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Currencies

January 9

, 2009

Damien Cleusix

Clue6 First Quarter 2010

am en c ue .com

Executive Summary

Currencies

We like the USD here

. It is undervalued and the econom is much more d namic and has started to rebalance earlier thanelsewhere. The Fed is now much more pro-active as is the Treasury (not to say that we think they do everything right…) thanauthorities elsewhere. We do not fear a "foreigner exit" of the US and would rather contemplate some capital repatriationsometimes this year combined with some US loans contracted by foreigners (from foreign financial US commercial paperborrowing to local US borrowing in emerging markets, as you know the Bucks can only go down and you can borrow at cheaperyields than in the local currency…) having to be repaid quicker than planned…The trend is making an attempt to turn up and the sentiment dynamic is supportive for the Greenback

.Yen KAN be talked down…

. We thus have a 85 floor… The trend has turned down for the Yen but we would ideally like to seea higher lows…

The Euro remains our "worst G7 currenc " to hold on a valuation and macro risk basis

. Euro ean banks have et to writedown a big chunk of their "toxic assets", it is very exposed to emerging market loans, the ECB is playing the ostrich game, theeconomy is less diversified and dynamic than the US, it is much more trade-dependent than what observers think, their are bigdisequilibria " intra-Euro" with depression like conditions in Spain and Ireland,... All of this is not discounted and remember thatfor every 10% increase in the Euro trade weighted index, you have to take off 0.8% from GDP and the Euro is now almost 25%overvalued... Add that some European countries have suddenly decided, after a 20% appreciation of the EUR/USD since Marchand almost 75% appreciation since 2001 that they should borrow in USD…The Euro trend has probably turned down which is even more significant given the level of overvaluation it had reached in

Clue6 First Quarter 2010

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Executive Summary

The CHF is likely to stay, at best, anchored to the Euro now that the SNB has been vocal in its desire to see the CHF decline…

The Br t sh Pound s a rly valued but does not deserve to trade at a r value

… Commercial real estate correction might benearing an end with attractive yields starting to reappear but the residential market has a long, long way to go. One has to alsohad that M. King and the Exchequer have been actively talking down the currency…

Commodities currencies are now very overvalued

… They profited from the "Chinese inventory build-up" related commodityrally but enough is enough and that is what the Royal Bank ofAustralia and its New-Zealand counterpart seems to be thinking…They are at a critical juncture and we would short them with a stop just above the end of last year highs… Preferably usingoptions…

On emerging currencies, we prefer to stay on the sidelines for now

. If we had to we would maintain a long position on theTaiwan Dollar, the Korean Won and the Singapore Dollar. The more then Yen decline the less attractive the Won proposition willbecome…We would not short, however, as the carry is too high for most of them.The trend is still up though…

Clue6 First Quarter 2010