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Citibank Wealth Management Weekly FX Insight *INVESTMENT PRODUCTS: NOT A BANK DEPOSIT. NOT GOVERNMENT INSURED. NO BANK GUARANTEE. MAY LOSE VALUE Please note and carefully read the Important Disclosure on the last part Weekly FX Insight Jun 12, 2017 with data as of Jun 9, 2017 Market Review & Focus FX Analysis FX & Eco. Figures Forecast P. 1 - 2 P. 3 - 5 P. 6 - 9 © 2013 Citibank Citibank and Arc Design is a registered service mark of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited Please note and carefully read the Important Disclosure on the last part Weekly FX Recap Major Currencies Weekly Performance LAST WEEK PERFORMANCE 52 w eek 52 w eek 1 year % high low change Year-ToDate Change Weekly changes versus US dollar USD Close Price 97.27 EUR/USD 1.1195 1.1284 1.1166 1.1428 1.0341 -1.1% 6.4% JPY USD/JPY 110.32 110.81 109.12 118.66 99.02 3.0% -5.7% GBP GBP/USD 1.2746 1.2978 1.2636 1.5018 1.1841 -11.8% 3.3% CAD 0.2% AUD 4.4% NZD CCY USD/CAD AUD/USD 1.3470 0.7527 USD INDEX Day High Day Low 97.50 96.51 103.82 93.02 3.5% -4.8% EUR 1.3540 0.7566 1.3423 0.7408 1.3793 0.7778 1.2679 0.7160 5.9% 1.3% NZD/USD 0.7213 0.7223 0.7114 0.7486 0.6818 1.5% 4.0% USD/CHF 0.9694 0.9728 0.9614 1.0344 0.9522 0.5% -4.9% USD/CNY 6.7980 6.8059 6.7892 6.9649 6.5690 3.5% -2.3% USD/CNH 6.7869 6.7945 6.7527 6.9895 6.5783 3.1% -2.7% GOLD 1266.63 1298.75 1264.62 1375.45 1121.03 -0.2% 9.9% Source: Bloomberg L.P., as of Jun 9, 2017 0.58% -0.74% 0.08% -1.10% 0.12% 1.13% 0.99% CHF -0.65% CNY 0.10% CNH -0.14% GOLD -3.00% -0.98% -2.00% -1.00% 0.00% 1.00% 2.00% Source: Bloomberg L.P., as of Jun 9, 2017 USD GBP AUD • (+) Rising political risk: Former FBI Director Comey testified before Congress. Markets think it is not enough to prove Trump’s obstruction of justice. • (-) The Conservative Party setback in general election: No party won an absolute majority in the general election, resulting in a hung parliament, which may pressure GBP investment sentiment. • (+) Australia's data gains: GDP growth reached 1.7% yoy in Q1, better than expected, which supported the AUD. • (+) Policy divergence: The ECB did not mention reduction of bond purchase. USD may be underpinned on policy divergence amid hope for a rate hike by the Fed this week. • (+) USD may strengthen: USD may be supported as the Fed may hike rates this week with hawkish policy statement. • (-) Property market risk: RICS property index dropped from 22% to 17%, worse than expected. • (-) GBP may still have downside risk: GBP may be restrained in the short term amid rising political risk and Brexit uncertainty. • (+) Less dovish RBA: The RBA kept the interest rate unchanged last week with a neutral policy statement, becoming less dovish. • (+/-) AUD may range trade: Australia may release weak job data next week, which may restrain AUD. AUD may consolidate in the short term. 1 Weekly FX Focus: Please note and carefully read the Important Disclosure on the last part GBP may be undermined in the short term on a hung parliament • British PM Theresa May suffered a setback in the UK general election. The Conservative Party lost its seats from 330 to 318 while the Labour Party increased its seats from 229 to 262. • GBP may be restrained in the short term amid rising political risk and Brexit uncertainty. Brexit outlook UK general election result Conservative Labour 318 • Markets are concerned that Theresa May may finally resign or be forced by Motion of No Confidence to step down. Monetary policy • Rising political uncertainty from the election may cause negative impact on UK economy in the short term. • However, in our view, this may not cause the BOE to ease monetary policy. The central bank may keep the interest rate unchanged until 2019. Scottish National Party 35 12 24 • As a Conservative leadership contest may be triggered and Brexit plan may be revised, negotiations between the UK and EU may deferred by several months. • With smooth hard Brexit procedures as our base case, we do not rule out probabilities of soft Brexit, no deal reached with the EU and even second Brexit referendum, which may also undermine GBP. 262 Liberal Democrat Other Parties Source: Bloomberg L.P., as of Jun 9, 2017 GBP view • GBP may be restrained in the short term amid rising political risk and Brexit uncertainty. • Technically, GBP/USD dropped below 1.2769-1.2778. The pair may test lower to 1.2615 (Mar top). If the pair further deteriorates, GBP may test lower to 1.2351 (Apr low). 2 GBP/USD GBP/USD may test lower to 1.2615(9.84) Please note and carefully read the Important Disclosure on the last part The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.7972 exchange rate for reference Last Price Last wk High Last wk Low 2nd Support 1st Support 1.2746 (9.94) 1.2978 (10.12) 1.2636 (9.85) 1.2351 (9.63) 1.2615 (9.84) 1st 2nd Resistance Resistance 0-3 month 6-12 month 1.33 (10.37) 1.26 (9.82) Upcoming economic data Jun 15: Retail Sales 1.3048 (10.17) 1.3279 (10.35) Outlook: (-) Rising political risk: Negotiations between the UK and EU may be deferred for several months. GBP may be restrained in the short term amid rising political risk and Brexit uncertainty. 1.2615 (Mar top) (+) Cooling Scottish issue: The SNP, which supports Scottish independence, lost its seats from 54 to 35, reducing the odd of Scottish independence 1.2351 (Apr low) Technical Analysis: GBP/USD dropped below 1.2769-1.2778. The pair may test lower to 1.2615. If the pair further deteriorates, GBP may test lower to 1.2351 (Apr low). Source: Bloomberg L.P., as of Jun 9, 2017 3 Please note and carefully read the Important Disclosure on the last part The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.7972 exchange rate for reference AUD/USD Last Price 0.7527 (5.87) Last wk High Last wk Low 2nd Support 1st Support 1st Resistance 2nd Resistance 0.7566 0.7408 0.7324 0.7373 0.7556 0.7592 (5.90) (5.78) (5.71) (5.75) (5.89) (5.92) 0-3m 6-12m 0.74 (5.77) 0.72 (5.61) AUD may range trade amid possible weak job data Weekly recap: AUD was supported as the RBA kept the interest rate unchanged last week with a neutral policy statement, becoming less dovish. Outlook analysis: In our view, job growth in Mar and Apr is lower than the trend level. Thus, job may reduce 7500 in May while unemployment rate may stay at 5.7%. AUD upside may be limited and AUD/USD may consolidate in the short term. Technical analysis: Since the RSI has reached overbought levels, upside may be limited to 0.7556-0.7592. The pair may range trade between 0.7373-0.7592(5.70-5.87). 0.7556-0.7592 (May, Apr 24 tops) 0.7373 (Jun low) Source: Bloomberg L.P., as of Jun 9, 2017 NZD/USD Last Price 0.7213 (5.62) Last wk High Last wk Low 2nd Support 1st Support 1st Resistance 2nd Resistance 0.7223 0.7114 0.6950 0.7031 0.7244 0.7376 (5.63) (5.55) (5.42) (5.48) (5.65) (5.75) 0-3m 6-12m 0.70 (5.46) 0.68 (5.30) NZD adjustment may present buy-on-dip opportunities amid possible accelerated economic growth Weekly recap: High-yield NZD was supported as market risk cooled down on rising global equity. Outlook analysis: We expect NZ economy may grow 0.8% in Q1 with yearly growth reaching 2.8%. This may show NZ economy to outperform other major countries. Possible NZD adjustment may present buy-on-dip opportunities. Technical analysis: Since the RSI rose to overbought levels, upside may be limited. The pair may range trade between 0.70370.7244(5.41-5.58) in the short term 0.7244(fibo 0.236) 0.7031(fibo 0.618) Source: Bloomberg L.P., as of Jun 9, 2017 4 Please note and carefully read the Important Disclosure on the last part Weekly FX Strategies 1. Bearish – GBP • GBP may be restrained in the short term amid rising political risk and Brexit uncertainty • GBP/USD may test lower to 1.2615 (9.84) 2. Neutral – AUD • Australia may release weak job data next week, which may restrain AUD. • AUD/USD may range trade between 0.7373-0.7592(5.75-5.92) 3. Neutral - NZD • NZD may be restrained as USD may rebound as the FOMC may hike rates this week • NZD/USD may range trade between 0.7031-0.7244 (5.48-5.65) 5 Please note and carefully read the Important Disclosure on the last part Source: Bloomberg L.P., as of Jun 9, 2017 Other FX strategies The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.7972 exchange rate for reference EUR/USD: ECB accommodative policy may restrain EUR USD/CAD: Oil price consolidation may restrain CAD in the short term Last Price Last wk High Last wk Low 2nd Support 1st Support 1st Resist. 2nd Resist. 0-3M 6-12M Last Price Last wk High Last wk Low 2nd Support 1st Support 1st Resist. 2nd Resist. 0-3M 6-12M 1.1195 (8.73) 1.1284 (8.80) 1.1166 (8.71) 1.0979 (8.56) 1.1129 (8.68) 1.1315 (8.82) 1.1428 (8.91) 1.13 (8.81) 1.07 (8.34) 1.347 (5.79) 1.354 (5.76) 1.3423 (5.81) 1.3284 (5.87) 1.3381 (5.83) 1.3599 (5.73) 1.3669 (5.70) 1.35 (5.78) 1.38 (5.65) (-) ECB policy risk: We expect the ECB to extend its policy easing to 2018 or even to expand QE, which may restrain EUR. (-) Medium and long term performance driven by US factor: In the medium and long term, EUR may be driven by when Trump's government implements tax reform and increase fiscal expenditure. If everything is smooth, USD may be underpinned again, which may restrain EUR. (+) Short-term factor: The OPEC reached an agreement to extend production cut deal yesterday. However, oil price plunged on profit taking. Since Canada mainly exports oil products, short-term pressure in oil prices may restrain CAD. (-) Longer term factor: The BOC turned hawkish. We expect the BOC not to hike rates until 1Q18, which may support CAD at lows. 1.1315-1.1428 (fibo 0.236, Feb 2016 top) 1.3599 (fibo 0.764) 1.0979 (fibo 0.50) 1.3284-1.3381(fibo 0.382, fibo 0.50) USD/JPY: Accommodative policy may undermine JPY in the medium term USD/CNH: CNH may remain stabilized Last Price Last wk High Last wk Low 2nd Support 1st Support 1st Resist. 2nd Resist. 0-3M 6-12M 110.32 (70.68) 110.81 (70.37) 109.12 (71.46) 108.13 (72.11) 109.78 (71.03) 114.37 (68.18) 115.51 (67.50) 110 (70.88) 118 (66.08) (-) Falling US treasury yields: US treasury yields fell amid concern that US tax reform may be deferred, which may pressure USD/JPY in the short term. (+) JPY may weaken in the medium and long term: Japan's inflation may not be able to reach the BOJ's target of 2% in the foreseeable future. The BOJ may need to expand its balance sheet in the coming years, which may undermine JPY. 114.37 (May top) Last Price Last wk High Last wk Low 2nd Support 1st Support 1st Resist. 2nd Resist. 6.7869 (1.1489) 6.7945 (1.1476) 6.7527 (1.1547) 6.7028 (1.1633) 6.7169 (1.1608) 6.8374 (1.1404) 6.8608 (1.1365) (-/+) CNH may stabilize gradually: Over the last few months, the Chinese government tightens its supervision on financial industry for deleveraging, tightening financial conditions. As rising interest rate may affect corporation investment decisions and economic growth may be dragged in Q2. Thus, we expect USD/CNY may rebound to 6.88 gradually for the coming 0-3 months. 6.8374 (May 31 top) 6.7169 (fibo 0.50) 108.13 (Apr low) 6 Please note and carefully read the Important Disclosure on the last part Upcoming Economic Figures and Events FOMC policy decision may become market focus US FOMC Policy Decision We expect a hawkish policy statement. For example, it may not mention recent weak inflation and cut the unemployment rate forecast further or even release details of balance sheet reduction. We keep our expectation that the Fed may hike rates in Jun and Sep and announce balance sheet reduction in Dec. May Job Data Australia We expect job growth in Mar and Apr is lower than the trend level. Thus, job may reduce 7500 in May while unemployment rate may stay at 5.7%. Q1 GDP New Zealand We expect NZ economy may grow 0.8% in Q1 with yearly growth reaching 2.8%. This may show NZ economy to outperform other major countries. BOJ Policy Decision Japan We expect the BOJ to keep the interest rate and QE unchanged with a similar policy statement. June 15 (Thursday): FOMC Policy Decision Jun 15 (Thursday): Employment Change Citi Forecast Previous -7500 37000 Jun 15 (Thursday): GDP Citi Forecast Previous 0.8% 0.4% June 16 (Friday): BOJ Policy Decision 7 Please note and carefully read the Important Disclosure on the last part Appendix 1: Citi interest rate and FX Forecast for 2017 Citi FX Outlook Forecast Dollar Index EUR/USD GBP/USD USD/JPY USD/CHF AUD/USD NZD/USD USD/CAD USD/CNY 0-3 month 96.25 1.13 1.33 110 0.97 0.74 0.70 1.35 6.88 Source: Citi, forecast as of May 19, 2017 6-12 month 101.28 1.07 1.26 118 1.00 0.72 0.68 1.38 7.03 Citi FX interest rate Forecast 6/9/17 1.00 0.00 0.25 -0.10 -0.75 1.50 1.75 0.50 3.50 2Q ’17 1.25 0.00 0.25 -0.10 -0.75 1.50 1.75 0.50 3.50.50 Rate cut expectations 3Q ’17 1.50 0.00 0.25 -0.10 -0.75 1.50 1.75 0.50 3.70 4Q ’17 1.50 0.00 0.25 -0.10 -0.75 1.50 1.75 0.50 3.70 Rate hike expectations AUD AUD may be driven by iron ore price and overall performance of Asia currencies. The currency looks close to fair value. For the coming 0-3 months, AUD may hover around 0.74. EUR With improved Euro Area's data and rising US political risk, EUR may gain in the short term. For the coming 0-3 months, EUR may rise to 1.13. GBP The Conservative Party may win in the general election, which may smooth Brexit process and underpin GBP. For the coming 0-3 months, GBP may rise to 1.33. JPY US treasury yields fell amid concern that US tax reform may be deferred, which may pressure USD/JPY in the short term. For the coming 0-3 months, USD/JPY may drop to 110. 8 Please note and carefully read the Important Disclosure on the last part Appendix 2: Last week’s Economic Figures Time Importance 06/05/17 16:30 06/05/17 22:00 06/05/17 22:00 06/05/17 22:00 UK US US US ! !! !! !! 06/06/17 22:00 CA ! 06/07/17 09:30 AU !! 06/08/17 07:01 06/08/17 07:50 06/08/17 09:30 06/08/17 19:45 06/08/17 20:15 06/08/17 20:30 06/08/17 06/08/17 06/08/17 UK JN AU EC CA US CH CH CH !! !! !! !!! ! !! !! !! !! 06/09/17 09:30 06/09/17 16:30 06/09/17 16:30 06/09/17 16:30 06/09/17 20:30 06/09/17 20:30 CH UK UK UK CA CA !! !! !! !! !! !! Source: Bloomberg L.P. Event Tuesday Markit/CIPS UK Services PMI ISM Non-Manf. Composite Durable Goods Orders Durables Ex Transportation Tuesday Ivey Purchasing Managers Index SA Wednesday GDP YoY Thursday Period Actual Survey Prior May May Apr Apr 53.8 56.9 -0.80% -0.50% 55 57.1 -0.60% -0.20% 55.8 57.5 -0.70% -0.40% May 53.8 -- 62.4 1Q 1.70% 1.80% 2.40% RICS House Price Balance May 1Q Apr Jun May Jun May May May 17% 1.00% A$555m 0.00% 194.7k 245k 14.80% 8.70% $40.81b 20% 2.40% A$2000m 0.00% 202.0k 240k 8.30% 7.20% $47.80b 22% 2.20% A$3169m 0.00% 213.5k 255k 11.90% 8.00% $38.05b May Apr Apr Apr May May 1.50% -0.80% 0.00% -£10383 54.5k 6.60% 1.50% -0.3% 0.70% -£12000 15.0k 6.60% 1.20% 1.40% 2.20% -£12048 3.2k 6.50% GDP Annualized SA QoQ Trade Balance ECB Main Refinancing Rate Housing Starts Initial Jobless Claims Imports YoY Exports YoY Trade Balance Friday CPI YoY Industrial Production YoY Manufacturing Production YoY Visible Trade Balance GBP/Mn Net Change in Employment Unemployment Rate 9 Please note and carefully read the Important Disclosure on the last part Appendix 3: Upcoming Economic Figures (Jun 12, 2017 – Jun 16, 2017) Time Importance 6/13/2017 16:30 UK !! 6/14/2017 8:30 6/14/2017 10:00 6/14/2017 10:00 6/14/2017 16:30 6/14/2017 16:30 6/14/2017 20:30 6/14/2017 20:30 6/14/2017 20:30 6/14/2017 20:30 AU CH CH UK UK US US US US ! !! !! !! !! !! !! !! !! 6/15/2017 2:00 6/15/2017 6:45 6/15/2017 9:30 6/15/2017 9:30 6/15/2017 16:30 6/15/2017 16:30 6/15/2017 19:00 6/15/2017 20:30 US NZ AU AU UK UK UK US !!! !! !! !! !! !! !!! !! 6/16/2017 17:00 6/16/2017 20:30 6/16/2017 20:30 6/16/2017 22:00 6/16/2017 EC US US US JN !! ! ! !! !! Source: Bloomberg L.P. Event Tuesday CPI YoY Wednesday Westpac Consumer Conf SA MoM Retail Sales YoY Industrial Production YoY Average Weekly Earnings 3M/YoY ILO Unemployment Rate 3Mths CPI YoY CPI Ex Food and Energy YoY Retail Sales Advance MoM Retail Sales Ex Auto MoM Thursday Period Actual Survey Prior May -- 2.70% 2.70% Jun May May Apr Apr May May May May ---------- -10.70% -1.10% 10.70% 6.50% 2.40% 4.60% 2.20% 1.90% 0.40% 0.30% FOMC Rate Decision (Upper Bound) Jun 1Q May May May May Jun Jun --------- 1.25% -- 1.00% 2.70% 37.4k 5.70% 4.50% 4.00% 0.25% 245k May May May Jun Jun ------ 1.40% 4.30% 1.80% 97.1 -0.10% 1.90% -2.60% -2.50% 97.1 -0.10% GDP YoY Employment Change Unemployment Rate Retail Sales Ex Auto Fuel YoY Retail Sales Inc Auto Fuel YoY Bank of England Bank Rate Initial Jobless Claims Friday CPI YoY Housing Starts MoM Building Permits MoM U. of Mich. Sentiment BOJ Policy Balance Rate 6.40% 2.40% 4.60% 2.00% 1.90% 0.10% 0.20% 2.70% 10.0k 5.70% 1.90% 1.70% 0.25% 10 Important Disclosure “Citi analysts” refers to investment professionals within Citi Research (CR) and Citi Global Markets (CGM) and voting members of the Global Investment Committee of Global Wealth Management. Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document. Investment products are not available to US persons and not all products and services are provided by all affiliates or are available at all locations. This document is for general informational purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security, currency, investment, service or to attract any funds or deposits. 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As a result of being classified as non investment grade Debt Securities, these Debt Securities present a greater degree of credit risk relative to many other fixed income Debt Securities. Higher Credit Risk – Unrated or non investment grade Debt Securities generally have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. There is greater risk of non-payment of interest and loss of principal. Many issuers of these Debt Securities have experienced substantial difficulties in servicing their debt obligations, which has led to default and restructurings. The issuers of these Debt Securities generally have to pay a higher rate of interest than investment grade Debt Securities. Higher Liquidity and Secondary Market Risk – The markets in which unrated or non investment grade Debt Securities are traded are generally more limited than those in which investment grade Debt Securities are traded. This lack of liquidity may make it more difficult to resell these Debt Securities and obtain market quotations. Downgrade Risk – Downgrades in the credit rating of unrated or non investment grade Debt Securities by rating agencies are generally accompanied by declines in the market value of these Debt Securities. In some circumstances, investors in the unrated or non investment grade Debt Securities market may anticipate such downgrades as a result of these credits being placed on “credit watch” by rating agencies, causing volatility and speculation of further credit deterioration. Higher Vulnerability to economic cycles - During economic downturns, unrated or non investment grade Debt Securities are typically more susceptible to price volatility and fall more in value than investment grade Debt Securities as i) investors may reevaluate holdings in lower-quality bonds in favor of investment-grade corporate Debt Securities; ii) investors become more risk averse; and iii) default risk rises. This is often referred to a “flight to quality”. Event Risk – This includes any of a variety of events that can adversely affect the issuer of unrated or non investment grade Debt Securities, and therefore the issuer’s ability to meet debt service obligations to repay principal and interest to Debt Securities holders. Event risk may pertain to the issuer specifically, the industry or business sector of the issuer, or generally upon the overall economy. It could have a direct or indirect impact on the issuer and their outstanding debts. 13 Important Disclosure Risk relating to RMB – If you choose RMB as the base currency or the alternate currency, you should also note the following: RMB is currently not freely convertible through banks in Hong Kong. Due to exchange controls and/or restrictions imposed on the convertibility, utilisation or transferability of RMB (if any) which in turn is affected by, amongst other things, the PRC government's control, there is no guarantee that disruption in the transferability, convertibility or liquidity of RMB will not occur. There is thus a likelihood that you may not be able to convert RMB received into other freely convertible currencies. CNH exchange rates and CNY exchange rates are currently quoted in different markets with different exchange rates, whereby their exchange rate movements may not be in the same direction or magnitude. Therefore, the CNH exchange rate may be different from the CNY exchange rate. 14