FX Talking: Ing'S View On The Major Bullish and Bearish Currency Themes

FINANCIAL MARKETS RESEARCH FX talkING November 2011
FX
10 November 2011
FX talkING
USD/Majors (1 Jan 07=100)
160 140 120 100 80 Stronger USD 60 07 08 09 10 11 12 60 GBP JPY EUR 160 140 120 100 80
INGs view on the major bullish and bearish currency themes

Recent policy meetings to address the Eurozone debt crisis ended in abject failure. Exiting the EMU is now formally on the table as a policy option. This requires an extra 5-10% risk premium on the euro. Risk assets will remain under pressure as growth forecasts are cut and safe-haven FX will stay bid.
ING FX forecasts
EUR/USD 1M 3M 6M 12M 1.34 1.30 1.30 1.38 EUR/CHF 1M 3M 6M 12M 1.20 1.20 1.20 1.20 USD/ZAR 1M 3M 6M 12M
Source: ING
USD/JPY 76 72 70 70 AUD/USD 1.00 0.97 1.00 1.05 USD/BRL 1.80 1.83 1.80 1.75 315 310 275 270
EUR/GBP 0.84 0.82 0.83 0.85 EUR/HUF USD/CNY 6.32 6.29 6.24 6.15
Source: Reuters, ING
EUR/CE4 (1 Jan 07=100)

135 125 115 105 95 85 75 07 08 09 10 11 12 Stronger EUR HUF PLN CZK 135 125 115 105 95 85 75
8.50 9.00 9.00 9.00
USD/other EM (1 Jan 07=100)

150 130 110 90 70 07 08 09 10 11 12 INR SGD BRL RUB CNY Stronger USD 150 130 110 90 70
FX performance
EUR/USD %MoM %YoY 0.5 -1.1 EUR/HUF %MoM %YoY
USD/JPY 1.0 -5.4 EUR/CZK 3.7 4.4
GBP/USD 2.2 -1.0 USD/RUB -3.9 -0.4
EUR/NOK -0.5 -4.4 USD/BRL -1.6 3.2
NZD/USD -0.1 -0.5 USD/KRW -3.6 1.5
USD/CAD -1.4 1.4 USD/CNY -0.5 -4.5
6.1 13.5
FX Strategy
Chris Turner
Head of Foreign Exchange Strategy London +44 20 7767 1610 chris.turner@uk.ing.com
Tom Levinson
Foreign Exchange Strategy London +44 20 7767 8057 tom.levinson@uk.ing.com View all our research on Bloomberg at ING5<GO>
research.ing.com
1 SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES & ANALYST CERTIFICATION
FX talkING
November 2011
Developed markets
EUR/USD
EUR requires a substantial risk premium
1.60 1.50 1.40 1.30 1.20 1.10 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 1.36

1.60 1.50 Mkt Fwds 1.40 1.30 1.20 1.10
We lower our EUR/USD forecasts this month. This is primarily the

result of disastrous policy meetings in Brussels and Cannes over the past four weeks. Instead of leaders putting a floor under the crisis, those meetings merely exposed divisions. The threat of a Greek referendum on EMU, plus France and Germany now formally recognising EMU exit as a policy option, demand a much larger risk premium of the euro. EUR/USD looks set to trade to 1.30, with risk to 1.20. Italy looks too big to fail and too big to save.
ING f'cast
These divisions are being exposed at a time of sharply weaker EZ

growth. Bank deleveraging and the ensuing credit crunch could well drive Eurozone into recession in 2012 and ECB rates to 0.75%.
Most Eurozone policy options, be it massive ECB buying of

peripheral debt, or aggressive easing of policy, look EUR negative.
3M 1.30 (1.357) 6M 1.30 (1.358) 12M 1.38 (1.360)
ING forecasts (mkt fwd)
1M 1.34 (1.357)
Chris Turner, London +44 20 7767 1610
USD/JPY
Intervention: the export subsidy
110 100 90 80 70 Mkt Fwds 110 100 90 80 70 60
Current spot: 77.6
Having threatened to intervene for several weeks, the Ministry of

Finance instructed the BoJ to buy USD/JPY on 31 October selling as much as JPY7-8trn or US$100bn! The move followed the BoJ easing policy a day earlier, expanding its Asset Purchase Plan with JPY5trn of JGB purchases.
The amount of JPY sold in a single days intervention is a record.

And we calculate it is not far away from three months worth of Japanese goods exports. It is our opinion that Japanese authorities use the cover of BoJ easing, justifying softer monetary conditions, as an opportunity to intervene and provide Japanese exporters with 5% better levels to sell their export proceeds.
ING f'cast
60 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
More large intervention cannot be ruled out in early 2012, but

easier Fed policy keeps USD/JPY biased to the 70 area.
3M 72 (77.46) 6M 70 (77.27) 12M 70 (76.85)
1M 76 (77.57)
GBP/USD
Reserve managers set to take an interest in GBP?
2.20 2.00 1.80 ING f'cast 1.60 1.40 Mkt Fwds 1.60 1.40 1.20 2.20 2.00 1.80
Current spot: 1.59
Over the past five years we have written frequently on the FX

preferences of reserve managers and how they are driven by Safety, Liquidity and Return. In reality there is no return among the four major reserve currencies of USD, EUR, JPY and GBP. Instead, we believe the pursuit of safety will play a larger role. Given dangerous debt trends in the US and Japan, plus a Eurozone identity crisis, reserve managers may well increase GBP weights. In fact, the SNB has done so already this year.
So despite the best efforts of the BoE to weaken GBP, and we

see risks the BoE increases its QE2 from 75bn to 200bn, GBP may stay reasonably strong.
1.20 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
We see GBP/USD holding near the 1.57/1.60 area over coming

months and rallying if the Fed pulls the trigger on QE3.
3M 1.59 (1.588) 6M 1.57 (1.587) 12M 1.62 (1.583)
1M 1.60 (1.589)
Chris Turner, London +44 20 7767 1610 2
FX talkING
November 2011
EUR/JPY
EUR/JPY to dip below 100
175 155 135 115 95 ING f'cast 75 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 105.4

175 155 135 Mkt Fwds 115 95 75
EUR/JPY is already at historically very weak levels but it could

get weaker. 100 is a huge psychological level for Japan and one that could prompt more intervention. Back in 2000, Japan and G7 partners were intervening in USD/JPY and EUR/JPY at the same time. Yet lower global growth in 2012 and a Eurozone crisis should ensure EUR/JPY stays under pressure. It feels that unless peripheral European government financing needs are somehow secured for the next three years and that will take over EUR1trn the crisis will rumble on.
New technocratic governments in Greece and Italy look unlikely to

stabilise the situation in the near term. Italy requires 5% not 7% financing rates and only ECB intervention can deliver them.
And external support for EMU from the BRIC nations is lacking.
1M 101.8 (105.3) 3M 93.6 (105.2) 6M 91.0 (105.0) 12M 96.6 (104.6)
EUR/GBP
GBP: The QE versus safe-haven trade-off
1.00 0.95 0.90 0.85 0.80 0.75 0.70 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 0.85

1.00 0.95 Mkt Fwds 0.90 0.85 ING f'cast 0.80 0.75 0.70
During the height of the first Greek crisis, in the summer of 2010,
EUR/GBP traded close to 0.80. Why isnt it there now, faced as it is by much graver doubts about the future of the Eurozone? Perhaps it is function of UK GDP growth. Back in the summer of 2010, the UK economy was bouncing back strongly, growing at 34% on a QoQ annualised basis. Instead, we now see the UK contracting in the 0.1-0.5% region over coming quarters.
However, the Eurozone looks set to deteriorate sharply,

prompting the ECB to cut rates to 0.75%. And even though the BoE would expect large QE to weaken GBP and re-balance the economy, the enormity of the Eurozone crisis suggests EUR/GBP heads lower to 0.80/0.81.
Expect to hear more about a weak EUR policy.

1M 0.84 (0.854) 3M 0.82 (0.854) 6M 0.83 (0.856) 12M 0.85 (0.859)
EUR/CHF
An experiment in behavioural science
1.70 1.60 1.50 1.40 1.30 1.20 1.10 Mkt Fwds ING f'cast 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00
Current spot: 1.23
Having announced a floor in EUR/CHF at 1.20 in September,

backed by unlimited FX intervention, the SNB has been keen to play with market psychology. Lobby groups have been discussing the need for the floor to be raised to 1.30 and the SNB has done nothing to discourage such speculation, saying further measures could be taken should deflation fears grow.
However, we think the floor wont be raised for credibility issues.

Frequent adjustments could stoke fears that the floor could be lowered as well as raised. And with the Eurozone crisis deteriorating, we doubt EUR/CHF trades sustainably above 1.25.
We may be mistaken here, but Octobers FX reserve data seems

to suggest the SNB could be selling FX into the current rally as a means to shrink its balance sheet. That should also limit gains.
1M 1.20 (1.231)
3M 1.20 (1.229)
6M 1.20 (1.227)
12M 1.20 (1.219)
FX talkING
November 2011
EUR/NOK
Defensive NOK qualities find favour
Current spot: 7.75

10.1 9.6 9.1 8.6 Mkt Fwds 8.1 7.6 ING f'cast 7.1
Norges Banks tightening cycle is well and truly over with a next
hike not projected until 4Q12. Its alternative, dovish scenario sees the current 2.25% rate reduced to 1.50%. Unlike much of Europe, inflation in Norway is well below the central banks (2.5%) target. Both headline and underlying inflation are sub-2%.
There are suggestions that NOKs defensive quality and resulting

strength contributed to Govt Pension Fund selling of NOK1,600m per day of NOK for foreign FX in Nov the largest daily amount on record. Separately, the Fund has rejected contributing to any EZ SPIV and it holds just 100m of the 13bn EFSF bonds issued.
Correlation analysis shows NOK sitting alongside CHF as a safehaven within European FX to the EZ debt crisis. This is an attribute that can keep NOK supported for the foreseeable future.
1M 7.60 (7.75)
3M 7.50 (7.78)
6M 7.50 (7.81)
12M 7.50 (7.86)
Tom Levinson, London +44 20 7767 8057
EUR/SEK
SEK risks deterioration
12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 ING f'cast Mkt Fwds 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0
Current spot: 9.09
Minutes to the Riksbanks 27 Oct meeting show it open to the idea

of easing rates from the current 2%. Two-out-of-six members are already voting for lower rates. Projections indicate a next hike in 3Q12 (one quarter prior to Norges Bank), but 100bp of easing (25bp more than Norges Bank) should its dovish scenario unfold. This highlights Swedens higher sensitivity to global activity.
The PMI has been sub-50 for 3mths and the Economic Tendency
Survey down for 5mths (implying weaker than normal GDP). This is consistent with SEK 5%+ weaker, showcasing krona resilience to date. 3Q GDP due 29 Nov ahead of a rate decision 20 Dec.
Up to 75bp of ECB easing could see EUR/SEK fall. However, we

see ECB cuts accompanying debt crisis deterioration and EU17 recession both bad for activity sensitive SEK. Buy NOK/SEK.
1M 9.10 (9.10)
3M 9.15 (9.13)
6M 9.10 (9.16)
12M 8.90 (9.21)
EUR/DKK
Danish interest rates below ECB for first time ever
7.48 7.47 7.46 7.45 7.44 7.43 Mkt Fwds ING f'cast 7.48 7.47 7.46 7.45 7.44 7.43 7.42
Current spot: 7.44
For the first time ever Denmarks key interest rate (lending rate) is
below that of the ECB. After the ECBs surprise 25bp cut to 1.25% on 3 Nov, Denmark cut its main rate 35bp to 1.20%. Historically, DNB rates are above those of the ECB to provide additional reward for the greater risk compared with the EU17. Times are clearly changing, with DNB no longer believing this is required.
In a revised 2012 budget, the new govt cut its 2012 GDP estimate
to 1.3%. To kick-start an economy propped up by (now slowing) exports it is bringing forward planned future investments. A 2012 budget deficit of 5.1% of GDP is forecast vs 3.8% for this year.
DNB rates will remain in lock-step with ECB cuts. FX intervention

to stop EUR/DKK falling too far will persist with the early Nov EUR/DKK bounce perhaps only delaying an eventual 7.4350 test
1M 7.438 (7.441)
3M 7.435 (7.438)
6M 7.435 (7.435)
12M 7.45 (7.428)
FX talkING
November 2011
USD/CAD
CAD a credible alternative
1.30 1.20 1.10 1.00 ING f'cast 0.90 0.80 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 1.02

1.30 1.20 Mkt Fwds 1.10 1.00 0.90 0.80
With rates at just 1%, the latest BoC policy report offers a neutral
and relatively relaxed stance. This might be because it has taken a knife to 2012 growth forecasts for the US (1.7%) and EU17 (0.2%). However, a loss of 54,000 jobs in Oct is deeply troubling if it were to mark the start of a new trend. The BoC only forecasts CPI to return to target in 4Q13 vs 4Q11 previously.
With the supremely liquid USD and EUR in bad shape, FX

reserve managers are increasingly turning to alternatives. As a credible alternative, given the depth of its debt market, CAD will attract increasing flows from BRIC nations.
A surprise BoC rate cut early next year is a CAD risk. But a broad
stabilisation in US activity data together with the prospect of EZ debt crisis-inspired Fed QE3 can benefit CAD disproportionately.
1M 1.03 (1.020)
3M 1.06 (1.021)
6M 1.02 (1.022)
12M 0.97 (1.024)
AUD/USD
Scale of RBA easing cycle can impact AUD
1.20 1.10 1.00 0.90 0.80 0.70 0.60 0.50 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 1.01

1.20
Having been hard-hit in Sept, AUD turned in the strongest G10 FX

performance (+6%) after the equity market low point at the start of Oct (S&P500 +20%). This maintains AUDs high beta reputation.
ING f'cast
1.10 1.00
Is AUD/USD anything other than handcuffed to the global risk

environment? A first RBA rate cut (25bp to 4.50% on 1 Nov) since April 2009 had little impact, with 2012 GDP (3.3%) and core CPI (2.5%) forecasts downgraded. A surprisingly large easing cycle could serve to undermine the near-term AUD performance.
Mkt Fwds
0.90 0.80 0.70 0.60 0.50
Counting in AUD/USDs favour is significant policy flexibility the

RBA has from rates at a neutral 4.50% in stark contrast to other major central banks. With the inflation cycle in Asia peaking, unlike into mid-year, ACBs now have scope to ease policy. This should help to safeguard growth of Australias key trade partners.
3M 0.97 (1.002) 6M 1.00 (0.994) 12M 1.05 (0.980)
1M 1.00 (1.009)
NZD/USD
Tough environment into year-end
Current spot: 0.77

1.05 0.95 ING f'cast 0.85 0.75 Mkt Fwds 0.65 0.55 0.45
Despite the stimulatory/inflationary impact from post-earthquake

reconstruction (seen adding 1-2ppt to GDP over 5yrs) rate hikes have been pushed out to mid-2012. Recall the removal of a quake inspired 50bp cut in Mar was shelved in Sept. RBNZ Governor Bollard claims the current policy stance is in a sweet spot.
However, the recent data flow from NZ has been disappointing.

Against expectations, the unemployment rate rose in 3Q to 6.6% while business sentiment indicators are much weaker (Oct PMI plunged below 50 to 46.5 its lowest since Jun09). 3Q CPI of 4.6%YoY undershot the RBNZs 4.9% forecast.
The domestic data flow can impact NZDs regional performance

(ie, vs AUD) but NZD/USD is reliant on broad risk sentiment, which may see it fall away from 0.80 into year-end.
1M 0.77 (0.774)
3M 0.75 (0.771)
6M 0.77 (0.766)
12M 0.84 (0.757)
FX talkING
November 2011
Emerging markets
EUR/PLN
MinFin selling dampens PLN-negative EUR/USD impact
5.0 Mkt Fwds 4.5 ING f'cast 4.5 5.0
Current spot: 4.41
A weaker EUR/USD and continuing EU17 debt crisis convulsions

typically translate into a weaker PLN. While the export slowdown channel is not strong for PLN, capital account disruptions are. Poland still requires a 2.9% of GDP capital account surplus to cover its CA gap and taking into account the EU flows.
4.0 3.5
4.0 3.5
Additional FX pressure might come from local financial institutions

hunting for the bank assets sold by troubled Eurozone parents.
A counterbalancing effect is the 8bn waiting to be sold by the

Ministry of Finance in the FX market. We do not expect a desperate defence of particular EUR/PLN levels, at least not below 4.70. Also, we see a limited chance of a rating outlook upgrade in the coming quarter. We forecast a first rate cut from the current 4.50% in 1Q12.
3M 4.45 (4.45) 6M 4.30 (4.48) 12M 4.30 (4.53)
3.0
1M 4.41 (4.42)
Mateusz Szczurek, Warsaw +48 22 820 4698
EUR/HUF
Possible downgrade rattles the market
340 320 300 280 260 240 220 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 312.5

Mkt Fwds 340 320 300 280 ING f'cast 260 240 220
There is a mixed information flow coming from the government.

On the one hand it is trying to keep the budget deficit at 2.4% of GDP next year (they will introduce HUF1,400bn, or 4.5% of GDP fiscal adjustments), but they continue discussing sensitive topics such as the re-payment of FX loans at a fixed exchange rate.
The EU17 debt crisis aside, the main danger is a possible

sovereign rating downgrade to non-investment grade over the next two to three weeks. This is an almost 50:50 possibility.
The European sovereign debt crisis continues to hurt Hungarian

markets, with its high dependency on external financing. As a result, EUR/HUF is moving towards its 2009 peak of 317 of which we indeed expect a test, but we expect EUR/HUF to return lower as we head into 2012.
3M 310 (315.9) 6M 275 (318.6) 12M 270 (324.5)
1M 315 (313.8)
David Nemeth, Budapest +36 1235 8800
EUR/CZK
CZK cannot escape EU17 debt crisis
30 29 28 27 26 25 24 23 22 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 25.66

30 29 28 ING f'cast 27 26 Mkt Fwds 25 24 23 22
In November, the CNB kept rates unchanged at 0.75%. It also

downgraded its 2012 GDP outlook from 2.2% to 1.2%, stressing the downside risks from a deepening of the EZ debt crisis.
Updated CNB forecasts imply a possible 25bp rate cut in 1Q12.

However, an alternative scenario (mild EU17 recession) implies a weaker currency and no change in interest rates. The alternative scenario is in line with the recent ING forecast.
Assuming a further slowdown in the Eurozone in coming quarters,

Czech economic performance (with its high export share to the Eurozone) should moderate more than its CE3 regional peers, fuelling further currency depreciation to (or even above) 26.5/EUR before the year end. Longer term, a narrowing gap of CNB vs ECB rate should support a stronger correction in the CZK.
3M 26.3 (25.6) 6M 25.7 (25.6) 12M 25.0 (25.5)
1M 26.5 (25.6)
Vojtech Benda, Prague +420 257 474 432
FX talkING
November 2011
EUR/RON
RON likely to see record low in the near run
4.75 Mkt Fwds 4.45 4.15 3.85 3.55 3.25 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 4.35

4.75 4.45
The central bank surprised both us and the market by delivering a

25bp cut to 6% on 2 Nov. We had been looking for the easing cycle to start in 1Q12. We now see the easing cycle ending in 1Q12 at 5.50% vs in 2Q12 as previously envisaged.
ING f'cast
4.15 3.85 3.55 3.25
Such rate moves matched with comments that the exchange rate
is in an equilibrium zone suggest the central bank may have eased its focus on the RON but apparent FX intervention tells a different story. We estimate NBR used about 0.7bn to support the RON in October and intraday data suggests Nov saw one of the fiercest days of intervention this year.
While we continue to see the NBR leaning against the wind in

stormy times in FX markets, we adjust our RON projections given the apparent toll taken by EZ sovereign issues on global and regional currency pairs.
1M 4.40 (4.36)
3M 4.35 (4.39)
6M 4.30 (4.43)
12M 4.25 (4.53)
Vlad Muscalu, Bucharest +4021 209 1393
EUR/HRK
Exposure to Italy & weak fundamentals weigh on Kuna
7.80 7.70 7.60 7.50 7.40 7.30 7.20 7.10 7.00 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 7.48
7.80 Mkt Fwds 7.70 7.60 7.50 ING f'cast 7.40 7.30 7.20 7.10 7.00
Weak fundamentals and strong demand for FX from the corporate

sector in 4Q implies modest Kuna weakening. However, HNB has shown it can withdraw large amounts of HRK liquidity to prevent depreciation. The 7.50 level is a strong resistance for EUR/HRK.
With Italy now centre stage, HRK uncertainty is higher with Italian
banks accounting for 42% of bank assets in 1H. Italy is Croatias single most important trade partner (16% of exports in Jan-Sep).
Unless there is a negative surprise from the 4 Dec elections

(multi-party and hence not the strong coalition discounted by markets), EUR/HRK is likely to trade slightly below 7.50 resistance near-term. Longer term, we expect the Kuna to depreciate slightly. A full blown crisis in Italy (ie, shut out of bond market/bail-out) risks EUR/HRK to its 7.75 record high set in 2000.
3M 7.51 (7.548) 6M 7.52 (7.611) 12M 7.53 (7.759)
1M 7.50 (7.499)
Elena Ganeva, Sofia +3592 917 6720
EUR/RSD
The main risk for the RSD is probably de-leveraging
120 110 100 Mkt Fwds 90 80 70 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 101.8

120
So far so good for Serbia, with Fitch recently maintaining a stable

outlook on Serbias long term debt. Macro stability has been welcomed, although we are fearful that RSD stability gives way to weakness. The question is how authorities prioritise RSD. A share of government debt is FX and thus a weaker RSD could push debt to GDP through 45% in 2012 triggering constitutional action as in Poland.
ING f'cast
110 100 90 80 70
Thus, the recent 75bp cut in policy rates leaves RSD vulnerable. The major worry has got to be de-leveraging relating to the
Eurozone crisis. Italian and Greek banks own 21% and 16%, respectively, of Serbian banking system assets (Fitch) and deleveraging triggers a credit crunch, if not outright withdrawal. An 8% of GDP current a/c deficit is still a worry at times like these.
3M 105 (102.0) 6M 107 (102.6) 12M 110
1M 103 (101.9)
FX talkING
November 2011
USD/RUB
Likely set to fall vs USD in the short-term
Current spot: 30.6

37.5 35.0 Mkt NDF 32.5 30.0 ING f'cast 27.5 25.0 22.5
Better global sentiment and above-US$110/bbl oil prices pulled

the RUB from the upper floating corridor bound (37.70/basket) to below the 35.70 mark, ie, towards CBR no-intervention zone.
CBR has revised capital outflow forecasts for 2011/12 from

-US$36bn/US$0bn to -US$70bn/-US$10bn due to deteriorating company access to foreign capital on the back of EZ debt crisis. Peaking external debt payments in Dec (US$16.3bn) may be a reason for caution, essentially flagging limited RUB upside towards the year-end under current oil prices.
RUB may show some gains in 1H12 on a seasonally stronger C/A

surplus. Yet the capital flow factor may act as a hurdle. We adjust our RUB/basket profile only marginally, but under INGs new EUR/USD call the RUB has no upside vs USD.
3M 30.9 (31.1) 6M 30.3 (31.6) 12M 30.2 (32.4)
ING forecasts (NDF)
1M 31.0 (30.8)
Dmitry Polevoy, Moscow +7 495 771 7994
USD/UAH
Hryvnia remains stable
Current spot: 8.02

Mkt NDF 10 9 8 ING f'cast 7 6 5 4
Growing depreciation fears on weakening currencies in emerging

markets have not so far impacted a USD/UAH stuck close to 8.00. The National Bank is firmly defending hryvnia by intervening in the market. In October the NBU spent a significantly smaller amount (US$1.5bn) of its US$34.1bn reserves to defend hryvnia.
The volume of Ukraines FX reserves is still sufficient to keep

hryvnia steady for at least the next 3-4 months. However, we still expect very slow UAH depreciation.
The decision (due before year-end) of the IMF regarding a new

tranche (US$1.5-3.0bn) to Ukraine would be a crucial event affecting UAH depreciation fears. If the IMF does not provide the loan in 2011, we see more downward pressure within the coming months.
3M 8.06 (8.59) 6M 8.09 (9.15) 12M 8.17 (9.80)
ING forecasts (NDF)
1M 8.05 (8.15)
Alexander Pecherytsyn, Kyiv +38 044 2303017
USD/KZT
NBK is ready for mild KZT gains
155 150 145 140 135 130 125 120 115 110 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 148.1

Mkt NDF 155 150 145 ING f'cast 140 135 130 125 120 115 110
USD/KZT has been stuck within a 147.5-148 range over the past
month, so as usual demonstrates low beta to global volatility.
NBKs flash estimate revealed a negative BoP balance for 3Q11

(-US$1.6bn vs -US$1.1bn in 2Q), but a still decent surplus for 9M11 (US$3.6bn). A rising gap in services trade and investment incomes cut the C/A surplus, and an improving FDI surplus has been unable to compensate for a widening gap in portfolio flows, partly driven by climbing foreign assets of the National Oil Fund.
At around US$100/bbl oil prices Kazakhstan may secure a BoP

surplus in 2012, which has been partly reflected in a sovereign rating upgrade from S&P to BBB+. NBK Chairman has said KZT may appreciate in the near term, but wont be allowed to break through the 145/USD level.
3M 147 (148.4) 6M 146 (149.2) 12M 146 (151.6)
ING forecasts (NDF)
1M 148 (148.1)
Dmitry Polevoy, Moscow +7 495 771 7994
FX talkING
November 2011
USD/TRY
CBT stands strong but current a/c weakness resumes
2.1 Mkt Fwds 1.9 1.7 1.5 1.3 1.1 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 1.78
2.1 1.9 1.7 1.5 1.3 1.1
CBT widened its O/N interest rate and hiked its O/N lending rate
350bp from 9% to 12.5% on 20 Oct to stabilize TRY and contain inflationary pressure. In the following period, the CBT started to manage liquidity on a daily basis, keeping O/N repo rate at a preferred rate between 5.75% policy rate and 12.5% upper band (average at 10.2% between 21 October and 3 November).
ING f'cast
CBT will restart FX depo market intermediation on 10 Nov and

allow banks to hold up to 40% of their TRY RRRs in hard currency and another 10% in gold for efficient management of its reserves (@US$83.8bn as of 3 Nov) and systems FX liquidity.
CBTs flexible tightening aims to stabilize/even strengthen TRY and

might cap fast depreciation unless a new credit crisis ensues. But we still see high current a/c deficit and inflation weighing on TRY.
1M 1.83 (1.80)
3M 1.82 (1.82)
6M 1.80 (1.86)
12M 1.72 (1.93)
Sengl Dadeviren, Istanbul +90 212 329 0752
USD/ZAR
SARB more worried by inflation than most
Current spot: 7.98

11 ING f'cast 10 9 8 Mkt Fwds 7 6 5
Unlike the central banks of Brazil and Australia that have already
cut policy rates, the SARB is still worried by inflation even as it cuts its growth forecasts. CPI is forecast to rise to 6.1% in 1Q12, above the SARBs 3-6% target range. Thus the SARB is worried about inflation expectations rising.
Yet 2012 global growth forecasts must come down. The Eurozone
will be lucky to avoid recession next year and barring a collapse in the dollar, 2012 would not appear to be a strong year for commodity prices. A global hard-landing looks a bigger risk than a wage-price spiral in South Africa, and a 50bp rate cut looks likely.
Real interest rates in South Africa are now negative. We are now
turning more negative on the ZAR medium-term and see risk of USD/ZAR spiking to 9.00 over coming months.
1M 8.50 (8.01)
3M 9.00 (8.08)
6M 9.00 (8.17)
12M 9.00 (8.35)
USD/ILS
Still worried by the trade deficit
4.5 4.2 3.9 3.6 3.3 3.0 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 3.73

4.5 4.2 3.9 Mkt Fwds 3.6 3.3 3.0
The Shekel remains fragile in our opinion. The Bank of Israel has
of course become more dovish, cutting rates 25bp in September to 3.00%. Inflation has now fallen back into its 1-3% target range and the BoI is in the process of downgrading forecasts. For example, were 2012 global growth to come in 1% below the baseline estimate, rates would need to be cut another 100bp. For the time being the BoI is on hold, but a cut to 2.75% is possible.
ING f'cast
Israeli authorities have always been sensitive to export prospects

and we imagine they would welcome a weaker Shekel. Notably the trade deficit is continuing to grow. A tougher export market and strong domestic demand buoyed by the housing market can see the trade deficit widen further.
Global growth forecasts should be cut and USD/ILS trade 4.00.

1M 3.80 (3.73) 3M 3.90 (3.73) 6M 4.00 (3.73) 12M 4.00 (3.74)
FX talkING
November 2011
Latam
USD/BRL
Still focused on tempering BRL bullishness
2.6 2.4 2.2 2.0 1.8 1.6 ING f'cast NDFs 2.6 2.4 2.2 2.0 1.8 1.6 1.4
Current spot: 1.76
Fluctuations in global risk appetite continue to drive broader

USD/BRL trends. We continue to expect BRL to trade with higher volatility and also a weakening bias, however, due to reduced trading liquidity caused by Brazil-specific FX trading restrictions.
Brazilian officials are focused on reducing the attractiveness of the

carry, to prevent renewed BRL strength. In addition to rate cuts (200bp to 9.50% by mid-2012), we see little govt appetite to ease the strict FX trading restrictions introduced over the past year.
Given that FX volatility reduces the attractiveness of carry, the

government is not particularly focused on reducing it either, unless it reaches the extreme levels seen late Sept, when the CB was forced to add USD liquidity. For the medium term, the hope is apparently to keep the USD/BRL in a 1.70-1.80 range.
3M 1.83 (1.80) 6M 1.80 (1.82) 12M 1.75 (1.87)
ING forecasts (NDF)
1M 1.80 (1.78)
Gustavo Rangel, New York + 1 646 424 6465
USD/MXN
Weaker MXN amid heightened risk aversion
16.5 15.5 14.5 13.5 12.5 11.5 10.5 9.5 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 13.54

16.5 15.5
Throughout Oct USD/MXN traded in a 13.20-14.00 range. Early

this month, MXN has been more stable, trading in a range of 13.30/USD-13.60/USD. However, as market jitters intensified on the Eurozone crisis the MXN breached the 13.68/USD.
Mkt Fwds
14.5 13.5
Our Real Effective Exchange Rate model continues to point to a

stronger MXN, ie, 12.50/USD. However, we believe that investors acknowledge that FX markets are in a crisis mode and risk aversion will be the key driver for the months ahead.
ING f'cast
12.5 11.5 10.5 9.5
We revise higher our USD/MXN forecast from 12.25 to 13.30

amid a very risk adverse year-end. Congruently, our 2012 profile is revised bearing in mind local event risk aversion among domestic players amid Presidential elections. Our new year-end estimate for 2012 is 13.70/USD, up from 12.70/USD.
3M 13.30 (13.64) 6M 13.41 (13.74) 12M 13.80 (13.94)
1M 13.50 (13.57)
Debora Luna / Ezequiel Garcia, Mexico City +52 55 5258 2095/2064
USD/CLP
A hawkish BCCh could boost the CLP
700 650 600 550 500 450 ING f'cast NDFs 700 650 600 550 500 450 400
Current spot: 466.10
The price of copper remains the key coordination device for CLP
trading but that correlation has weakened somewhat lately, with the CLP outperforming relative to copper-price guidance.
The central banks relatively more hawkish policy stance may help
explain that, but we are not certain. Given the higher-thanexpected activity and CPI readings, BCCh will likely wait until December to make its first policy rate cut, of 25bp to 5%. We expect a total of 75bp in rate cuts during this cycle.
The better tone in the FX market, together with the lack of dollar
liquidity problems suggest that the government will opt to let the USD reserve accumulation programme run its course, until December. Ending it sooner would perhaps be a natural first step ahead of a policy rate cut.
3M 515 (515) 6M 495 (495) 12M 485 (485)
400 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Source: Reuters, ING
ING forecasts (NDF)
1M 505 (505)
Gustavo Rangel, New York + 1 646 424 6465 10
FX talkING
November 2011
USD/ARS
ARS stability increasingly at risk
6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Source: Reuters, ING ING f'cast NDFs 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0
Recent initiatives to stunt capital flight show an administration that

is increasingly desperate to both prevent sharp currency moves and safeguard the all-important central bank dollar reserves.
FX restrictions have increased the cost of shifting ARS savings

into USD, but they failed to address the lack of confidence in the governments ability to ultimately prevent an FX adjustment. A credible anti-inflation policy shift is needed, but unlikely. The hope is to slow capital flight through April/May, when dollar inflows will rise again with the sale of the soy harvest abroad.
BCRA still has enough tools to prevent a disorderly depreciation.

But six months is a long time and the risk of failure has risen. ARS should stay under pressure but a reassessment of policy priorities would take place only if they dipped lower than US$40bn.
3M 4.31 (4.32) 6M 4.65 (4.65) 12M 4.92 (4.92)
ING forecasts (NDF)
1M 4.25 (4.25)
Gustavo Rangel, New York + 1 646 424 6465
11
FX talkING
November 2011
Asia
USD/CNY
Monetary fine-tuning is underway
7.00 6.80 6.60 6.40 6.20 ING f'cast 6.00 Jan09 6.00 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 NDFs 7.00 6.80 6.60 6.40 6.20
We think PM Wens fine-tuning announcement was the signal

that the balance of risks had shifted from inflation to growth. We expect more fine-tuning and an RRR cut within three months. We also think stubborn house price inflation rules out reversing the shift to prudent from moderately loose monetary policy.
CNY has appreciated 4.8% YTD. The PBOC accelerated the pace
in July-October, we think to curb inflation. Turmoil in global financial markets kept hot money away. In fact, we estimate outflows in August and September, which would be consistent with CNY trading 0.5%, the limit, weaker than the PBOCs fixings.
We expect Chinese risk assets to outperform over the next year

on the double whammy of improved global investor sentiment and fine-tuning.
Source: Bloomberg, ING
1M 6.3216 (6.3450)
3M 6.2899 (6.3440)
6M 6.2423 (6.3380)
12M 6.1473 (6.3380)
Tim Condon, Singapore +65 6232 6020
USD/INR
INR to suffer in coming months
56 54 52 50 48 46 44 42 40 38 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Current spot: 50.0

56 NDFs 54 52 50 48 ING f'cast 46 44 42 40 38
The weakness in INR has primarily been driven by global factors

as economic and political concerns in the Eurozone threaten to destabilize the world economy.
With the European issues continuing to persist, the rupee is

expected to maintain a depreciating trajectory in the next 3-6 months. However, the Central Banks intervention in case of extreme volatility is likely to cap too much weakness. We expect the INR to trade in the 49.50-51 range in the next 3-6 months.
The Reserve Bank of India, in its October policy meeting, raised

the policy rate by 25bp to 8.5%, but shifted its focus towards moderating growth despite the persistently elevated inflation. We expect the slowing momentum of growth to ensure a pause in policy rate at the next meeting.
3M 50.50 (51.24) 6M 51.00 (51.75) 12M 46.50 (52.70)
1M 49.50 (50.77)
Upasna Bhardwaj, India, +91 22 3309 5718
USD/HKD
HKD appreciates in a scramble for USD
7.82 7.80 ING f'cast 7.78 7.76 Fwds 7.74 7.72 Jan09 7.74 7.72 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 7.78 7.76 7.82 7.80
Risk-on investor sentiment saw USD/HKD trade from the middle

of the convertibility zone toward the 7.75 strong-side undertaking rate. We associate HKD strength with elevated NDF pricing of CNY appreciation but CNY NDFs re-priced for depreciation in September and the pricing persisted October.
The latest scramble for US dollars, like the one in late 2008, was
CNY-negative and HKD-positive. The scramble has abated and we expect the price swings it occasioned to slowly reverse, with CNY NDFs re-pricing for appreciation and USD/HKD drifting to the middle of the convertibility zone.
Inflation was 5.8% in September (6.4% after stripping out

administered price changes). Significant disinflation depends on slower CNY appreciation (China accounts for 50% of imports).
1M 7.7800 (7.7749)
3M 7.7800 (7.7710)
6M 7.7800 (7.7651)
12M 7.7800 (7.7536)
Tim Condon, Singapore +65 6232 6020 12
FX talkING
November 2011
USD/IDR
BI aligns monetary policy with the BSP
13000 12000 11000 10000 9000 8000 ING f'cast NDFs 13000 12000 11000 10000 9000 8000 7000
Current spot: 8970
IDR underperformed in October despite a 10% stock market

bounce off an early-October low. Government bonds also rallied, though government buying contributed.
We think BIs surprise policy rate cut on October 11 may have

signalled its joining the Philippines BSP in using interest rates to deter hot money. The signal may have been received; Indonesia was an outlier in experiencing a drop in foreign reserves, 0.5% MoM, in October.
7000 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
Inflation is falling, which we forecast will allow BI to cut by a

cumulative 100bp over the next year. Our forecast may be light in view of BIs surprisingly big 50bp cut on Nov 10. Lower short-term interest rates make IDR an unattractive carry trade. However, they increase the attractiveness of government bonds.
3M 8900 (9162) 6M 8800 (9307) 12M 8700 (9597)
ING forecasts (NDF)
1M 8950 (9055)
USD/KRW
Slower growth implies a lower neutral base rate
1600 1500 1400 1300 1200 1100 1000 900 ING f'cast NDFs 1600 1500 1400 1300 1200 1100 1000 900
There is no evidence that the Bank of Korea is following the BSP.

The US$7.60bn increase in foreign reserves in October recouped most of Septembers US$8.81bn decline. And KRWs 6.1% appreciation reversed some of Septembers 9.4% depreciation.
Korea went into the GFC a 4.7% trend real GDP growth economy
and we think it came out a 3.9% one. Theres no evidence that slower RGDP growth was offset by higher inflation so nominal GDP growth slowed commensurately. That also is the message from the 90bp fall in the average 3-year government bond yield.
Ju l0 9
Ja n1 1
Ju l1 1
Ja n0 9
Ja n1 2
Ja n1 0
Ju l1 2
Ju l1 0
Lower NGDP growth means a lower neutral base rate. We think

neutral was 4.0% before the GFC and todays 3.25% is the new neutral. We think the BOK is on hold for an extended period and would only cut in the unlikely event of a coordinated G20 action.
3M 1105.0 (1140.6) 6M 1080.0 (1143.1) 12M 1060.0 (1144.4)
ING forecasts (NDF)
1M 1120.0 (1137.0)
USD/MYR
Diminishing returns to fiscal pump-priming
3.90 3.70 3.50 3.30 3.10 2.90 2.70 Jan09 ING f'cast NDFs 3.90 3.70 3.50 3.30 3.10 2.90 2.70 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
PM Najib announced the 2012 budget in October. It was so full of

goodies that one local paper speculated it foreshadowed a November 12 election. It programmes another wide, 4.7% of GDP, fiscal deficit for 2012.
The governments response to the GFC was similar to its

response to the Asian crisis; boost development spending to support growth. However, reduced fiscal headroom, a by-product of government deficits averaging 4.8% of GDP since 2000, constrained the size of the stimulus and the boost to growth.
GDP has not grown at its 5.5% pre-GFC pace since the initial
snapback. It will get a one-off bounce when the budget goodies hit peoples pocketbooks. But we think Malaysia went into the GFC a 5.5% trend growth economy and came out something less.
3M 3.1110 (3.1678) 6M 3.0890 (3.1775) 12M 3.0500 (3.1947)
ING forecasts (NDF)
1M 3.1232 (3.1570)
13
FX talkING
November 2011
USD/PHP
We consider the BSP a likely easer
50.00 48.00 46.00 44.00 42.00 NDFs 50.00 48.00 46.00 44.00 42.00 40.00
Current spot: 43.32
We continue to think there was a significant change in BSP

monetary policy in Nov-10 to allow interest rates rather than the BSPs balance sheet to absorb hot money pressure. Short-term interest rates fluctuate more and BSP reserve accumulation net of its forward book unwind was only US$4.1bn in Nov-10 to Sep-11.
We consider the BSP a likely easer. It hiked twice by a

cumulative 50bp to 4.5% early this year when inflation accelerated due to the Arab Spring oil price increase. We think it would like to reverse the hikes to support flagging growth. However, inflation was 5.2% in October, still too high we think for BSP to cut.
ING f'cast
40.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12
We forecast inflation falling to 4.2% by March 2012 and this

enabling the BSP to reverse the 2010 rate hikes, which we believe will be positive for government bonds.
ING forecasts (NDF)
1M 42.75 (43.41)
3M 43.30 (43.38)
6M 42.50 (43.33)
12M 42.60 (43.34)
USD/SGD
A first-mover among central banks
1.60 1.50 1.40 Fwds 1.30 1.20 1.10 Jan09 ING f'cast 1.30 1.20 1.10 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 1.60 1.50 1.40
The MAS was among the worlds first central banks to tighten
after the GFC and it was among the first to ease for the stresses and fragility in the advanced economies. Its October policy statement announced a reduction in the slope of the S$-NEER policy band, meaning a slower pace of appreciation.
The economy barely avoided a technical recession, eking out

1.3% QoQ SAAR growth in 3Q thanks to 213% QoQ SAAR growth from the small but very volatile pharmaceutical sector.
The MAS seems resigned to high inflation (5.5% in September).

Its coming from Malaysia via the food component, administered prices via car COEs, and housing. None is amenable to S$-NEER appreciation. MAS increasingly focuses on core inflation, which excludes COEs and housing, and has been near 2% all year.
3M 1.2750 (1.2918) 6M 1.2660 (1.2901) 12M 1.2500 (1.2869)
1M 1.2800 (1.2919)
USD/TWD
The CBC, more than most, watches USD/JPY
37.00 35.00 33.00 31.00 29.00 ING f'cast 27.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 27.00 NDFs 37.00 35.00 33.00 31.00 29.00
Current spot: 30.24
We believe the CBC manages USD/TWD to keep the JPY/TWD

cross in a 0.33-0.37 range. Financial market turbulence drove the cross rate above 0.37 in August and has not sufficiently abated for it to retrace (latest 0.3891).
JPY appreciation is an issue for the CBC given our assessment of

the monetary rule. We think the JPY appreciation during the GFC triggered the big depreciation in the CBCs policy band from 0.270.31. We think the CBC would behave similarly were the turbulence to trigger a sharp fall in economic activity as in 4Q08.
A 1.1% QoQ SAAR contraction in GDP in 3Q11 followed a 0.9%

increase in 2Q but the message is that the economy has been flat since 1Q11. Exports in this export-led economy have consolidated since April, though Octobers 9.8% MoM bounce was promising.
3M 29.70 (30.23) 6M 29.00 (30.14) 12M 28.50 (29.90)
ING forecasts (NDF)
1M 29.90 (30.30)
14
FX talkING
November 2011
USD/THB
Natural disasters made 2011 an Annus Horribilis
38.00 36.00 34.00 32.00 30.00 ING f'cast 28.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 28.00 Fwds 38.00 36.00 34.00 32.00 30.00
Current spot: 30.80
Natural disasters the Japan earthquake and now the floods

have made 2011 an annus horribilis. FinMin Thirachai leaked that the economy grew 3.7% in 3Q but would contract 1.1% in 4Q due to the floods.
The Bank of Thailands tone-deaf initial reaction focused on the

likely inflation consequences of government reconstruction spending. Asst. Gov. Paiboon subsequently downgraded the BOTs growth forecast to 2.6% from 4.1% and agreed with the FinMin that a policy rate cut was warranted. We now forecast a 50bp cut to 3.0% at the November 30 meeting.
The low base and expansionary fiscal policy will boost 2012 GDP
growth. We revise our 2011 GDP growth forecast to 2.4% from 4.2% and our 2012 forecast to 6.8% from 4.9%.
1M 30.80 (30.76)
3M 30.70 (30.88)
6M 30.30 (31.03)
12M 29.80 (31.27)
15
FX talkING
November 2011
ING foreign exchange forecasts

EUR cross rates Developed FX EUR/USD EUR/JPY EUR/GBP EUR/CHF EUR/NOK EUR/SEK EUR/DKK EUR/CAD EUR/AUD EUR/NZD EMEA EUR/PLN EUR/HUF EUR/CZK EUR/RON EUR/HRK EUR/RSD EUR/RUB EUR/UAH EUR/KZT EUR/TRY EUR/ZAR EUR/ILS Latam EUR/BRL EUR/MXN EUR/CLP EUR/ARS Asia EUR/CNY EUR/HKD EUR/IDR EUR/INR EUR/KRW EUR/MYR EUR/PHP EUR/SGD EUR/TWD EUR/THB
Spot 1.36 105.6 0.85 1.23 7.74 9.09 7.442 1.39 1.34 1.75 4.40 312 25.7 4.35 7.48 102 41.6 10.87 201.5 2.43 10.87 5.07 2.40 18.43 683 5.79 8.63 10.59 12230 68.01 1540 4.29 58.9 1.76 41.1 41.9
1M 1.34 101.8 0.84 1.20 7.60 9.10 7.438 1.38 1.34 1.74 4.41 315 26.5 4.40 7.50 103 41.5 10.79 198.3 2.45 11.39 5.09 2.41 13.51 677 5.70 8.47 10.43 11993 66.30 1501 4.19 57.3 1.72 40.1 41.3
3M 1.30 93.6 0.82 1.20 7.50 9.15 7.435 1.38 1.34 1.73 4.45 310 26.3 4.35 7.51 105 40.2 10.48 191.1 2.37 11.70 5.07 2.38 12.25 670 5.62 8.18 10.11 11570 65.70 1437 4.04 56.3 1.66 38.6 39.9
6M 1.30 91.0 0.83 1.20 7.50 9.10 7.435 1.33 1.30 1.69 4.30 275 25.7 4.30 7.52 107 39.4 10.52 189.8 2.34 11.70 5.20 2.34 12.28 644 6.05 8.12 10.11 11440 66.30 1404 4.02 55.3 1.65 37.7 39.4
12M USD cross rates 1.38 96.6 0.85 1.20 7.50 8.90 7.450 1.34 1.31 1.64 4.30 270 25.0 4.25 7.53 110 41.7 11.27 201.5 2.37 12.42 5.52 2.42 12.57 669 6.79 8.48 10.74 12006 64.20 1463 4.21 58.8 1.73 39.3 41.1
Spot
1M
3M
6M
12M
USD/JPY GBP/USD USD/CHF USD/NOK USD/SEK USD/DKK USD/CAD AUD/USD NZD/USD USD/PLN USD/HUF USD/CZK USD/RON USD/HRK USD/RSD USD/RUB USD/UAH USD/KZT USD/TRY USD/ZAR USD/ILS USD/BRL USD/MXN USD/CLP USD/ARS USD/CNY USD/HKD USD/IDR USD/INR USD/KRW USD/MYR USD/PHP USD/SGD USD/TWD USD/THB
77.6 1.59 0.90 5.69 6.68 5.468 1.019 1.014 0.777 3.23 229.3 18.8 3.19 5.49 75.0 30.6 8.02 148 1.79 7.96 3.72 1.76 13.54 502 4.26 6.35 7.78 8965 49.98 1132 3.15 43.29 1.29 30.2 30.8
76.0 1.60 0.90 5.67 6.79 5.551 1.03 1.00 0.77 3.29 235.1 19.8 3.28 5.60 76.9 31.0 8.05 148 1.83 8.50 3.80 1.80 13.50 505 4.25 6.32 7.78 8950 49.50 1120 3.12 42.75 1.28 29.9 30.8
72.0 1.59 0.92 5.77 7.04 5.719 1.06 0.97 0.75 3.42 238.5 20.2 3.35 5.78 80.8 30.9 8.06 147 1.82 9.00 3.90 1.83 13.30 515 4.32 6.29 7.78 8900 50.50 1105 3.11 43.3 1.28 29.7 30.7
70.0 1.57 0.92 5.77 7.00 5.719 1.02 1.00 0.77 3.31 211.5 19.8 3.31 5.78 82.3 30.3 8.09 146 1.80 9.00 4.00 1.80 13.41 495 4.65 6.24 7.78 8800 51.00 1080 3.09 42.5 1.27 29.0 30.3
70.0 1.62 0.87 5.43 6.45 5.399 0.97 1.05 0.84 3.12 195.7 18.1 3.08 5.46 79.7 30.2 8.17 146 1.72 9.00 4.00 1.75 13.80 485 4.92 6.15 7.78 8700 46.50 1060 3.05 42.6 1.25 28.5 29.8
16
FX talkING
November 2011
FX derivatives idea
Using a Forward Plus to hedge EUR/HUF topside risk
Forward Plus secures worse case rate to buy EUR/HUF at 330, but allows hedging at spot as long as 287 never trades
EUR/HUF spot at time of pricing: 310.00. 6m forward at time of pricing: 317.00 Strategy: Customer buys 6m EUR call, HUF put, strike 330.00. Customer sells 6m EUR put/HUF call, strike 317.00, American Knock in 287
Rationale
We are worried by developments in Hungary. It is not a great time for CE4, with some analysts starting to fret now that Eurozone bank deleveraging will disproportionately hit the economies and currencies of Eastern Europe. EUR/HUF is currently not that far from the 317 high seen in early 2009.
The particular concern for EUR/HUF is the local debt market. Foreigners own nearly half of the local debt market a record high. And if any
local debt market is susceptible to a foreign exodus, it looks to be the Hungarian market.
Concerns also exist that Hungarys typical response during times of stress, to hike policy rates to protect the currency, may not be the best
option given the Eurozone is just about to enter a recession. If one has long HUF exposure, e.g. via a balance sheet, we would recommend raising hedges on this translation risk.
Our FX strategy secures a worst rate to hedge EUR/HUF at 330. And as long as 287 never trades, which looks unlikely, customers will be
able to hedge at the prevailing spot rate. However, if EUR/HUF were somehow to trade sharply under 287, the effective hedge would revert to 317 the same as the current forward rate. Safety first suggests a Forward Plus should seriously be considered to hedge EUR/HUF topside risk. Chris Turner, London +44 20 7767 1610
For more detailed discussions on corporate FX hedging strategies, prices and other trade specific requirements, please contact in the first instance your local FX Trading and Sales teams or the following; Alexander Schreuder Goedheijt, Fahd El Habti and Michel Hensen, Product Specialists/FX Derivatives FM Sales Amsterdam +31 20 563 8171
Realised hedge rate of using a 6m Forward Plus to hedge EUR/HUF topside risk
350 340 Realised hedging rate 330 320 310 300 290 280 270 260 250 270 280 290 300 310 Spot rate on expiry Forward
Source: ING
320
330
340
Spot
Realised hedging rate (287 never trades)
Realised hedging rate (287 trades)
17
FX talkING
November 2011
Research analyst contacts

Developed Markets London Mark Cliffe Rob Carnell James Knightley Chris Turner Tom Levinson Amsterdam Maarten Leen Martin van Vliet Teunis Brosens Dimitry Fleming Padhraic Garvey Jeroen van den Broek Mark Harmer Maureen Schuller Alessandro Giansanti Job Veenendaal Roelof-Jan van den Akker Brussels Peter Vanden Houte Carsten Brzeski Julien Manceaux Paolo Pizzoli Title Telephone Email mark.cliffe@uk.ing.com rob.carnell@uk.ing.com james.knightley@uk.ing.com christopher.turner@uk.ing.com tom.levinson@uk.ing.com maarten.leen@ing.nl martin.van.vliet@ing.nl teunis.brosens@ing.nl dimitry.fleming@ing.nl padhraic.garvey@ingbank.com jeroen.van.den.broek@ingbank.com mark.harmer@ingbank.com maureen.schuller@ingbank.com alessandro.giansanti@ingbank.com job.veenendaal@ingbank.com roelof-jan.van.den.akker@ingbank.com peter.vandenhoute@ing.be carsten.brzeski@ing.be julien.manceaux@ing.be Global Head of Financial Markets Research +44 20 7767 6283 Chief International Economist +44 20 7767 6909 Senior Economist, UK, US, Scandinavia +44 20 7767 6614 Head of Foreign Exchange Strategy Foreign Exchange Strategist Principal Economist Senior Economist, Eurozone Senior Economist, US Senior Economist, Netherlands +44 20 7767 1610 +44 20 7767 8057 +31 20 563 4406 +31 20 563 9528 +31 20 563 6167 +31 20 563 9497
Head of Developed Markets Debt Strategy +31 20 563 8955 Head of Developed Markets Credit Strategy +31 20 563 8959 Head of Developed Markets Credit Research +31 20 563 8964 Senior Credit Strategist +31 20 563 8941 Senior Rates Strategist +31 20 563 8801 Quantitative Strategist +31 20 563 8956 Technical Analyst +31 20 563 8178 Chief Economist, Belgium, Eurozone Senior Economist, Germany, Eurozone Economist, Switzerland Senior Economist, EMU, Italy, Greece Title +32 2 547 8009 +32 2 547 8652 +32 2 547 3350
Milan
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Emerging Markets New York H David Spegel Gustavo Rangel Natalia Corfield Simon Quijano-Evans Elena Ganeva
Global Head of Emerging Markets Strategy +1 646 424 6464 Chief Economist, Brazil, Argentina, Chile, Peru +1 646 424 6465 Senior Credit Analyst +1 646 424 6086 Head of Research & Chief Economist, EMEA +44 20 7767 5310 Economist, Bulgaria, Croatia Senior Economist, Czech Republic Senior Economist, Hungary Economist, India Economist, Mexico Economist, Mexico Economist, Philippines Chief Economist, CEE Senior Economist, Poland Economist, Poland Economist, Romania Junior Economist, Romania Economist, Russia & Kazakhstan Senior Credit Analyst Head of Research & Chief Economist, Asia Economist, Asia Senior Economist, Slovakia Head of Research & Chief Economist, Turkey Senior Economist, Turkey Economist, Turkey Head of Research, Ukraine Financial Markets Research Analyst +359 2 917 6720 +420 2 5747 4432 +36 1 255 5581 +91 22 3309 5718 +52 55 5258 2095 +52 55 5258 2064 +632 479 8855 +48 22 820 4698 +48 22 820 4696 +48 22 820 4608 +40 21 209 1393 +40 21 209 1290 +7 495 771 7994 +7 495 755 5480 +65 6232 6020 +65 6232 6181 +421 2 5934 6392 +90 212 329 0752 +90 212 329 0751 +90 212 329 0753 +38 044 230 3017 +38 044 590 3584
London Bulgaria
Czech Rep Vojtech Benda Hungary India Mexico David Nemeth Upasna Bhardwaj Debora Luna Ezequiel Garcia
Philippines Joey Cuyegkeng Poland Mateusz Szczurek Rafal Benecki Grzegorz Ogonek Vlad Muscalu Ana-Maria Morrescu Dmitry Polevoy Egor Fedorov
Romania Russia
Singapore Tim Condon Prakash Sakpal Slovakia Turkey Eduard Hagara Sengl Dadeviren Muhammet Mercan mer Zeybek Alexander Pecherytsyn Halyna Antonenko
Ukraine
18
FX talkING
November 2011
Disclosures Appendix
ANALYST CERTIFICATION The analyst(s) who prepared this report hereby certifies that the views expressed in this report accurately reflect his/her personal views about the subject securities or issuers and no part of his/her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report. IMPORTANT DISCLOSURES Company disclosures are available from the disclosures page on our website at http://research.ing.com. The remuneration of research analysts is not tied to specific investment banking transactions performed by ING Group although it is based in part on overall revenues, to which investment banking contribute. Securities prices: Prices are taken as of the previous days close on the home market unless otherwise stated. Conflicts of interest policy. ING manages conflicts of interest arising as a result of the preparation and publication of research through its use of internal databases, notifications by the relevant employees and Chinese walls as monitored by ING Compliance. For further details see our research policies page at http://research.ing.com. FOREIGN AFFILIATES DISCLOSURES Each ING legal entity which produces research is a subsidiary, branch or affiliate of ING Bank N.V. See back page for the addresses and primary securities regulator for each of these entities.
19
FX talkING
November 2011
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FX Talking: Ing'S View On The Major Bullish and Bearish Currency Themes

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FINANCIAL MARKETS RESEARCH FX talkING November 2011

INGs view on the major bullish and bearish currency themes

Source: Reuters, ING

EUR/CE4 (1 Jan 07=100)

8.50 9.00 9.00 9.00

Source: Reuters, ING

USD/other EM (1 Jan 07=100)

USD/JPY 1.0 -5.4 EUR/CZK 3.7 4.4

GBP/USD 2.2 -1.0 USD/RUB -3.9 -0.4

EUR/NOK -0.5 -4.4 USD/BRL -1.6 3.2

NZD/USD -0.1 -0.5 USD/KRW -3.6 1.5

USD/CAD -1.4 1.4 USD/CNY -0.5 -4.5

Source: Reuters, ING

Current spot: 1.36

We lower our EUR/USD forecasts this month. This is primarily the

These divisions are being exposed at a time of sharply weaker EZ

Most Eurozone policy options, be it massive ECB buying of

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

Current spot: 77.6

Having threatened to intervene for several weeks, the Ministry of

The amount of JPY sold in a single days intervention is a record.

More large intervention cannot be ruled out in early 2012, but

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

Current spot: 1.59

Over the past five years we have written frequently on the FX

So despite the best efforts of the BoE to weaken GBP, and we

We see GBP/USD holding near the 1.57/1.60 area over coming

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610 2

Current spot: 105.4

EUR/JPY is already at historically very weak levels but it could

New technocratic governments in Greece and Italy look unlikely to

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

Current spot: 0.85

However, the Eurozone looks set to deteriorate sharply,

Expect to hear more about a weak EUR policy.

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

Current spot: 1.23

Having announced a floor in EUR/CHF at 1.20 in September,

However, we think the floor wont be raised for credibility issues.

We may be mistaken here, but Octobers FX reserve data seems

ING forecasts (mkt fwd)

12M 1.20 (1.219)

Chris Turner, London +44 20 7767 1610

Current spot: 7.75

There are suggestions that NOKs defensive quality and resulting

ING forecasts (mkt fwd)

12M 7.50 (7.86)

Tom Levinson, London +44 20 7767 8057

Current spot: 9.09

Minutes to the Riksbanks 27 Oct meeting show it open to the idea

Up to 75bp of ECB easing could see EUR/SEK fall. However, we

ING forecasts (mkt fwd)

12M 8.90 (9.21)

Tom Levinson, London +44 20 7767 8057

Current spot: 7.44

DNB rates will remain in lock-step with ECB cuts. FX intervention

ING forecasts (mkt fwd)