Foreign Exchange

London 08:00

FX Daily Strategist: Europe

USD liquidity fears abate and USDSEK plunges in tow

Bernanke, Moody's batter USD; but debt negotiations may provide some hope Italian debt auctions, will-they-or-won't-they emergency summit are the focus for Europe US, EU woes to further encourage safe-haven flows into CHF, JPY, Gold

Bernanke and Moody's shared the credits for a turnaround in markets overnight as the USD gave up a chunk of its recent gains. Markets latched on to Bernanke's admission that policymakers could well provide further stimulus should recent economic weakness prove more persistent. But we stress that Bernanke only reiterated what the FOMC minutes said yesterday i.e. the option of further easing remains on the table should things get worse; equally he has held out the possibility that earlier removal of liquidity is possible if inflation does not ease as expected. Our economists retain the view that while QE3 is possible, the probability is considerably less than 50%. The core of the FOMC remains in wait-and-see mode, dependent upon incoming data over the next couple of months to confirm or refute their Source: Bloomberg, BNPP. Chart 1 compares projections for an end to the soft patch - and thus an early the EUR 1Y basis swap with USDSEK cross. resolution to the issue of QE3 is unlikely. Inflation data Throughout the European session yesterday, the tomorrow though will be the first important piece of this puzzle. sharp SEK rebound coincided with an easing in Moody's have followed through on their threat to place the US' USD liquidity tensions. This explains why less AAA rating on review if progress had not been made by mid-July. liquid currencies like the SEK and NZD gained While the initial reaction was certainly negative, much of the the most. However, the all clear on whether the immediate gains in have been erased - as should be the case sovereign crisis morphs into a liquidity crisis is given that this should not have been a surprise. On the debt not put to rest suggesting less liquid currenciesceiling negotiations, the headlines out of yesterday's meetings especially those close to Europe like SEK and were not on the surface encouraging, with Obama said to have NOK can continue to remain vulnerable. walked out in irritation at repeated interruptions from House GMT Country Release Mkt Last Majority Leader Cantor. But this may also signal that the sides Retail Sales % 07:30 NL (May) 0.1 3.4 are now down to the most contentious issues and that (y/y) agreement may not be too far off. Meetings are to continue today CPI (Final) % 08:00 IT (Jun) 0.1 0.2 and tomorrow, hardly suggesting a more significant deterioration in (m/m) the talks. We continue to focus on the chances of a second 08:00 EU ECB Monthly Bulletin CPI (Final) % HIA as part of any eventual agreement. 08:00 IT (Jun) 3.0 3.0 (y/y) We continue to view the EURUSD rebound with some caution, 09:00 IT Italy to sell bonds and expect the EUR to remain under pressure. While EUR HICP (Final) % gained against the broadly weaker USD, continued slippage in 09:00 EU (Jun) 0.0 (m/m) EURCHF is testament to the lack of confidence in the single HICP (Final) % 09:00 EU (Jun) 2.7 2.7 currency and in its politicians' weak response to recent stresses. (y/y) The market will continue to look for signs of the EU 'emergency HICP Core % 09:00 EU (Jun) 1.5 1.5 summit' - but this now looks unlikely to be held tomorrow, (y/y) Retail Sales % suggesting little progress in resolving the discord surrounding 12:30 US (Jun) 0.0 -0.2 (m/m) the issues of a debt buy back. The focus today will be on Italian 12:30 US Initial Claims K 413 418 bond auctions. The longer tenors running from 5Y to 13Y will PPI Core % (sa provide a more strenuous test of market confidence in the 12:30 US (Jun) 2.1 2.1 y/y) outlook for Italy. PPI Core % (sa 12:30 US (Jun) 0.2 0.2 Against the backdrop of joint EU and US woes, the recent m/m) outperformance of CHF, JPY and Gold is understandable and 12:30 US (Jun) PPI % (sa y/y) 7.4 7.3 likely to persist. USDCHF fell below the 0.8250-0.8550 range 12:30 US (Jun) PPI % (sa m/m) -0.2 0.2 Retail Sales x- % that had held for the past six weeks; technicians would argue that 12:30 US (Jun) 0.1 0.3 (m/m) the downtrend has resumed. Similarly, there appears little to stall Business Invent the USDJPY break below 79.00 given differing monetary policy 14:00 US (May) 0.6 0.9 % attitudes - although fears of intervention are growing as evidenced Treasury Auctions 30-Year Bonds 17:00 US by the spike higher. There is little to suggest that the authorities Reopen (estimated date) were responsible, and although they are clearly unhappy with the Treasury Auctions 30-Year Bonds 17:00 US direction, we see little chance of intervention while USDJPY Reopen remains above 78 and while the move is part of a broad USD slide. This is not classified as objective research. Please refer to important information at the end of the report.
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MARKET: USD weaker against all G10 FX except for JPY, CAD, AUD which lose out up to 0.20%. Gains led by NZD (0.80%) following much stronger NZ GDP print, all others far behind at 0.30% gains and below. In Asia, EURUSD opened at $1.4168 in Asia and spiked through stops $1.4225 to $1.4243 as Moody's announced that US debt was being put on review for a possible downgrade if the debt ceiling was not raised. Further stops were then triggered through 1.4250/60 following strong Kiwi GDP data to a high of $1.4282. USDJPY opened at Y78.98 edging up to Y79.10 before getting slammed by the Moody announcement to Y78.45, later meeting importer and investor bids which turned the pair back to Y78.75. Bids are now scattered down to a barrier at Y78.00. EURJPY jumped initially to Y112.61 from Y111.68 before turning down with the dollar-yen and euro to Y111.64. AUDUSD opened at $1.0755 but fell with EURUSD to $1.0744. Strong Kiwi GDP then led another rally to $1.0787, before drifting lower later to $1.0726. AUDNZD tanked on the strong GDP as kiwi rallied 150 pips to $0.8506, with the cross hitting lows of Z$1.2678 from NZ$1.2874, before later recovering to NZ$1.2767. APAC equities mixed at best from -0.60% to +0.50%. In the US, equities did rally sharply following Bernanke comments (SPX up from 1315 to 1325 in an hour) but thereafter fell back to 1318 following revelations regarding the US debt ceiling talks. Events in the day ahead (MNI) At 0800GMT, the ECB publishes the Monthly Bulletin for July, although this usually adds little to the recent postmeeting press conference & statement, while final HICP data for EMU at 0900GMT is expected to confirm the preliminary estimate. No significant UK data due. But we have a busy US data calendar. WE have jobless claims, retail sales and PPI due today all at 1230GMT. At 1400GMT, Federal Reserve Chairman Ben Bernanke delivers the semi-annual monetary policy report to the Senate Banking Committee. The weekly EIA Natural Gas Stocks data follows at 1430GMT, while late data sees the 2030GMT release of M2 money supply data. NEWS US Moody's placed the United States on review for possible downgrade, which could strip its prized Aaa rating. (Reuters) Obama walked out after Cantor interrupted him during his concluding remarks, reached his limit, may bring my presidency down but I will not yield on this, if country defaults will be a tax increase on every American. Cantor proposed short-term limit because Foreign Exchange Strategy Thursday, 14 July 2011 http://www.GlobalMarkets.bnpparibas.com

White House keeps changing its goalposts, according to Republican aide. (Reuters) Bernanke sees new action possible if recovery falters, less confident in forecast that economy will soon recover, in speech to House of Representatives. (Reuters) Federal regulators will not complete guidance detailing how the U.S. will determine which large firms could pose a risk to the financial system in time for a Monday meeting, according to people familiar with the matter. Likely be several weeks before it is complete. (Reuters) Feds Fisher: Reiterates too-big-to-fail banks should be broken up, expects US leaders to reach deficit accord, Fed exit timing depends on economy, slight tail risk Congress does not reach budget deal but US will still pay interest on debts, economic growth will only pick up if fiscal authorities act, everything rests on their shoulders, does not believe US needs more liquidity as theres liquidity sitting on the sidelines now, will not support further monetary accommodation even if economy weakens. (Reuters) Japan Wires reporting comments from finmin Noda: - Will keep watching FX markets closely - Problematic to have such currency movements continue - FX moves don't reflect econ fundamentals Record Japanese Bets Against the Yen in hopes of profiting from a future decline in the countrys currency. Japans army of small investors trading currencies on margin, a popular form of leveraged trade, held a net Y10,700bn($134.7bn)-worth of short positions against the yen, according to JPMorgan estimates as of Tuesday. The figures are based on data from the Tokyo Financial Exchange, which the investment bank estimates has a 7-8 per cent share of the margin trading market. (FT) Japan corp mood turns positive after quake Confidence at Japanese companies turned positive in July for the first time since the March 11 earthquake devastated the country's northeast coast, a Reuters poll showed, pointing to a return to moderate economic growth later in the year. (Reuters) Japan escalates warning as yen continues to rise Japanese Finance Minister Yoshihiko Noda warned on Thursday that recent yen strength does not reflect economic fundamentals, escalating a verbal campaign to cool the rising yen although traders saw little immediate chance that authorities would intervene directly in the market. (Reuters)

The number of new condominiums supplied in Tokyo and surrounding cities stood at 3,441 units, down 32.9% from a year earlier in June, posting the first fall in two months, the Real Estate Economic Institute said. The figure was lower than 5,500 units projected by the institute last month. Europe: Greece PM says 2nd bailout needed urgently, calls for quick action on Greece, wants to hire private tax collectors. (Reuters) Fitch slashes Greece ratings 4 notches on absence of new, fully funded and credible European Union/International Monetary aid program, heightened uncertainty surrounding the role of private creditors in any future funding, new money is required to address Greece's fiscal funding shortfall that would otherwise emerge in 2012. (Reuters) Greek FinMin: Fitch downgrade surprising but does not affect Greek banking system. (Reuters) Italy expected to pass crucial bond auction test, Treasury lobbied banks to gauge demand, Discounts for primary dealers may also ensure success, Bid-to-cover of at least 1.3 might relieve markets, ECB unlikely to buy in secondary market to aid sale, successful sale would not remove longer-term worries. (Reuters) China Chinese inflation is likely to rise further in the coming months, but policy-makers should wait to gauge the impact of control measures taken so far rather than respond immediately, a government economist said in comments published today. "We can't say that inflation in June has peaked," said Fan Jianping, chief economist with the State Information Center, in an interview with 21st Century Business Herald. China should not loosen monetary policy during its current efforts to fight inflation, the official China Securities Journal said in a front-page editorial. "The risks of an economic slowdown, or even a "hard landing," have been removed, and there is no need to worry too much about the risks of over tightening. However, economic controls are facing a dilemma and it's too early to "sit back and relax," the newspaper said. PBOC drained liquidity from the inter bank market via open market operations this week for the first time in nine weeks as appetite for central bank sterilization paper improved with liquidity conditions. The central bank removed CNY86 billion in liquidity from the market this week after injecting a net CNY18 billion last week. China struggles to tally all lending- initial estimate of China's total national financing in the first half of 2011 is 7.7 trillion yuan (about $1.1 trillion), a senior official at the People's Bank of China said Wednesday, but Fitch Ratings said the measure fails to capture trillions of yuan Foreign Exchange Strategy Thursday, 14 July 2011 http://www.GlobalMarkets.bnpparibas.com

worth of credit. Total national financing is a new measure designed by the central bank to better gauge the total supply of credit in the economy beyond the traditional measure of new yuan loans. Mr. Sheng said the official number will be released within two days. He didn't provide data for the second quarter. (WSJ) Beijings Grade A Office Vacancy Falls to 20-year Low in the second quarter as local and multinational companies leased multiple floors of buildings to expand, Jones Lang LaSalle Inc. said. (Bloomberg) Other Asia: S.Korea c.bank says sees inflation staying high due to cost factors led by agricultural and livestock prices, demand-side pressures and inflation expectations. (Reuters) Indonesia aims to raise 7 trln rph in July 19 debt auction Indonesia's finance ministry aims to raise 7 trillion rupiah ($819 million) from a debt auction on July 19, its debt office said in a statement on Thursday. ($1 = 8,547.5 rupiah) (Reuters) UK Britain's banks have lined up to oppose reforms proposed by the Government's Independent Commission on Banking (ICB), the Independent says. The key bone of contention is the ICB's call for ringfencing of retail and investment banking to protect economically vital functions from trading and other volatile activities, the paper adds. Confidence among advertisers has fallen close to levels last plumbed during the recession, according to the latest IPA/BDO Bellwether survey, the FT reports. Switzerland SNB VP Jordan said policy makers are concerned about recent developments and are monitoring the exchange rate. The big problem is if Italy gets into a real crisis, then it could quickly spread to other countries, Jordan said at an event in Zurich today. Its clear that wed be affected as well even with Swiss banks having a relatively small exposure to euro-region periphery states. Others IEA believes its still too early to decide on another oil release and will assess the market next week, David Fyfe, head of the agencys oil industry and markets division, said. The agency is likely to make a decision on potential action on about July 23, a month after it announced a 60-million barrel. release of emergency stockpiles, he said today on a conference call with journalists.

Opposing USDJPY

QE

mindsets

to

weigh

on

The BoJ continues to dismiss the option of QE while the Fed keeps its options open. Combined with Japanese hedging behaviour USDJPY downside looms. A coordinated G3 policy response remains unlikely as the JPY in real terms is far from extreme levels. Japan may have to tolerate further USDJPY declines. At the outset raising inflation expectations seem to be desirable outcomes for both the BoJ and the Fed. Japan continues to remain plagued by deflation, while the US has managed to reverse its core-disinflationary trend. However, policy makers attitudes towards solving their respective problems differs immensely. Even with Japan facing an immense downward economic shock on account of the earthquake/tsunami in March, Bank of Japan Governor Shirakawa continues to oppose QE. He claims that quantitative easing cannot tackle the associated supply shock. Shirakawa on Tuesday reiterated to a parliamentary committee that the central bank should not monetise debt - or print money to finance fiscal spending. It seems clear that Shirakawa believes Japans prior experiment with QE failed to produce a sustainable positive effect on the economy although the weaker JPY may have been beneficial. Still, as USDJPY breaks below 79 Shirakawa argues that, while a stronger JPY may hurt in the short run, it actually helps the economy in the longer run. In the US, this weeks FOMC minutes and Chairman Bernankes report to Congress have been interpreted by market participants as more dovish than previous rhetoric. Markets are reassessing the view that the bar to QE3 has been set extremely high. While our economists continue to see prospects for QE3 as significantly less than 50%, even the Feds indication that it remains a potential policy option stands at odds with the Bank of Japan. We believe that this divergence of attitude towards QE will exert further downward pressure on USDJPY especially by influencing the hedging behaviour of Japanese investors. Chart 1 compares interest rate futures (6 quarters ahead 3 month Eurodollar contracts) set against the JPY NEER (Nominal Effective Exchange Rate) index. The chart suggests that as the Fed finished lowering interest rates towards the zero bound and moved to QE at the end of 2008, the JPY has been influenced by US interest rate expectations some 2 years out. As interest rate expectations move further into the future, Japanese investors can continue to cheaply hedge USD investments (selling USDJPY forward). This action likely will prevent independent JPY weakness such as was seen prior ro 2008. Chart 2 demonstrates that much of this USDJPY decline is attributable to independent USD weakness. Even as USDJPY breaks below 80, the JPY remains well below recent highs in real trade weighted terms. The difference being the appreciation of neighbouring Asian currencies that have become more significant to Japan in trade weighted terms. Asian FX weightings in the JPY REER have risen 10 percentage points since 2000. Foreign Exchange Strategy Thursday, 14 July 2011 http://www.GlobalMarkets.bnpparibas.com

Chart 1: JPY NEER and long dated US money market futures rally in tandem
99.5 99 98.5 98 97.5 97 96.5 96 95.5 Oct- Apr- Sep- Feb- Jul- Jan- Jun- Nov- May- Oct07 08 08 09 09 10 10 10 11 11

US 6 Qtr Ahead rate future 6 qtr ahead rallies...

120 115 110 105 100 95

as does JPY NEER

90 85 80

Source: Bloomberg, BNPP.

Chart 2: USDJPY plunges to new record lows even as JPY REER is still weak
170 160 150 140 130 120 110 100 90 80 135 155 115 55

JPY BoJ REER Still very weak (RHS Inverse Scale).

75 95

as USDJPY plunges to new depths

175

70 Aug-90 Dec-93 Apr-97 Aug-00 Dec-03 Apr-07 Aug-10

Source: Bloomberg, BNPP.

Assuming Asian currencies continue to appreciate as we anticipate, Japan may be insulated from the full effects of a lower USDJPY. What can Japanese authorities do about it? Japans hands seem tied. With the Japanese finance minister accepting the BoJ view that debt monetization by the central bank (ie JPY-weakening QE) should not be allowed, FX intervention remains the clear policy alternative. However, unlitateral intervention tends not be successful unlike coordinated attempts such as this March. However, with the US maintaining the policy option of QE3 and Europe suffering from debt market woes, coordinated intervention does not seem to be a likely option. Further USDJPY downside seems highly likely.

Daily Currency Summary

G3
We continue to view the EURUSD rebound with some caution, and expect the EUR to remain under pressure. While EUR gained against the broadly weaker USD, continued slippage in EURCHF is testament to the lack of confidence in the single currency and in its politicians' weak response to recent stresses. The market will continue to look for signs of the EU 'emergency summit' - but this now looks unlikely to be held tomorrow, suggesting little progress in resolving the discord surrounding the issues of a debt buy back. The focus today will be on Italian bond auctions. The longer tenors, running from 5Y to 13Y, will provide a more strenuous test of market confidence in the outlook for Italy. With Bernankes testimony yesterday re-igniting talk of QE3, there appears little to stall the USDJPY break below 79.00 given differing monetary policy attitudes. However, fears of intervention are growing as evidenced by the spike higher this morning. There is little to suggest that the authorities were responsible, and although they are clearly unhappy with the direction, we see little chance of intervention while USDJPY remains above 78 and while the move is part of a broader USD slide. While USDJPY has plunged lower and EURUSD having rallied on broad USD weakness yesterday, understandably EURJPY has flat lined around the 111.70 level. However, given our respectively outlooks on EUR and JPY, the bias remains for a move lower. The inability to schedule an emergency summit suggests little progress has been made; in the meantime Italian bond auctions will provde a sterner test of market confidence. In contrast, AUDJPY and NZDJPY look much more solid: the woes in Europe and the US stand in contrast to the much rosier situation in Asia.

EURUSD

USDJPY

JPY Crosses

EUR Bloc
Locally labour market data were on balance softer with June jobless claims gaining more than expected 24.5K (15K tipped) with upward revisions to May (22.5K up from 19.6 pre-revision). Claimant count at 4.7% as expected but May was revised worse to 4.7% (vs. 4.7% pre-revision). Sterling can more safely be played on the short side against JPY and CHF given things still very tentative on all things EUR with EURGBP remaining captive in a 0.8760-0.8860 range still. Following Bernanke comments, the decline in USDCHF was indeed eye popping. The pair declined below the 0.8250-0.8550 range that had held for the past six weeks. Just as practitioners are advocating buying gold as the ultimate "store of value", on the same logic one can argue for continued downside in USDCHF. In fact with the pair having held below 0.8500 (down channel resistance drawn from Feb), technicians would argue that the downtrend has resumed. The tone on the Scandies improved sharply yesterday in the aftermath of the FOMC minutes, and amid signs of progress internally on Italian politics. The easing of liquidity stresses (seen in EUR basis swaps) is similar to what was seen in the last week of June just ahead of the Greek vote. Hence, we could see a big come back in both the SEK and NOK in the days ahead; however, further turbulence in Europe can just as quickly turn this around. SEK which had been the biggest G10 loser over the past week (down over 3.20%) against the USD explaining why it was one of the best performers in G10 yesterday. However, we are unsure how long this may continue given uncertainty in Europe ahead of a potential EU emergency summit and prefer to remain long NOKSEK.

EURGBP

EURCHF

EURNOK

EURSEK

USD Bloc
USDCAD eased 60 pips down to 0.9580 following Bernankes dovish testimony. Crucial range support is seen around the 0.9560 region and a break here along with stronger energy prices will ensure further USDCAD downside. AUDUSD has found support as strong Chinese data dispel fears of a hard landing. Markets continue to price in a rate cut over the remainder of the year, despite little to argue for this; with the key inflation data still two weeks away risk appetite is likely to remain the key driver. A dovish Bernanke provides further support and a break of 1.0800 on the topside will promote further gains. Q1 GDP early this morning came in much stronger, suggesting a more rapid recovery from the first earthquake; house price data was also encouraging This raises expectations that the second earthquake might also have a more limited impact than previously thought; markets have revised up pricing of RNBZ hikes by December by 5bp.

USDCAD AUDUSD

NZDUSD

Foreign Exchange Strategy Thursday, 14 July 2011 http://www.GlobalMarkets.bnpparibas.com

FX Forecasts*
USD Bloc EUR/USD USD/JPY USD/CHF GBP/USD USD/CAD AUD/USD NZD/USD USD/SEK USD/NOK EUR Bloc EUR/JPY EUR/GBP EUR/CHF EUR/SEK EUR/NOK EUR/DKK Central Europe USD/PLN EUR/CZK EUR/HUF USD/ZAR USD/TRY EUR/RON USD/RUB EUR/PLN USD/UAH EUR/RSD Asia Bloc USD/SGD USD/MYR USD/IDR USD/THB USD/PHP USD/HKD USD/RMB USD/TWD USD/KRW USD/INR USD/VND LATAM Bloc USD/ARS USD/BRL USD/CLP USD/MXN USD/COP USD/VEF USD/PEN Others USD Index *End Quarter Q3 '11 1.50 78 0.83 1.65 0.98 1.09 0.82 5.93 4.98 Q3 '11 117 0.91 1.25 8.90 7.47 7.46 Q3 '11 2.60 24.3 275 6.80 1.52 4.20 27.51 3.90 7.8 100 Q3 '11 1.22 2.95 8500 29.80 42.50 7.80 6.40 28.00 1060 45.50 20500 Q3 '11 4.18 1.58 450 11.40 1730 4.29 2.70 Q3 '11 72.30 Q4 '11 1.55 83 0.83 1.68 0.93 1.13 0.84 5.48 4.77 Q4 '11 129 0.92 1.28 8.50 7.40 7.46 Q4 '11 2.48 24.5 275 6.60 1.50 4.15 27.25 3.85 7.8 100 Q4 '11 1.21 2.90 8400 29.50 42.00 7.80 6.31 27.50 1050 45.00 20000 Q4 '11 4.25 1.55 435 11.10 1690 4.29 2.65 Q4 '11 70.76 Q1 '12 1.45 85 0.90 1.59 0.95 1.07 0.81 5.93 5.07 Q1 '12 123 0.91 1.30 8.60 7.35 7.46 Q1 '12 2.69 24.1 269 6.55 1.56 4.20 27.86 3.90 7.5 98 Q1 '12 1.21 2.87 8300 29.30 41.50 7.80 6.25 27.00 1040 44.50 20000 Q1 '12 4.34 1.53 425 11.00 1690 4.29 2.63 Q1 '12 74.87 Q2 '12 1.40 90 0.93 1.56 0.97 1.04 0.80 6.21 5.26 Q2 '12 126 0.90 1.30 8.70 7.37 7.46 Q2 '12 2.75 23.9 265 6.60 1.59 4.25 27.97 3.85 7.5 97 Q2 '12 1.20 2.85 8200 29.00 41.00 7.80 6.21 26.70 1030 44.00 20000 Q2 '12 4.43 1.55 430 10.90 1700 4.29 2.63 Q2 '12 77.62 Q3 '12 1.35 95 1.00 1.53 1.01 0.99 0.76 6.67 5.56 Q3 '12 128 0.88 1.35 9.00 7.50 7.46 Q3 '12 2.81 23.8 265 6.50 1.63 4.15 28.08 3.80 7.5 96 Q3 '12 1.19 2.83 8100 28.70 40.50 7.80 6.17 26.50 1020 43.50 20000 Q3 '12 4.51 1.56 435 11.00 1710 4.29 2.64 Q3 '12 80.72 Q4 '12 1.35 95 1.00 1.53 1.01 0.99 0.76 6.67 5.56 Q4 '12 128 0.88 1.35 9.00 7.50 7.46 Q4 '12 2.78 23.5 260 6.50 1.65 4.10 27.65 3.75 7.5 95 Q4 '12 1.18 2.80 8000 28.50 40.00 7.80 6.13 26.00 1010 43.00 20000 Q4 '12 4.60 1.58 440 11.10 1720 4.29 2.66 Q4 '12 80.72 Q1 '13 1.30 95 1.04 1.53 1.04 0.96 0.74 6.92 5.77 Q1 '13 124 0.85 1.35 9.00 7.50 7.46 Q1 '13 2.85 23.7 260 7.20 1.65 4.20 28.19 3.70 7.5 93 Q1 '13 1.17 2.77 7900 28.30 39.50 7.80 6.23 26.00 1000 43.00 20000 Q1 '13 4.69 1.59 442 11.10 1725 8.80 2.67 Q1 '13 82.99 Q2 '13 1.30 95 1.04 1.53 1.04 0.96 0.74 6.92 5.77 Q2 '13 124 0.85 1.35 9.00 7.50 7.46 Q2 '13 2.77 24.0 255 7.10 1.67 4.20 27.75 3.60 7.5 92 Q2 '13 1.16 2.75 7800 28.00 39.00 7.80 6.20 26.00 1000 42.50 20000 Q2 '13 4.78 1.60 445 11.17 1730 8.80 2.68 Q2 '13 82.99 Q3 '13 1.30 95 1.04 1.53 1.04 0.96 0.74 6.92 5.77 Q3 '13 124 0.85 1.35 9.00 7.50 7.46 Q3 '13 2.85 23.5 260 7.00 1.69 4.10 29.07 3.70 7.5 91 Q3 '13 1.15 2.73 7800 28.00 39.00 7.80 6.17 26.00 1000 42.50 20000 Q3 '13 4.86 1.61 447 11.25 1740 8.80 2.69 Q3 '13 82.99 Q4 '13 1.30 95 1.04 1.53 1.04 0.96 0.74 6.92 5.77 Q4 '13 124 0.85 1.35 9.00 7.50 7.46 Q4 '13 2.85 23.3 260 6.90 1.69 3.95 27.75 3.70 7.3 90 Q4 '13 1.14 2.70 7800 28.00 39.00 7.80 6.15 26.00 1000 42.00 20000 Q4 '13 4.95 1.62 450 11.30 1750 8.80 2.70 Q4 '13 82.99 Q1 '14 1.34 114 1.09 1.70 1.21 0.78 0.56 6.94 5.07 Q1 '14 153 0.79 1.46 9.30 6.80 7.46 Q1 '14 2.65 23.1 250 6.69 1.54 3.90 27.75 3.55 7.4 85 Q1 '14 --------------------------------------------Q1 '14 ----------------------------Q1 '14 83.88

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This report has been written by our strategy teams. Such reports do not purport to be an exhaustive analysis and may be subject to conflicts of interest resulting from their interaction with sales and trading which could affect the objectivity of this report. (Please see further important disclosures in the text of this report). This report is a marketing communication. It is not independent investment research. It has not been prepared in accordance with legal requirements designed to provide the independence of investment research, and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information and opinions contained in this report have been obtained from, or are based on, public sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate, complete or up to date and it should not be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investment. Information and opinions contained in the report are published for the assistance of recipients, but are not to be relied upon as authoritative or taken in substitution for the exercise of judgement by any recipient, are subject to change without notice and not intended to provide the sole basis of any evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. To the fullest extent permitted by law, no BNP Paribas group company accepts any liability whatsoever (including in negligence) for any direct or consequential loss arising from any use of or reliance on material contained in this report. All estimates and opinions included in this report are made as of the date of this report. Unless otherwise indicated in this report there is no intention to update this report. BNP Paribas SA and its affiliates (collectively BNP Paribas) may make a market in, or may, as principal or agent, buy or sell securities of the issuers mentioned in this report or derivatives thereon. BNP Paribas may have a financial interest in the issuers mentioned in this report, including a long or short position in their securities and/or options, futures or other derivative instruments based thereon, or vice versa. BNP Paribas, including its officers and employees may serve or have served as an officer, director or in an advisory capacity for any issuer mentioned in this report. BNP Paribas may, from time to time, solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager, underwriter or lender) within the last 12 months for any issuer referred to in this report. BNP Paribas may be a party to any agreement with the issuer relating to the production of this report. BNP Paribas, may to the extent permitted by law, have acted upon or used the information contained herein, or the research or analysis on which it was based, before its publication. BNP Paribas may receive or intend to seek compensation for investment banking services in the next three months from or in relation to an issuer mentioned in this report. Any issuer mentioned in this report may have been provided with sections of this report prior to its publication in order to verify its factual accuracy. BNP Paribas is incorporated in France with limited liability. Registered Office 16 Boulevard des Italiens, 75009 Paris. This report was produced by a BNP Paribas group company. This report is for the use of intended recipients and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without the prior written consent of BNP Paribas. By accepting this document you agree to be bound by the foregoing limitations.

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This report is solely prepared for professional clients. It is not intended for retail clients and should not be passed on to any such persons. This report has been approved for publication in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas, 10 Harewood Avenue, London NW1 6AA, which is regulated by the Financial Services Authority for the conduct of its investment business in the United Kingdom and registered in England & Wales under No. FC13447. This report has been approved for publication in France by BNP Paribas, a credit institution licensed as an investment services provider by the CECEI and the AMF, whose head office is 16, Boulevard des Italiens 75009 Paris, France. This report is being distributed in Germany either by BNP Paribas London Branch, or by BNP Paribas Niederlassung Frankfurt am Main, regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht (BaFin). United States: This report is being distributed to US persons by BNP Paribas Securities Corp., or by a subsidiary or affiliate of BNP Paribas that is not registered as a US broker-dealer to US major institutional investors only. BNP Paribas Securities Corp., a subsidiary of BNP Paribas, is a broker-dealer registered with the Securities and Exchange Commission and a member of the National Association of Securities Dealers, the New York Stock Exchange and other principal exchanges. BNP Paribas Securities Corp. accepts responsibility for the content of a report prepared by another non-US affiliate only when distributed to US persons by BNP Paribas Securities Corp. Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited, Tokyo Branch, or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments and Exchange Law Enforcement Order. BNP Paribas Securities (Japan) Limited, Tokyo Branch, a subsidiary of BNP Paribas, is a financial instruments firm registered according to the Financial Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers Association. BNP Paribas Securities (Japan) Limited, Tokyo Branch accepts responsibility for the content of a report prepared by another non-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited, Tokyo Branch. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Hong Kong: This report is being distributed in Hong Kong by BNP Paribas Hong Kong Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas Hong Kong Branch is regulated as a Registered Institution by Hong Kong Monetary Authority for the conduct of Advising on Securities [Regulated Activity Type 4] under the Securities and Futures Ordinance.

BNP Paribas (2011). All rights reserved.

Foreign Exchange Strategy Thursday, 14 July 2011 http://www.GlobalMarkets.bnpparibas.com