GLOBAL FX STRATEGY | DAILY FX UPDATE

Tuesday, August 23, 2016

USD CONSOLIDATING INTO NA OPEN

USD under modest pressure, consolidating its two session rally.

CAD showing signs of stabilization following recent decline; remain bearish.

EUR struggles above 1.1350, yield spreads remain a drag; remain bearish.

GBP forming bearish ascending wedge; vulnerability on record short positioning.

USDJPY remarkably quiet; technicals and sentiment hint to further downside.

AUD climbs modestly; broader tone is dominant in absence of domestic data.

CNY & CNH rise further from Mondays lows; fresh lows vs. basket.

FOLLOW US ON TWITTER @SCOTIABANKFX

Shaun Osborne
Chief FX Strategist
416.945.4538
shaun.osborne@scotiabank.com
Eric Theoret, CFA, CMT
FX Strategist
416.863.7030
eric.theoret@scotiabank.com

NZD RALLIES TOWARD AUG 11 15-MONTH HIGH

FX Market Update - The USD is consolidating its recent rally, trading in a tight range
against most of the G10 currencies with the exception of NZD. RBNZ Gov. Wheeler
has downplayed expectations for rapid easing while calling attention to the limits of
monetary policy, his comments sparking a rally in NZD toward the 15-month high
from August 11 (see top chart). The broader tone is showing signs of tentative risk
appetite, with modest gains across European equity indices and U.S. equity futures.
U.S. yields are steady, along with gold, however commodities remain under pressure
as we note the continued weakness in oil and copper. U.S. releases scheduled
through the NA session include the flash Markit manufacturing PMI, Richmond Fed,
and new home sales. There are no Fed speakers. We maintain a bias to broad USD
strength into and through Fed Chair Yellens speech on Friday. E.T.
Source: Bloomberg & Scotiabank FX Strategy

USDCAD (1.2891) CAD is quiet, trading just above Mondays close at the lower
end of its one week range. There are no domestic releases scheduled through the
remainder of the week, leaving the focus squarely centered on CADs key drivers as
well as the broader market tone. In terms of drivers we note the continued weakness
in oil prices with WTIs break under $47/bbl. The 2Y U.S.-Canada yield spread is
widening in a CAD-negative manner, back toward 20bpts at the upper end of its two
month range. Measures of implied volatility are showing signs of a continued turn,
leaving CAD vulnerable as a result of its risk profile and tendency to weaken in
periods of risk aversion. E.T.
USDCAD short-term technicals: bullishUSDCAD appears to have struggled
above its 100 day MA (1.2929) following an impressive two session rally off last
weeks lows. The rejection of the 61.8% Fibonacci retracement level of the May-July
rally (see middle chart) remains the most important near-term technical signal, and
Mondays break of the 38.2% Fibo at 1.2950 has provided confirmation to the shift in
the balance of risk. We look to continued gains toward 1.30 and 1.32. E.T.

USDCADUPSIDE RISK ON BREAK OF 1.2950

Source: Bloomberg & Scotiabank FX Strategy

GBP FORMS BEARISH ASCENDING WEDGE

EURUSD (1.1345) EUR is flat from Mondays close, relinquishing its PMI-driven
gains over the course of the European session. Flash PMIs were mixed across
France, Germany and the euro area with France instilling greater confidence on the
back of upside surprises to both the services (52 vs. 50.5 prev. & exp.) and
composite (51.6 vs. 50.4 exp. & 50.1 prev.) measures. Germanys flash PMIs
weakened modestly across manufacturing, services and the composite measure.
EUR remains elevated relative to yield spreads, the 2Y Germany-U.S. spread
widening toward levels last seen in late June. We maintain a bearish EUR bias on
the basis of relative central bank policy. E.T.
EURUSD short-term technicals: bearishEUR has struggled above 1.1350, its
Source: Bloomberg & Scotiabank FX Strategy

GLOBAL FX STRATEGY | DAILY FX UPDATE

Tuesday, August 23, 2016

gains limited by resistance from the descending trend line off the closing lows from June. Momentum signals appear exhausted, and
shorter-term candles (2-hour) suggest a bearish bias as we highlight the shooting star formed off the European session high, following
on last weeks bearish evening star formation. We look to weakness through 1.13 and Mondays low toward 1.1250. E.T.
GBPUSD (1.3186) GBP is up 0.3%, strengthening to a fresh multi-week high around 1.32 at levels last seen in early August. GBP
gains roughly coincided with the release of stronger flash PMIs out of France, with no discernible reaction to domestic CBI figures.
Overwhelmingly bearish sentiment and record short CFTC positioning leave GBP vulnerable to short-lived periods of strength, however
the broader fundamental picture continues to argue for further downside. Yield spreads add to pressure on GBP as we note the
continued widening in the UK-US yield spread, extending beyond 60bpts to multi-decade lows. E.T.
GBPUSD short-term technicals: bearishGBP appears to be forming an ascending wedge (see bottom chart), the formation
typically resolved via reversal. We look to limited upside above 1.32 and anticipate an accelerated decline on a break below the lower
bound of the wedge just above 1.31. E.T.
USDJPY (100.05) JPY is trading in a remarkably tight range just above Mondays close, its movement relatively limited in the
absence of both fundamental releases and headline risk from officials comments. JPY risk remains conflicted as we note the offsetting
influence of bearish fundamentals and widening yield spreads, as measures of sentiment suggest a greater desire for protection
against JPY strength. There are no domestic releases ahead of Fridays CPI, leaving the focus squarely centered on broader
developments, the shifting Fed view, and its impact on the market tone. E.T.
USDJPY short-term technicals: bearishUSDJPY has yet to break out of the August 16 99.54-101.26 range however its broader
signals are bearishly aligned across trend and momentum indicators. Near-term resistance has been observed above the 9 day MA
(100.63) and we look to weakness toward the August 16 low 99.54 followed by the late June low around 99. E.T.

TECHNICALS: BUY/SELL SIGNALS AND PIVOT LEVELS

30 Day
Hist Vol
USDCAD
8.2
EURUSD
6.8
GBPUSD
12.2
USDCHF
8.2
USDJPY
13.8
AUDUSD
8.7
USDMXN
10.8
DXY (USD index) 7.0
EURCAD
7.1
GBPCAD
12.1
AUDCAD
7.2
CADMXN
10.6
BoC Noon Rate

Spot

MACD

1.2892
1.1345
1.3188
0.9608
100.05
0.7654
18.2223
94.33
1.4625
1.7001
0.9867
14.13
1.2942

sell
buy
buy
sell
sell
sell
sell
sell
buy
buy
sell
buy

9 & 21day MA
sell
buy
sell
sell
sell
buy
sell
na
sell
sell
sell
sell

DMI

RSI

sell
buy
buy
sell
sell
buy
sell
sell
buy
sell
sell
buy

44
66
51
40
37
55
42
36
58
47
49
47

Aug 23, 2016

Pivot 1st
Support
1.2847
1.1292
1.3078
0.9577
99.68
0.7607
18.16
94.05
1.4552
1.6832
0.9791
14.09

Pivot 1st
Resist.
1.2951
1.1376
1.3254
0.9644
100.67
0.7678
18.33
94.79
1.4686
1.7105
0.9919
14.20

Source: Scotiabank & Bloomberg

GLOBAL FX STRATEGY | DAILY FX UPDATE

Tuesday, August 23, 2016

TODAY'S CALENDAR
Time Country Release
09:45
US Markit US Manufacturing PMI
10:00
US Richmond Fed Manufact. Index
10:00
EC Consumer Confidence
10:00
US New Home Sales
18:45
NZ Trade Balance
21:00
CH Swift Global Payments CNY
01:00
JN
Leading Index CI
02:00
GE GDP SA QoQ
02:00
GE GDP WDA YoY
02:00
GE GDP NSA YoY
04:00
NO Unemployment Rate AKU

Period Consensus
Aug P
52.6
Aug
6.0
Aug A
-7.7
Jul
580k
Jul
-325m
Jul
-Jun F
-2Q F
0.4%
2Q F
1.8%
2Q F
3.1%
Jun
4.7%

Last
52.9
10.0
-7.9
592k
127m
1.72%
98.4
0.4%
1.8%
3.1%
4.7%

CONTACTS - GLOBAL FX STRATEGY

Shaun Osborne
Chief FX Strategist
T +1 416 945 4538
Shaun.Osborne@scotiabank.com

Qi Gao
FX Strategist (Asia), Associate Director
T +65 6305 8396
qi.gao@scotiabank.com

Eric Theoret, CFA, CMT

FX Strategist (G10), Associate Director
T +1 416 863 7030
eric.theoret@scotiabank.com

Eduardo Suarez
Senior FX Strategist (LATAM), Director
T +52 55 9179 5174
eduardo.suarez@scotiabank.com

Significance
med-high
med
med
med
med
low
med
med-high
med-high
med-high
med

IMPORTANT NOTICE and DISCLAIMER:

This publication has been prepared by The Bank of Nova Scotia (Scotiabank) for informational and marketing purposes only. Opinions, estimates and projections contained
herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from
sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast
shall be taken as a representation for which Scotiabank, its affiliates or any of their employees incur any responsibility. Neither Scotiabank nor its affiliates accept any liability
whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the
currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any
other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation
of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material
is not intended to be individually tailored to your needs or characteristics and should not be viewed as a call to action or suggestion that you enter into a swap or trading
strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you
to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other
professional advisors. Scotiabank, its affiliates and/or their respective officers, directors or employees may from time to time take positions in the currencies mentioned
herein as principal or agent, and may have received remuneration as financial advisor and/or underwriter for certain of the corporations mentioned herein. Directors, officers
or employees of Scotiabank and its affiliates may serve as directors of corporations referred to herein. All Scotiabank products and services are subject to the terms of
applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may
not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the
prior express written consent of Scotiabank.

Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with Global Banking and Markets, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, all members
of the Scotiabank group and authorized users of the mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the
Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia and Scotiabank Europe plc are authorised by the UK Prudential Regulation Authority. The Bank of Nova Scotia is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Scotiabank
Europe plc is authorised by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority. Details
about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available on request. Scotiabank Inverlat, S.A., Scotia Inverlat Casa
de Bolsa, S.A. de C.V., and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.Not all products and services are
offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.