2010 • Jyske Markets
concern that the strength of the currency will hit
exports has caused market participants to
speculate in that the SNB will draw a line in the
sand at some time despite its announcement at
the interest-rate meeting. The SNB’s currency
reserves have fallen steadily since the monetary-
policy meeting in June, and indeed there have
been no indications that the SNB has resumed
its intervention policy. Still, the franc has weak-
ened somewhat against the euro, which has
performed well for the past weeks, and technical
analysis indicates that there may be scope for
additional weakening of the franc towards
136.50 against the euro. In this connection, we
find it important to stress that for the long term
we are still of the opinion that the fundamentals
(and it cannot be ruled out that the SNB may
raise interest rates before the ECB begins a se-
ries of cuts) continue to point to appreciation of
the franc, and that the uptrend of the franc re-
mains intact. Therefore we still think that inves-
tors should close down CHF funding at correc-
tions of the uptrend .
Read more about our view on CHF in the publica-
tion CHF: Still moving upwards
Japanese yen - JPY
The combination of a weakening euro and grow-
ing risk aversion in the markets has boosted the
yen for months. In recent weeks fears about a
euro-zone collapse have abated somewhat, and
the VIX index (which indicates the general risk
aversion in the markets) has been falling. Anxi-
ety is still not far away, and the more optimistic
undertone we have seen in the markets lately
still appears fragile. So far, we maintain our
estimate of the 3M EUR/JPY rate at 110. Still, in
our view the anxiety that has characterised the
markets for the past months is merely a correc-
tion. Accordingly, we expect anxiety to decrease
further. All other things being equal, this will
mean that pressure against the yen will grow as
investor appetite for risky assets increases.
Another thing in favour of a yen weakening in
the longer term is the deflation spectre which
acts as a heavy damper on the Japanese econ-
omy. Although the economic growth rate has
been fairly high for some quarters, Japan has
again had to struggle with the deflation spectre,
and in our view this means that there are no
6/27
prospects of interest-rate hikes in Japan until
some time in 2012.
Economies elsewhere in the world are still show-
ing signs of progress, and even if there are no
interest-rate hikes in the pipeline, for instance in
the US, the Fed is on present showing likely to
begin to tighten its monetary policy in early
2011. The prospect of a wider yield spread to the
US, among other countries, will add to the pres-
sure against the yen – particularly towards the
end of our estimate period. Last but not least,
Prime Minister Kan's government lost its major-
ity in the upper house at the election at mid-July.
Even if the defeat at the election was not fatal,
the government came out weaker, and the deci-
sion process leading to, e.g., economic reform
intended to force the public finances into bal-
ance have become considerably more difficult.
All other things being equal, this will also de-
press the yen.
Estimate - EUR/JPY:
3M: 110
6M: 115
12M: 120
Norwegian krone - NOK
Increased anxiety among investors occasioned
by the debt crisis in the euro zone has abun-
dantly demonstrated that the krone is probably
still sensitive to higher risk aversion in the mar-
kets. Overall, the krone is still supported to some
extent by healthy fundamentals and in particular
by the gradual tightening by Norges Bank of its
monetary policy. On earlier occasions, we have
argued that the potential of the krone would
probably be relatively little – among other things
because the exchange rate is by now nearly back
at pre-crisis levels, and because focus on the
krone is likely to weaken when the world’s other
central banks begin to raise interest rates.
Moreover, the economic indicators were some-
what disappointing at the beginning of 2010,
and Norges Bank in its latest monetary-policy
report envisaged only a single interest-rate hike
in the second half of 2010. This supports our
expectation expressed earlier that the potential
of the krone will be smaller this year than it was
in 2009.
Overall, we still expect the krone to be stable to
slightly stronger during our estimate period, but
FX – SPOT ON
FX Research • 26 July 2010 • Jyske Markets
if anxiety in the financial markets intensifies, the
currency may again suffer a blow.
Estimate - EUR/NOK:
3M: 8.00
6M: 7.95
12M: 7.90
Swedish krona - SEK
The krona still shows signs of weakness when
sentiment in the markets is depressed. GDP
growth proved very high at the beginning of this
year, and the economic growth rates for Q2-Q4
2009 were subject to significant upward revi-
sions. It also meant that the Riksbank raised
interest rates for the first time at the monetary-
policy meeting in July, and although many un-
certain points remain about the Swedish econ-
omy (among other things, the ongoing debt
crisis in the euro zone and, notably, the pros-
pects of global growth), we expect the Riksbank
to tighten its monetary policy gradually to a repo
rate of 1.75% at one year's term.
7/27
All things considered, the Swedish economy has
progressed well, and now that anxiety in the
markets seems to have abated somewhat, much
indicates that the value of the krona will con-
tinue to edge up. But the EUR/SEK rate is almost
back to its old trading range from before the
outbreak of the financial crisis, and we therefore
do not expect the krona to strengthen signifi-
cantly. Panic about the debt crisis in the euro
zone has, however abated somewhat, and even
if there is a risk – particularly over the coming
months – that anxiety will flare up again and put
pressure on the krona, we expect the currency to
continue to find a certain amount of support in
the prospects of interest-rate hikes on the part
of the Riksbank.
Estimate - EUR/SEK:
3M: 9.50
6M: 9.40
12M: 9.35
FX – SPOT ON
FX Research • 26 July 2010 • Jyske Markets

US dollar - USD
By Helle Varming
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 47,393
GDP growth (Q1 2010 (q/q)) 0.7%
Inflation (March 2010 (y/y)) 1.1%
Unemployment 9.5%
Central-bank rate 0-0.25%
Current account (% of GDP (2008)) -4.9%
Public debt (% of GDP (2008)) 70.4%

The world’s largest economy and one of the world’s highest GDP per capita. The largest trading partners are (%
of exports): Canada (20.1%), Mexico (11.7%) and China (5.5%). The large industries in the US include oil, steel,
auto and air transport. US GDP per sector: Service (79.6%), Manufacturing industry (19.2%), Agriculture (1.2%).
EUR/USD incl. forecast and forward rates Current account (C/A)

Fundamental valuation Investment case

 Based on the purchasing power parity, USD is slightly
undervalued – equilibrium around 1.20 (EUR/USD)
and 6.20 (USD/DKK).
 We expect US growth to be markedly higher than
eurozone growth (at least twice as high) in both 2010
and 2011.
 Interest-rate hike from the Fed in March 2011. ECB
will wait until June 2011.
 The debt crisis in the euro zone and the need for
fiscal-policy tightening may have an adverse effect
on growth in the euro zone.
Price triggers
 Improvement of economic indicators from the US
(relative to the euro zone).
 Narrowing of credit spread between Europe and the
US at the short end of the yield curve (up to 2Y) will
support USD.
 Negative surprises in the euro zone, e.g. in the form
of failed government bond auctions.
 The Fed is setting the scene for a normalisation of the
monetary policy (e.g. by removing the promise to
keep interest rates low and withdrawing quantitative
easing)
 The debt crisis in Southern Europe and uncertainty
about its consequences for growth have flagged off,
but the danger is not over yet.
 Risk of political turmoil after the summer holidays.
 Relatively better prospects for the US economy will
support USD.
 The yield spread will narrow in favour of USD over the
coming quarters.
 USD is still in a technical uptrend.
Risk factors
 For the short term: risk of USD weakening if US
economic indicators continue to disappoint.
 Continued decreasing concern about the situation in
Southern Europe may support EUR.
 Need for fiscal-policy tightening in the US may delay
the first interest-rate hike.
 New monetary-policy easing may put USD under
renewed pressure.
 Doubt about the status of USD as a reserve currency
may enhance the pressure on USD.

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FX Research • 26 July 2010 • Jyske Markets

Pound Sterling - GBP

By Helle Varming
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 43,736
GDP growth (Q1 2010 (q/q)) 0.3%
Inflation (May 2010 (y/y)) 3.2%
Unemployment 7.8%
Central-bank rate 0.5%
Current account (% of GDP (2008)) -1.5%
Public debt (% of GDP (2008)) 56.9%

The UK has one of the largest economies in Western Europe and is Europe’ financial centre. The largest trading
partners are (% of exports): The US (13.1%), Germany (11.5%), The Netherlands (7.8%). Banking and insurance
services make up the largest part of GDP: Service (80.4%), Manufacturing industry (18.2%), Agriculture (1.4%).
EUR/GBP incl. forecast and forward rates Current account (C/A)

Fundamental valuation Investment case

 GBP is undervalued based on the purchasing power
parity – equilibrium is approx. 0.7360 (EUR/GBP)
and 10.13 (GBP/DKK).
 The upturn in the UK is still weak and massive
savings of public budgets will over the coming
years slow down growth further.
 Inflation and inflation anticipations are, however,
rising and this leaves BoE in a dilemma.
Price triggers
 A widening of the yield spread to the euro zone (2Y
and 10Y) will support sterling.
 Economic indicators improve and the upturn gains
momentum.
 An end to the quantitative easing which keeps
market rates artificially down.
 Inflation will be more sustainable and hikes will be
made sooner than expected.
 We expect a stable to slightly stronger GBP over
the coming months. The greatest potential in GBP
is some months ahead.
 The end to quantitative easing and an interest-
rate hike from the BoE in February 2011 (ECB will
wait until June 2011) will support pound sterling.
 A gradual improvement of the economy and
clarification about the new government’s fiscal
line will reduce uncertainty related to sterling and
the risk premium in the long term.
Risk factors
 The UK falls back into recession and interest rates
remain low for a longer period than expected.
 An escalation of the financial crisis may result in a
high risk premium on GBP due to the exposure to
the financial sector in London.
 Renewed uncertainty about the sustainability of
the UK economy may raise doubt whether the UK
will be able to maintain its current credit rating.
 The euro-zone countries succeeded in putting a
damper on the worse uncertainty and EUR is lifted.

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FX Research • 26 July 2010 • Jyske Markets

Swiss franc – CHF

By Helle Varming
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 68,433
GDP growth (Q1 2010 (q/q)) 0.4%
Inflation (June 2010 (y/y)) 0.5%
Unemployment 3.7%
Central-bank rate 0-0.75%
Current account (% of GDP (2008)) 2.4%
Public debt (% of GDP (2008)) 42.4%

Switzerland has a wealthy and stable economy with GDP per capita among the highest in the world. The largest
trading partners (% of exports): Germany (33.3%), Italy (11%), France (9.4%). Important industries: machines,
watches, bank and insurance. GDP per sector: Service (73%), Manufacturing industry (23%), Agriculture (4%).
Risk of further CHF appreciation
 Our scenario of an upward shift to a new level in the Swiss franc is still relevant (see
the research report Risk of CHF appreciating further from 20 May).
 At the June meeting, the Swiss National Bank (SNB) did maintain its rate, but its
subsequent comment did not contain the by now so well-known remark that it would
'prevent any excess strengthening of the Swiss franc'.
 Instead the SNB said that it would intervene if the appreciation becomes a problem
again in respect of renewed risk of deflation.
 The SNB stated also that the threat of deflation has generally been eliminated.
 This indicates that at this point in time, the SNB is not overly concerned that an
appreciation of the franc will have serious consequences for the economy, and with
these signals there is every indication that the franc will appreciate further.
 The debt crisis in Southern Europe has so far prompted the SNB to leave interest rates
unchanged but seen in isolation developments in the domestic economy indicate that a
hike may soon be appropriate. When the SNB indicates a tightening of its monetary
policy, it will be another supportive factor for the currency.
 Fundamentally, there are many indications of a stronger franc for the period ahead.

 Technically, EUR/CHF is in a downtrend with resistance at the moment around 140 and
for the short term around 136-136.50.
 It appears increasingly likely that we will see a test of 134.80 in EUR/CHF.
 There are thus still many indications of a shift to a new level for the Swiss franc where
the new, strong level is maintained for both the short and long term.
 Investors should therefore use corrections towards 140 in EUR/CHF to close Swiss
franc funding.
 The new major range in EUR/CHF is now 122-140.

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Japanese yen - JPY

By Helle Varming

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 38,271
GDP growth (Q1 2010 (q/q)) -2.3%
Inflation (May 2010 (y/y)) -0,9%
Unemployment 5.2%
Central-bank rate 0.1%
Current account (% of GDP (2008)) 3.2%
Public debt (% of GDP (2008)) 173.8%

In terms of GDP (PPP), Japan is the world’s third largest economy next to the US and China. The largest trading
partners (% of exports): The US (17.8%), China (16%), South Korea (7.6%). Japan produces: motorcycles, electronics,
ships and chemicals. GDP per sector: Service (66.4%), Manufacturing industry (27.9%), Agriculture (4.4%).
EUR/JPY incl. forecast and forward rates Current account (C/A)

Fundamental valuation Investment case

 Based on purchasing power parity, JPY is overvalued
– equilibrium around 1.47 (EUR/JPY) and 5.07
(JPY/DKK).
 Growth declines – e.g. the effect from the fiscal-
policy easing fades away.
 A number of factors puts a damper on growth,
including the need to consolidate the public finances,
which are in a sorry state.
 Deflation is again a reality in Japan, and in our view this
means that interest-rate hikes will not be on the agenda
until 2012 at the earliest.
Price triggers
 Increased appetite for risky assets.
 A widening of the yield spread between Japan and the
other G10 nations gives renewed focus on the yen as
a funding currency.
 Renewed focus on the possibility of intervention may
put pressure on the yen.
 The BoJ will increase the purchase of government
bonds (extend the quantitative easing).
 Focus on the development in public debt (close to
200% of GDP) creates distrust in JPY.
 We expect a yen weakening for the long term.
 Japan may look forward to a battle against deflation
until end-2011. The BoJ will not tighten its monetary
policy until 2012 at the earliest.
 We expect, however, that the other G10 central
banks will start tightening their monetary policy
early next year (BoE in February and Fed in March
2011).
 A widening of the yield spreads will squeeze the yen.
Risk factors
 Renewed outbreak of risk aversion due e.g. to the
debt crisis in the euro zone
 The global crisis is slow in progress and the
normalisation of the interest-rate levels in the other
G10 countries is long in coming.
 Technical breach of 108 for EUR/JPY may pave the
way for further strengthening of JPY down towards
100.

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Norwegian krone - NOK

By Helle Varming
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 94,196
GDP growth (Q1 2010 (q/q)) 0.1%
Inflation (May 2010 (y/y)) 1.9%
Unemployment 3.7%
Central-bank rate 2.0%
Current account (% of GDP (2008)) 18.6%
Public debt (% of GDP (2008)) 56.1%

Norway has a solid and wealthy economy and one of the world’s highest per capita GDP. The largest trading
partners are (% of exports): The UK (27%), Germany (12.8%), The Netherlands (10.4%). Main industries: oil, gas,
shipbuilding and chemicals. GDP per sector: Service (76%), Manufacturing industry (21.1%), Agriculture (2.9%).
EUR/NOK incl. forecast and forward rates Current account (C/A)

Fundamental valuation Investment case

 NOK is slightly undervalued with respect to
purchasing power parity – equilibrium 7.80
(EUR/NOK) and 95.4 (NOK/DKK).
 The upswing in Norway has begun.
 Norges Bank has begun the normalisation of the
interest-rate level and has already hiked three
times by a total of 75 bp to 2% since October.
 We expect growth of 1.9% and 2.6% in 2010 and
2011, respectively, and we expect further hikes
totalling 100 bp to 3% at 12-months' term.
Price triggers
 Increased appetite for risky assets will support
NOK.
 Further widening of the yield spread between
Norway and the other G10 nations supports NOK
since the prospect of a positive return supports
the demand for NOK.
 Any rises in the oil price may support NOK.
 The krone has already strengthened somewhat
over the past twelve months.
 We believe in a stable to weak positive
development in NOK over the coming year, as
Norges Bank will raise interest rates further, while
the majority of the other G10 central banks will
remain reluctant.
 NOK has already strengthened by 15% in 2009,
and we therefore assess that the potential will be
more limited in 2010 (2-3% over the year).
Risk factors
 The NOK strengthening may prompt Norges Bank
to postpone the hikes to help the weak
manufacturing industry to get back on track.
 Growth has disappointed in early 2010 and if this
trends continue it may have consequences for
Norges Bank’s future interest-rate path.
 A possible deterioration of the sentiment in the
financial markets may put pressure on NOK.

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FX Research • 26 July 2010 • Jyske Markets

Swedish krona - SEK

By Helle Varming
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 52,181
GDP growth (Q1 2010 (q/q)) 1.4%
Inflation (May 2010 (y/y)) 0.9%
Unemployment 8.8%
Central-bank rate 0.5%
Current account (% of GDP (2008)) 7.8%
Public debt (% of GDP (2008)) 46.7%

The Swedish economy has been hit hard by the global crisis but is slowly recovering. The largest trading partners are
(% of exports): Germany (10.4%), Norway (9.5%) Denmark (7.4%). Iron, steel, defence equipment and automotive are
the largest industries. GDP per sector: Service (70.5%), Manufacturing industry (28%), Agriculture (1.6%).
EUR/SEK incl. forecast and forward rates Current account (C/A)

Fundamental valuation Investment case

 SEK is undervalued based on purchasing power parity –
equilibrium 7.60 (EUR/SEK).
 The upswing will begin in 2010 after the deep recession.
 Consumers are still optimistic and the industry and the
export are now also improving.
 We expect growth in Sweden of 3.2% and 2.4% in 2010
and 2011, respectively (we believe euro zone growth
will be 1-1.5% for the same period).
 We expect the Riksbanken to begin to raise interest
rates in July 2010 (ECB waits until mid-2011).
 Riksbanken has indicated that interest rates will be
hiked during the summer or early autumn.
 The strong growth in early 2010 indicates an
interest-rate hike in July.
 We expect that the difference in growth between
Sweden and the euro zone will be in favour of
Sweden.
 The yield spread (2-year swap spread) to the euro
zone will develop in favour of Sweden over the
coming quarters, and this will support the SEK.

Price triggers Risk factors

 Increased appetite for risky assets will support SEK.
 Signals from the Riksbanken of a further tightening of
the monetary policy and an early ‘normalisation’ of
the interest-rate level.
 Positive surprises with respect to economic
indicators both globally and locally (including
continuing improvements in exports).
 An outbreak of risk aversion in the financial markets
(e.g. based on a government-debt crisis).
 The global upturn loses momentum, and the Swedish
economy is put under renewed pressure.
 Market rates reflect expected hikes of up to 75 bp in
H2. Risk of disappointments if the crisis in the euro
zone escalates.

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Czech koruna - CZK

By Linda Vestergaard
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 20,734
GDP growth (Q4 2009 (q/q)) 0.5%
Inflation (May 2010 (y/y)) 1.2%
Unemployment (May 2010) 8.5%
Central-bank rate 0.8%
Current account (% of GDP (2008)) -3.1%
Public debt (% of GDP (2008)) 36.3%

Compared with the other former communist states, the Czech Republic is the most stable and wealthy economy. The
largest trading partners are (% of exports): Germany (30.3%), Slovakia (6.6%), Russia (6.2%). Primary industry: auto,
metal and machinery. GDP per sector: Service (56.2%), Manufacturing industry (37.6%), Agriculture (2.3%).
EUR/CZK incl. forecast and forward rates Current account (C/A)
-5 3
2
-10
1
-15 0
-20 -1
Billion CZK

-2

% GDP
-25
-3
-30 -4
-35 -5
-6
-40
-7
-45 -8
96 98 00 02 04 06 08
Current Account Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

 The Czech Republic was also hit by the global
economic slowdown, but now the Czech economy
is beginning to show signs of growth. The activity
level in the Czech Republic is still relatively low.
 The Czech Republic is a very open economy. A large
share of its exports goes to Germany. The upturn
in the Czech Republic will therefore proceed in line
with the upturn in Germany.
 In comparison with the rest of the region, the
Czech banking sector is relatively healthy.
Price triggers
 The CNB begins lifting its interest rates from the
record-low 0.75% (the prospects are relatively
long).
 Focus on the debt problems in the euro zone fades.
 The global upswing including the improvement in
German and Czech economic growth continues.
 Over the next twelve months, we have a neutral
view on CZK against EUR and DKK.
 CZK has already recovered considerably after the
strong weakening in 2008/09.
 The Czech central bank (CNB) took the market by
surprise with an interest-rate reduction at its
meeting in early May. Together with the current
focus on the debt problems in the euro zone this
may delay the time for interest-rate hikes and
prevent a further strengthening of CZK.
Risk factors
 Concern about the debt problems in the euro zone
escalates. The Czech Republic does not show the
same vulnerability with respect to public
indebtedness as for instance Greece but the theme
still tends to have an adverse effect on CZK.
 The CNB lowers its interest rates even further.
 The global economic upswing is long in coming.

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Polske zloty – PLN

By Linda Vestergaard

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 13,858
GDP growth (Q4 2009 (q/q)) -13.3%
Inflation (May 2010 (y/y)) 2.1%
Unemployment (May 2010) 11.6%
Central-bank rate 3.5%
Current account (% of GDP (2008)) -5.1%
Public debt (% of GDP (2008)) 54.5%

Poland has successfully liberalised its economy since 1990. First in line to adopt the euro. Largest export
countries: Germany (24.4%), France (6%) and Italy (5.9%). Large industries: machinery, iron, steel, coal,
chemicals, ships. GDP per sector: Service (67.3%), Manufacturing industry (28.1%), Agriculture (4.6%).
EUR/PLN incl. forecast and forward rates Current account (C/A)
-2,5 -1,0
-1,5
-5,0
-2,0
-7,5 -2,5
Billion PLN

-3,0

% GDP
-10,0
-3,5
-12,5 -4,0
-4,5
-15,0
-5,0
-17,5 -5,5
01 02 03 04 05 06 07 08 09
Current Account
Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

 As the only country in the region, Poland came
through the global economic slowdown without
negative growth rates. Notably domestic demand
supported growth. Poland is in a strong
fundamental position for the period ahead.
 Foreign-currency loans make up a lower proportion
than in e.g. Hungary - they constitute a lower risk
for the economy.
 Poland’s weak point is the budget deficit which
was 7.5% of GDP in 2009.
Price triggers
 The government’s privatisation plans for 2010
should support the zloty.
 Focus on debt problems in the euro zone fades.
 The Polish central bank begins to hike rates.
 We may see positive surprises from this year’s
budget deficit. If so, it would be positive for the
zloty.
 The zloty is still undervalued; we expect the zloty
to appreciate against the euro over the next 12
months.
 The Polish central bank will begin to hike interest
rates before the ECB. This will most likely not
happen until early 2011.
 The degree of focus on the debt problems in parts
of the eurozone may determine the timing and the
speed of a zloty appreciation.
Risk factors
 Zloty is one of the region’s most liquid currencies and
is used to take a negative view on the region.
 If the pressure on the euro continues, there is a risk
that the zloty may appreciate against the euro.
 Higher-than-expected budget deficit.
 In April, the Polish central bank intervened for the
first time in ten years against the zloty. Further
intervention is a risk but the new Central-Bank
Governor Belka appears less willing to use the
intervention tool.

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Hungarian forint – HUF

By Linda Vestergaard
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 15,477
GDP growth (Q4 2009 (q/q)) 0.9%
Inflation (May 2010 (y/y)) 5.2%
Unemployment (May 2010) 11.8%
Central-bank rate 5.3%
Current account (% of GDP (2008)) -7.2%
Public debt (% of GDP (2008)) 76.9%

Hungary is dependent on exports to the other EU countries. The country has challenges due to high private indebtedness in
foreign currencies. Largest export countries: Germany (25.4%), Italy (5.2%), Romania (5.1%). Large industries: mining,
machinery, textiles, chemicals. GDP per sector: Service (62.4%), Manufacturing industry (34.3%), Agriculture (3.4 %).

EUR/HUF incl. forecast and forward rates Current account (C/A)

100 2
1
0 0
-1
-100 -2
Billion HUF

-3

% GDP
-200
-4
-300 -5
-6
-400 -7
-8
-500 -9
01 02 03 04 05 06 07 08 09
Current Account
Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

 An economic upswing is very dependent on rising export
demand (exports account for approx. 80% of GDP). The
Hungarian authorities are therefore not interested in a
much stronger forint. At the other end is the large share
of foreign-currency loans.
 At the parliamentary election in April, Fidesz received
2/3 of the votes. This gives the new government the
possibility to implement reforms which are necessary to
increase the country’s potential growth rate. There are
doubts about the government’s willingness to do so.
Price triggers
 The political development is currently decisive for the
forint. The new government’s future cooperation with
the IMF may for instance be crucial (the current loan
programme expires in October 2010). The planned
examination in July was interrupted.
 Hungary is not in acute need of liquidity, but if EUR/HUF
should be able to return to the 265/280 range, it is
necessary that the cooperation with the IMF is back on
track.
 So far, the new government has not acted in a way
which can be considered market friendly. In addition,
the recent routine negotiaions with the IMF have been
interrupted. This means that the political risks involved
in HUF have increased.
 The central bank should be ready to implement
extraordinary interest-rate hikes/intervention, if
EUR/HUF increases to around 300.
 The fundamental case should prevent appreciation of
the forint.
Risk factors
 The forint is vulnerable to the current negative focus on
the debt problems in the eurozone since Hungary shows
some of the same vulnerabilities. The important
difference is that Hungary initiated the consolidation of
the public finances already in late 2008 and has a better
starting point than e.g. Greece.
 Political announcements from the government which
has just taken up office.
 The cooperation with the IMF does not continue.
 Increasing risk aversion.

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Turkish lira – TRY

By Linda Vestergaard
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 10,484
GDP growth (Q1 2010 (q/q)) 0.1%
Inflation (May 2010 (y/y)) 8.4%
Unemployment 14.4%
Central-bank rate 6.5%
Current account (% of GDP (2008)) -5.7%
Public debt (% of GDP (2008)) 39.5%

The Turkish economy is a mix between modern industry and trade and a traditional agricultural sector. The largest
trading partners are (% of exports): Germany (9.8%), UK (6.2%) and China (7.8%). Large industries: textile, auto and
electronics. GDP per sector: Service (45.8%), Manufacturing industry (24.7%), Agriculture (29.5%).
EUR/TRY incl. forecast and forward rates Current account (C/A) – 4 months’ average
2,5 4
3
0,0 2
1
-2,5 0
Billion USD

-1

% GDP
-5,0
-2
-7,5 -3
-4
-10,0 -5
-6
-12,5 -7
90 92 94 96 98 00 02 04 06 08
Current Account
Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

 The upswing has now gained a firm foothold in
Turkey, and Turkey will report positive economic
growth again this year. This is supported by recent
activity indicators in Turkey.
 A relatively healthy banking sector will support the
upswing.
 The government is working on initiatives to secure
fiscal-policy discipline in Turkey. This is positive
and will reduce the risk involved in Turkish assets
over the long term.
Price triggers
 The CBRT begins raising its interest rates from the
record-low 7%. This happens before the ECB and
the Fed begin raising their interest rates, i.e. the
relative risk premium on the lira increases. We
anticipate the first interest-rate hike in Turkey in
early 2011.
 Weaker euro/stronger US dollar.
 The global upswing continues – also in Turkey.
 General risk appetite.
 Seen in relation to before the sale of risky assets in
2008, the lira is still weaker against the euro and
the US dollar – still catch-up potential.
 The lira is a dollar-related currency, i.e. our
expectations of a fall in EUR/USD will support the
lira against the euro.
 The timing of a TRY strengthening will for instance
depend on when the CBRT begins to signal hikes.
Risk factors
 The largest risk for the lira against the euro is
currently a sharp appreciation of the euro against
the US dollar.
 The global economic upswing is long in coming.
 Too aggressive and too early withdrawal of
monetary easing from the ECB and the Fed.
 Debt problems in the euro zone escalate with a
resultant general re-assessment of country risk.
 The CBRT maintains interest rates at the current
6.50% rather than beginning to hike interest rates.

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Mexican peso – MXN

By Kent Bæk Iversen

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 10,217
GDP growth (Q1 2010 (q/q)) 1.2%
Inflation (May 2010 (y/y)) 3.7%
Unemployment 5.1%
Central-bank rate 4.5%
Current account (% of GDP (2008)) -1.5%
Public debt (% of GDP (2008)) 37.7%

Mexico is also called the 51st state of the US since the country is so dependent on exports to the US. Largest
export countries: the US 80.5%, Canada 3.8% and Germany 1.4%. Large industries: food, beverages, tobacco, oil
and chemicals. GDP per sector: Service (65%), Manufacturing industry (31%), Agriculture (4%).
EUR/MXN incl. forecast and forward rates Current account (C/A)
-5 -0,075
-10 -0,100
-15 -0,125
-20 -0,150
Billion MXN

-25 -0,175

% GDP
-30 -0,200
-35 -0,225
-40 -0,250
-45 -0,275
-50 -0,300
03 04 05 06 07 08 09
Current Account
Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

 We expect growth of 4% in 2010 and 2011 after the
worst recession in 2009 in living memory.
 The IMF’s growth expectations of Mexico have been
revised up.
 Much depends on developments in the US which
accounts for about 80% of Mexico’s exports.
 Given expected solid US growth in 2010 (3.2%) and
2011 (2.9%), exports are solidly supported.
 Good signs that the domestic economy will also be
growth engine. Unemployment has fallen from 6.5%
to 5 1%
Price triggers
 MXN has high correlation with USD so continued USD
appreciation will support MXN against EUR.
 US growth and employment data.
 Mexican growth and inflation data.
 If the recovery gains momentum, the country may be
upgraded. S&P downgraded Mexico last year. Mexico
still has an investment-grade rating with stable
outlook at the three major credit rating agencies.
 We expect the peso to strengthen against both USD
and EUR. Still catch-up potential to the levels before
the Lehman collapse in the autumn of 2008.
 MXN will appreciate the most against EUR in a
scenario with a concurrent fall in EUR/USD. Our
expectations of EUR/USD at 1.23 at three months’
term should therefore be supportive of MXN. The
opposite will be the case for our expectations of
EUR/USD at 1.33 at 12 months’ term.
Risk factors
 USD weakening is a risk factor.
 Rising concern about economic growth in the US.
 We see higher focus on drug-related violence because
a prominent local politician was murdered prior to
the local elections on 4 July. If the violence escalates,
it may weaken confidence around Mexico.
 Intervention – the central bank’s purchase of USD.
 Political deadlock in Mexico. The Liberals hold the
presidency and the Social Democrats are biggest in
the parliament so reforms are difficult.

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Brazilian real – BRL

By Kent Bæk Iversen
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 8,626
GDP growth (Q1 2010 (q/q)) 2.7%
Inflation (May 2010 (y/y)) 4.8%
Unemployment 7.5%
Central-bank rate 10.3%
Current account (% of GDP (2008)) -1.7%
Public debt (% of GDP (2008)) 46.8%

South America’s largest economy and one of the powerful BRIK countries. Has since 2002 improved its economy in
key areas. Largest export countries: the US (13.7%), Argentina (8.7%) and China (8.1%). Large industries: textiles, auto,
chemicals and wood. GDP per sector: Service (67.7%), Manufacturing industry (25.8%), Agriculture (6.5%).
EUR/BRL incl. forecast and forward rates Current account (C/A)
3 2,0

2 1,5

1 1,0

0 0,5
Billion USD

% GDP
-1 0,0

-2 -0,5

-3 -1,0

-4 -1,5

-5 -2,0
04 05 06 07 08 09 10
Current Account
Current Account % GDP

Fundamental valuation Investment case

 Brazil has escaped from the crisis; the GDP level prior
to the crisis was reached already in Q4 2009. In Q1,
economic growth was 9.0% y/y.
 We have just revised up our growth estimate for full
2010 to 7.5% and 4.7% for 2011.
 Economic growth will push up inflation. Most
recently calculated at 4.84%. Still within the target of
2.5% – 6.5%.
 The country is gaining influence (BRIK country) and is
in focus on the global political scene.
Price triggers
 Brazil has a BBB- rating (lowest investment grade). Is
in a strong position for an upgrade.
 Presidential election in October. Lula’s line is
expected to be continued, which is positive for BRL.
 Fiscal tightening after the presidential election will
be welcomed by the financial markets.
 Still strong domestic growth and fair exports to
growth areas such as the US and China make the
country immune to the eurozone crisis.
 The real is supported by an attractive interest-rate
level. Interest rates were increased by 2 x 75 bps plus
1 x 50 bps in 2010 to 10.75%.
 Further interest-rate hikes are in store. We expect an
interest rate of 12.50% at 12 months’ term.
 A less dollar-related investment in Latin America
than MXN and COP.
 Against USD, BRL is weaker than before the Lehman
collapse in 2008, so still catch up. Against EUR, BRL
is weaker, so limited potential.
Risk factors
 Intervention – purchase of USD against BRL.
 Higher taxes on capital flows. In late 2009, the
government introduced a 2% tax on capital inflows.
 Presidential election in October. Keep an eye on
announcements regarding a more relaxed fiscal
policy and whether any candidates question the
independence of the central bank.
 Negative news on public indebtedness.
 Rising concern about global economic growth.

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South African rand – ZAR

By Kent Bæk Iversen

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 5,685
GDP growth (Q1 2010 (q/q)) 1.1%
Inflation (May 2010 (y/y)) 4.0%
Unemployment 25.2%
Central-bank rate 6.5%
Current account (% of GDP (2008)) -7.1%
Public debt (% of GDP (2008)) 36.0%

Many natural resources and healthy banking sector but after-effects of apartheid – e.g. high unemployment.
Largest export countries: Japan (11.1%), The US (11.1%) and Germany (6.8%). Large industries: mining,
machinery and textiles. GDP per sector: Service (64.4%), Manufacturing industry (32.1%), Agriculture (3.5%).
EUR/ZAR incl. forecast and forward rates Current account (C/A)
5 1
0 0
-5 -1
-10
-2
Billion ZAR

-15
-3

% GDP
-20
-4
-25
-5
-30
-35 -6

-40 -7
-45 -8
96 98 00 02 04 06 08 10
Current Account Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

 The FIFA World Cup is well over with exclusively
positive press coverage. The FIFA World Cup was a
fine exposure of the country.
 The FIFA World Cup supports GDP directly in Q2-Q3.
Then the contribution will be more uncertain, but we
see more gains than risks for South Africa.
 Inflation under control and within target
 Too many South Africans live on public aid.
Constitutes a risk to public finances but also
potential if they are educated and employed.
Price triggers
 South Africa is on negative outlook at S&P and Fitch.
Change of negative outlook will be positive.
 Price rises of commodities (our main scenario).
 Increases in the US equity markets are usually
supportive of ZAR.
 Continued fair growth indicators combined with an
inflation rate which is still under control.
 Buy the rand against the euro, e.g. via 10-year bonds.
In July, the y-t-m fell from 8.90% to 8.40%. We believe
that the fall will continue to 8.25% at end-2010.
 High real interest rate (almost 4%) supports the rand
 Debt crisis in the eurozone does not spoil the global
growth picture, which is very positive. Especially Asia
is on the rise, which will support the rand due to the
large export of commodities to Asia.
 We see a moderate strengthening towards USD. We
see ZARDKK at 0.77 at 12 months’ term (=EURZAR at
9.64).
Risk factors
 South Africa is currently on negative outlook at S&P
and Fitch. A downgrade will be negative.
 Falling US equity markets and price declines on
commodities.
 Currently concern about US economic growth. If the
concern about growth spreads to the Asian
economies, it is bad news for ZAR since South Africa
benefits from exports to Asia.
 The current account deteriorates again. Further
deterioration is negative.

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Chinese yuan – CNY

By Linda Vestergaard

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 3,404
GDP growth (Q1 2010 (q/q)) 0.5%
Inflation (May 2010 (y/y)) 4.7%
Unemployment 4.2%
Central-bank rate 5.3%
Current account (% of GDP (2008)) 9.4%
Public debt (% of GDP (2008)) 18.2%

China has moved from planned economy to a rapidly growing market economy and is now a key player in the global
economy. Largest export countries: The US (17.7%), Hong Kong (13.3%) and Japan (8.1%). Large industries: mining, consumer
discretionaries and machinery. GDP per sector: Manufacturing industry (48.6%), Service (40.5%), Agriculture (10.9%).

USD/CNY incl. forecast and forward rates Current account (C/A)

450 11

400 10

350 9

300 8
Billion USD

% GDP
250 7

200 6

150 5

100 4

50 3
04 05 06 07 08 09
Current Account
Current Account % GDP

Fundamental valuation Investment case

 Until mid-2008, the exchange-rate policy in China
aimed at allowing CNY to strengthen gradually
against USD. But the global economic slowdown
hit China too and the Chinese Central Bank (PBoC)
changed its policy. Since mid-2008 and up to mid-
June 2010, CNY was fairly stable against USD at
6.83.
 The PBoC has already begun to tighten banks’
reserve requirements and on 19 June the PBoC
announced increased flexibility of the yuan.
Price triggers
 Continued strong growth indicators from China
although growth is expected to fall slightly.
Particularly the development of China’s exports is
important to yuan appreciation.
 Global growth continues to show signs of
improvement.
 A long period with a weakening of the US dollar
may lead to a sharper appreciation than the 5%-6%
against the US dollar a year.
 In principle, the PBoC’s statement of increased
flexibility of the yuan does not vow anything about
future appreciation of the currency.
 We expect it will lead to appreciation of the yuan
against the US dollar.
 It will not be a revaluation of the yuan but a
gradual appreciation of the yuan against the US
dollar by 5-6% a year.
Risk factors
 Disappointing Chinese exports may put a damper
on a yuan appreciation.
 So will a period of sharp appreciation of the US
dollar. It is not unlikely that such a scenario may
lead to a rise in USD/CNY.
 Increasing risk aversion.

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FX forecasts including consensus

estimates
Majors & skandis
Against

EUR Consensus USD Consensus DKK Consensus GBP* Consensus

Spot - - 1.29 - 7.45 - 1.19 -

3M - - 1.23 1.20 7.45 7.45 1.20 1.25
EUR
6M - - 1.27 1.20 7.45 7.45 1.22 1.25
12M - - 1.33 1.20 7.45 7.45 1.25 1.25
Spot 1.29 - - - 5.78 - 1.53 -
3M 1.23 1.20 - - 6.06 6.21 1.48 1.50
USD
6M 1.27 1.20 - - 5.87 6.21 1.55 1.50
12M 1.33 1.20 - - 5.60 6.21 1.66 1.50
Spot 0.84 - 1.53 - 8.86 - - -
3M 0.83 0.80 1.48 1.50 8.98 9.31 - -
GBP
6M 0.82 0.80 1.55 1.50 9.09 9.31 - -
12M 0.80 0.8 1.66 1.50 9.31 9.31 - -
Spot 112 - 87 - 6.65 - 133 -
3M 110 112 89 93 6.77 6.65 133 140
JPY
6M 115 115 91 95 6.48 6.51 140 143
12M 120 115 90 95 6.21 6.51 150 143
Spot 1.34 - 1.04 - 5.54 - 1.60 -
3M - 1.36 - 1.13 - 5.48 - 1.70
CHF
6M - 1.36 - 1.13 - 5.48 - 1.70
12M - 1.36 - 1.13 - 5.48 - 1.70
Spot 7.96 - 6.18 - 0.94 - 9.46 -
3M 8.00 7.69 6.50 6.41 0.93 0.97 9.64 9.61
NOK
6M 7.95 7.60 6.26 6.33 0.94 0.98 9.70 9.50
12M 7.90 7.60 5.94 6.33 0.94 0.98 9.88 9.50
Spot 9.41 - 7.30 - 0.79 - 11.18 -
3M 9.50 9.30 7.72 7.75 0.78 0.80 11.45 11.63
SEK
6M 9.40 9.22 7.40 7.68 0.79 0.81 11.46 11.53
12M 9.35 9.22 7.03 7.68 0.80 0.81 11.69 11.53
Spot 7.45 - 5.78 - - - 8.85 -
3M 7.45 7.45 6.06 6.21 - - 8.98 9.31
DKK
6M 7.45 7.45 5.87 6.21 - - 9.09 9.31
12M 7.45 7.45 5.60 6.21 - - 9.31 9.31
Note: All cross rates are quoted in accordance with inter-bank conventions except for those in the column marked
with an asterisk (*); these cross rates have GBP as their base currency. The consensus estimates are based on a
Bloomberg survey on FX estimates. Please note: The consensus estimates may deviate from estimates based on cross
rate calculations.
Source: Bloomberg/Jyske Bank

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FX forecasts including consensus

estimates
Emerging Markets
Against

EUR Consensus USD Consensus DKK Consensus GBP* Consensus

Spot 25.18 - 19.51 - 0.30 - 29.88 -

3M 25.60 25.10 20.81 20.92 0.29 0.30 30.84 31.38
CZK
6M 25.50 24.80 20.08 20.67 0.29 0.30 31.10 31.00
12M 25.50 24.80 19.17 20.67 0.29 0.30 31.88 31.00
Spot 4.09 - 3.17 - 1.82 - 4.85 -
3M 3.95 3.92 3.21 3.27 1.89 1.90 4.76 4.90
PLN
6M 3.90 3.85 3.07 3.21 1.91 1.94 4.76 4.81
12M 3.80 3.85 2.86 3.21 1.96 1.94 4.75 4.81
Spot 285.68 - 221.5 - 0.26 - 339.09 -
3M 280 270 228 225 0.27 0.28 337.35 338
HUF
6M 270 270 213 225 0.28 0.28 329.27 338
12M 270 270 203 225 0.28 0.28 337.50 338
Spot 1.96 - 1.52 - 3.80 - 2.33 -
3M 1.91 1.90 1.55 1.58 3.91 3.93 2.30 2.37
TRY
6M 1.91 1.92 1.50 1.60 3.91 3.88 2.32 2.40
12M 1.93 1.92 1.45 1.60 3.86 3.88 2.41 2.40
Spot 16.44 - 12.75 - 0.45 - 19.52 -
3M 15.68 14.64 12.75 12.20 0.48 0.51 18.89 18.30
MXN
6M 15.88 14.604 12.50 12.17 0.47 0.51 19.36 18.26
12M 15.63 14.604 11.75 12.17 0.48 0.51 19.53 18.26
Spot 2.27 - 1.76 - 3.29 - 2.69 -
3M 2.25 2.1 1.83 1.78 3.31 3.49 2.71 2.67
BRL
6M 2.29 2.1 1.80 1.76 3.26 3.53 2.79 2.64
12M 2.26 2.1 1.70 1.76 3.30 3.53 2.83 2.64
Spot 9.60 - 7.44 - 0.78 - 11.40 -
3M 9.53 9.4 7.75 7.80 0.78 0.80 11.48 11.70
ZAR
6M 9.53 9.4 7.50 7.85 0.78 0.79 11.62 11.78
12M 9.64 9.4 7.25 7.85 0.77 0.79 12.05 11.78
Spot 8.75 - 6.78 - 0.85 - 10.38 -
3M 8.24 8.0 6.70 6.70 0.90 0.93 9.93 10.05
CNY
6M 8.38 7.9 6.60 6.61 0.89 0.94 10.22 9.92
12M 8.58 7.9 6.45 6.61 0.87 0.94 10.72 9.92
Note: All cross rates are quoted in accordance with inter-bank conventions except for those in the column marked
with an asterisk (*); these cross rates have GBP as their base currency. The consensus estimates are based on a
Bloomberg survey on FX estimates. Please note: The consensus estimates may deviate from estimates based on cross
rate calculations.
Note: The forecasts for TRY, MXN, BRL, ZAR and CNY are against USD.
Source: Bloomberg/Jyske Bank

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Economic forecasts
Yield outlook – government bonds
Central-bank
1 years 2 years 5-year* 10 years 30 years
rate
Current 0.25% 0.25% 0.58% 1.70% 2.96% 3.99%
The US High 0.25% 1.40% 2.10% 3.40% 4.25% 5.25%
Low 0.00% 0.25% 0.55% 1.70% 3.00% 3.75%
Current 1.00% 0.72% 0.75% 1.63% 2.65% 3.34%
The euro zone High 1.00% 1.40% 1.75% 2.65% 3.75% 4.70%
Low 1.00% 0.40% 0.45% 1.40% 2.50% 3.25%
Current 1.05% 0.55% 0.78% 1.37% 2.73% 3.29%
Denmark High 1.05% 1.65% 1.95% 2.50% 3.90% 4.70%
Low 1.05% 0.40% 0.50% 1.15% 2.65% 3.25%
Note: 4-year yields, Denmark
Source: Bloomberg/Jyske Bank

Commodities forecast – average prices

Price 1st
Q3 2010 Q4 2010 Q1 2011 Q2 2011 Ave. 2010 Ave. 2011
contract
WTI Crude oil (USD/bl) 79 75 80 85 88 78 90
Brent Crude oil (USD/bl) 78 74 79 84 87 77 89
LME Aluminium
2100
(USD/tonne) 2044 2000 2000 2000 - -
LME Copper (USD/tonne) 7010 6800 7200 7300 7700 - -
Source: Bloomberg/Jyske Bank

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5 year historical FX rates

Chart 1: EUR/USD Chart 2: EUR/GBP
1,70 1,00
0,95
1,60
0,90
1,50
0,85
1,40 0,80
0,75
1,30
0,70
1,20
0,65
1,10 0,60
jul 05 jul 06 jul 07 jul 08 jul 09 jul 10 jul 05 jul 06 jul 07 jul 08 jul 09 jul 10

EUR/USD Source: Reuters EcoWin EUR/GBP Source: Reuters EcoWin

Chart 3: EUR/CHF
1,70
Chart 4: EUR/JPY
180
1,65
170
1,60
160
1,55
150
1,50
140
1,45
130
1,40
120
1,35
110
1,30
jul 05 jul 06 jul 07 jul 08 jul 09 jul 10 100
jul 05 jul 06 jul 07 jul 08 jul 09 jul 10
Source: Reuters EcoWin
EUR/CHF
Source: Reuters EcoWin
EUR/JPY

Chart 5: EUR/NOK
10,50
Chart 6: EUR/SEK
12,00
10,00
11,50
9,50
11,00
9,00
10,50
8,50
10,00
8,00
9,50
7,50
9,00
7,00
jul 05 jul 06 jul 07 jul 08 jul 09 jul 10 8,50
Source: Reuters EcoWin jul 05 jul 06 jul 07 jul 08 jul 09 jul 10
EUR/NOK Source: Reuters EcoWin
EUR/SEK

Chart 7: EUR/CZK
33
Chart 8: EUR/PLN
32 5,5
31
30 5
29
28 4,5
27
26
4
25
24
23 3,5
22
jul 05 jul 06 jul 07 jul 08 jul 09 jul 10 3
jul 05 jul 06 jul 07 jul 08 jul 09 jul 10
EUR/CZK Source: Reuters EcoWin Source: Reuters EcoWin

EUR/PLN

Note: Past performance is not a reliable indicator of future performance

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5 year historical FX rates

Chart 9: EUR/HUF Chart 10: EUR/TRY
340 2,40
2,30
320
2,20
300 2,10
2,00
280
1,90
260 1,80
1,70
240
1,60
220 1,50
jul 05 jul 06 jul 07 jul 08 jul 09 jul 10 jul 05 jul 06 jul 07 jul 08 jul 09 jul 10

EUR/HUF Source: Reuters EcoWin EUR/TRY Source: Reuters EcoWin

Chart 11: EUR/MXN Chart 12: EUR/BRL

20 3,6

3,4
18
3,2

16 3

2,8
14 2,6

2,4
12
2,2

10 2
jul 05 jul 06 jul 07 jul 08 jul 09 jul 10 jul 05 jul 06 jul 07 jul 08 jul 09 jul 10

EUR/MXN Source: Reuters EcoWin EUR/BRL Source: Reuters EcoWin

Chart 13: EUR/ZAR Chart 14: EUR/CNY

16 11,5
15
11
14
13 10,5
12
10
11
10 9,5

9 9
8
8,5
7
6 8
jul 05 jul 06 jul 07 jul 08 jul 09 jul 10 jul 05 jul 06 jul 07 jul 08 jul 09 jul 10

EUR/ZAR Source: Reuters EcoWin EUR/CNY Source: Reuters EcoWin

Note: Past performance is not a reliable indicator of future performance

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Disclaimer & Disclosure

Jyske Bank is supervised by the Danish Financial Supervisory Authority.

The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any
responsibility for the correctness of the material nor any liability for transactions made on the basis of the information
or the estimates of the report. The estimates and recommendations of the research report may be changed without
notice. The report is for the personal use of Jyske Bank's customers and may not be copied.

This is a recommendation and not an investment report.

Conflicts of interest
Jyske Bank has prepared procedures to prevent conflicts of interest. These procedures have been incorporated in the
business procedures covering the research activities of Jyske Markets, a business unit of Jyske Bank.

Jyske Bank's FX, money market and commodity analysts may not hold positions in the instruments for which they
prepare research reports, but Jyske Bank is permitted to hold positions and/or have interests in the instruments for
which such reports are prepared. The analysts receive no payment from persons interested in individual research
reports.

Read more about Jyske Bank's policy on conflicts of interest at www.jyskebank.dk/terms

Risk
FX, money market and/or commodity investment involves risk. Movements in the credit market, the sector and/or the
news flow, etc. regarding the issuer may affect the exchange rate/the interest rate/the price of the commodity. See the
front page of the research report for our view of the risk associated with the currency/interest rate/commodity
investment. The risk factors and/or the sensitivity calculations stated in the report should not be regarded as
exhaustive.

Update of the research report

Analyses, recommendations, and ad hoc publications are not updated. A new publication will instead be published if
and when it is found necessary. Market comments are updated daily.

See the front page for the initial date of publication of the report.
All prices stated are the latest trading prices at the time of the release of the research report, unless otherwise stated.

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