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FX Daily46 .pdf


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Deutsche Bank
Markets Research
Global

Foreign Exchange
FX Spot

Date
14 November 2013

FX Daily
Data Dependent Pressure on $-Bloc
FX?
With trends in UST yields proving highly influential over $-bloc FX trends
currently, today we highlight that the recent backup in yields does not appear to
be supported by trends in our macro pulse indices (of data surprises). It is also
notable that our US MPI is tracking below the sort of Q4 strength seen in recent
years. Finally we note that unlike many UST moves recently, eurozone trends are
not supporting this backup in yields. For the current downward pressure on $bloc FX to be maintained then will likely require stronger US data in coming
weeks to support renewed expectations of Fed tapering.
Recent back-up in UST yields does not look “data dependent”
It can be seen in Figure 1 that trends in UST yields have been highly influential
in driving trends in AUD in recent months (the picture is similar for NZD and
CAD). So with UST yields having moved higher since the October FOMC
statement, boosted further by the stronger October employment report, it is
not surprising that $-bloc FX has come under downward pressure of late. It is
worth noting then that when we look at our US Macro Pulse Index (of data
surprises) the recent back up in yields does not look to be the sort of “data
dependent” move that should ultimately prove sustainable (Figure 2). The US
data flow is all the more disappointing given that Q4 has typically been a
period of stronger data in recent years (Figure 3).
EZ developments also placing downward, not upward, pressure on yields
It can be seen in Figure 4 that combining our US and EU MPIs has actually
proven a better guide to UST trends than our US MPI alone, showing the
impact eurozone development have had through this period. With our
eurozone MPI also in negative territory, however, it can be seen that this has
not been the driving force behind the rise in yields this time around. So while
the confirmation hearing for Fed Chair nominee Janet Yellen later today will
likely be the key driver of UST yields – and hence $-bloc FX – in the very nearterm, it will be the data flow that ultimately determines how sustainable the
current downward pressure on $-bloc FX from UST yields proves to be.
Figure 1: With UST yields being the key driver of $-bloc FX currently …
AUD/USD (LHS)

UST 10y yield (RHS, inverted)

1.15
1.1

1

1.05

1.5

1

2

0.95

2.5

0.9

3

0.85

3.5

0.8
0.75
Jan 10

0
0.5

4
4.5
Jan 11

Jan 12

Jan 13

Source: Deutsche Bank, Bloomberg Finance LP

________________________________________________________________________________________________________________
Deutsche Bank AG/Sydney

14 November 2013
FX Daily: Data Dependent Pressure on $-Bloc FX?

Figure 2: ... that the recent backup in UST yields has not been overly “data
dependent” suggests caution on getting too bearish…
UST 10Y 6wk bp change (LHS)
US MPI 6wk Change (RHS)

150

1
0.8

100

0.6
0.4

50

0.2
0

0

-0.2
-50

-0.4
-0.6

-100

-0.8
-1

-150
09

11

13

Source: Deutsche Bank, Bloomberg Finance LP

Figure 3: ... especially given data is tracking below the Q4 improvement
typically seen in recent years...

Average US MPI, 2009-12 (LHS)

0.4

US MPI 2013 (LHS)

0.3
0.2
0.1
0
-0.1
-0.2
-0.3
-0.4
Jan

Mar

May

Jul

Sep

Nov

Source: Deutsche Bank, Bloomberg Finance LP

Figure 4: ….while eurozone developments are not improving the sustainability
of the current back-up in yields
UST 10Y 6wk bp change (LHS)
US&EU MPI 6wk Change (RHS)

200

1
0.8

150

0.6

100

0.4

50

0.2

0

0
-0.2

-50

-0.4

-100

-0.6

-150

-0.8

-200

-1
09

11

13

Source: Deutsche Bank, Bloomberg Finance LP

Page 2

Deutsche Bank AG/Sydney


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