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FINANCIAL MARKETS RESEARCH May 2012

FX
16 May 2012

FX talkING
INGs view on the major bullish and bearish currency themes
It is hard to avoid the conclusion that the Eurozone needs a weaker EUR. And no longer can the US and the UK enjoy the soft currency levels seen over recent years. Emerging market FX looks set to suffer a wild ride ahead of Greek elections on 17 June, but could find support should the ECB cut in 3Q.

USD/Majors (4 Jan 08=100)


1 60 1 40 1 20 1 00 80 60 08 09 1 0 1 1 1 2 JP Y GB P EUR 1 60 1 40 1 20 1 00 80 60

ING FX forecasts
EUR/USD 1M 3M 6M 12M 1.24 1.18 1.15 1.20 EUR/SEK 1M 3M 6M 12M 9.40 9.50 9.50 9.30 USD/TRY 1M 3M 6M 12M
Source: ING

USD/JPY 80 81 84 90 AUD/USD 0.97 0.94 0.92 0.90 USD/BRL 2.05 1.95 1.85 1.80

EUR/GBP 0.79 0.76 0.75 0.77 EUR/CZK 26.0 26.3 25.5 24.9 USD/CNY 6.29 6.28 6.26 6.21

Stro nger USD

Source: Reuters, ING

EUR/CE4 ( 4 Jan 08100)


1 80 1 60 1 40 1 20 1 00 80 08 09 1 0 1 1 1 2 $ /TRY $ /CNY Stro nger EM FX $ /B RL LN /P 1 80 1 60 1 40 1 20 1 00 80

1.85 1.86 1.85 1.76

FX performance
EUR/USD %MoM %YoY -2.9 -10.4 EUR/HUF %MoM %YoY
Source: Reuters, ING

USD/JPY -0.7 -1.2 EUR/CZK 2.8 4.3

GBP/USD -0.1 -1.7 USD/RUB 4.5 10.0

EUR/NOK 0.6 -3.4 USD/BRL 7.7 23.0

NZD/USD -6.4 -2.7 USD/KRW 2.7 7.4

USD/CAD 1.1 3.7 USD/CNY 0.2 -2.8

Source: Reuters, ING

-0.7 10.1

FX Strategy

Chris Turner
Head of Foreign Exchange Strategy London +44 20 7767 1610 chris.turner@uk.ing.com

Tom Levinson
Foreign Exchange Strategy London +44 20 7767 8057 tom.levinson@uk.ing.com View all our research on Bloomberg at ING5<GO>

research.ing.com

1 SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES & ANALYST CERTIFICATION

FX talkING

May 2012

Developed markets
EUR/USD
Most roads lead to a weaker EUR
1.60 1.50 1.40 1.30 1.20 1.10 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 1.60 1.50 1.40 1.30 1.20 1.10

Current spot: 1.27

Greek elections proved the catalyst to break EUR/USD out of its


1.30-35 trading range. The splintering of Greek public opinion and the failure to form a government means that Greece returns to the polls on 17 June. At present, there is no sign that these elections will deliver any cleaner an outcome. Indeed, these elections will be pitched as a referendum on EMU membership leaving EUR/USD vulnerable to the vagaries of opinion polls over the next month.

Even if a pro-Euro coalition wins in June, it looks as though the bailout deal with the EU/ECB/IMF will need to be renegotiated adding to more strains in peripheral debt markets.

Increasingly it seems the only lever for growth in the Eurozone is a


weaker EUR. And we expect the ECB to deliver this with a rate cut/LTRO3 this summer. We now see EUR/USD falling to 1.15.

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 1.24 (1.274)

3M 1.18 (1.275)

6M 1.15 (1.277)

12M 1.20 (1.282)

Chris Turner, London +44 20 7767 1610

USD/JPY
Holding onto a bullish view
110 100 90 80 ING f'cast 70 Jan08 Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 70 110 100 90 80

Current spot: 80.5

We doubt speculation over additional stimulus from the Fed will


result in a round of QE3 at the 20 June FOMC meeting. If anything US activity data should improve into that meeting following a 15% fall in oil prices. The main risk to the US economy arrives at year-end. Should a new Congress fail to negotiate a new debt deal, such that US$1.2trn of fiscal tightening kicks in, the US could be looking at zero growth in 2013 rather than 2-3%.

In all, however, we believe the USD is embarking on a multiquarter rally. In Japan, the focus remains on growth and battling deflation. April saw the BoJ increase its JGB buying operation by JPY10tr. Expect the BoJ to remain under pressure to do more, while the government debates necessary fiscal tightening.

Source: Reuters, ING

Unilateral FX intervention is possible were USD/JPY to break 79.


1M 80 (80.44) 3M 81 (80.38) 6M 84 (80.25) 12M 90 (79.85)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

GBP/USD
Caught in the cross-fire
2.10 1.90 1.70 1.50 1.30 Jan08 2.10 1.90 1.70 1.50 1.30

Current spot: 1.59

GBP TWI has rallied 3.5% this year. Helping GBP has been the
view that early fiscal tightening (in 2010) helped secure GBPs position as a safe-haven currency. Indeed the CDS market is telling us the UK is a better credit than Germany. With the EUR under pressure, GBPs popularity as a reserve currency has increased with the Swiss National Bank seemingly doubling the weight of GBP in its FX reserves to 8%.

ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13

Even though the BoE would like GBP to stay weak and help rebalance the economy, the reality is that most developed world economies require weaker currencies. In 2009-11, GBP TWI was 15-20% weaker than its long-term average. Effectively other currencies, notably EUR, are now playing catch-up.

Source: Reuters, ING

Overall USD strength should trump GBP near-term, risking 1.53.


1M 1.57 (1.593) 3M 1.55 (1.592) 6M 1.53 (1.591) 12M 1.56 (1.589)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610 2

FX talkING

May 2012

EUR/JPY
Some sizable downside in store
175 155 135 115 95 75 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 175 155 135 115 95 75

Current spot: 102.5

The EUR negatives are clear. Last years sovereign debt crisis
and subsequent credit crunch means that the Eurozone will contract 0.4% this year. And the future stability of the EUR is now in the hands of the Greek voters. Either Greece departs, or the ECB is forced to smooth the necessary competitive adjustment in southern Europe both paths lead to a weaker EUR.

Supporting the JPY in the new Japanese fiscal year has been
repatriation of overseas investments by Japanese investors. We had not expected this. However, Japanese politicians now have their sights firmly set on USD/JPY and should force more action from the BoJ were USD/JPY to be looking fragile below 80.

Source: Reuters, ING

Independent EUR weakness can take EUR/JPY to 95 this year,


although it should hold above the 2000 low of 89.
1M 99.2 (102.5) 3M 95.6 (102.5) 6M 96.6 (102.5) 12M 108.0 (102.4)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

EUR/GBP
Finally the long-awaited break-out has come
1.00 0.95 0.90 0.85 0.80 0.75 0.70 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 1.00 0.95 0.90 0.85 0.80 0.75 0.70

Current spot: 0.80

The Greek crisis finally triggered the break-out. Effectively we are


looking for a re-rating of both GBP and the USD against the EUR this year meaning that EUR/GBP can trade down to 0.75.

UK data is probably not as bad as the official figures suggest. The


BoE admits it takes more notice of the survey data than the official GDP statistics. In any case we look for 1Q GDP of -0.2% QoQ to be revised higher on 24 May. A slight risk to GBP comes from the BoE minutes released 23 May. The May inflation report showed that CPI could be 1.6% YoY two years ahead, below the 2% target, unless the BoE employs more stimulus. The minutes could show 3 (from 1) of the 9 MPC members voting for more QE.

Source: Reuters, ING

With uncertainty rising this summer and investors shifting to the


preference of safety from return, GBP should continue to benefit.
1M 0.79 (0.800) 3M 0.76 (0.801) 6M 0.75 (0.802) 12M 0.77 (0.806)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

EUR/CHF
Under fire
1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00

Current spot: 1.20

The Eurozone crisis is once again weighing heavily on EUR/CHF.


Last year we wrote that the pressure derived from a) foreigners pouring into short-term Swiss securities to flee the EUR and more importantly and b) Swiss investors failing to re-cycle large CHF trade inflows by buying foreign bonds. The SNB had to step into that BoP void last year and will probably be doing again so now.

So monthly FX reserve data from the SNB will become important,


as will, of course the 14 June quarterly SNB meeting. 1Q GDP data (released 31 May) will probably not give grounds to the SNB to turn more dovish, but leading indicators are warning of a more aggressive downturn in 2Q12 most notably the PMI data.

Source: Reuters, ING

We believe 1.20 holds. The SNB have entered this arrangement


eyes wide open. Rising FX reserves should not be a problem.
1M 1.20 (1.201) 3M 1.20 (1.200) 6M 1.20 (1.200) 12M 1.20 (1.198)

ING forecasts (mkt fwd)

Chris Turner, London +44 20 7767 1610

FX talkING

May 2012

EUR/NOK
NOK safe-haven status to offset lower oil price impact
10.0 9.5 9.0 8.5 8.0 7.5 7.0 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 10.0 9.5 9.0 8.5 8.0 7.5 7.0

Current spot: 7.62

EUR/NOK is trading above the levels seen just prior to Norges


Banks surprise rate cut in March (ie, above 7.50). The central bank will be happy with this. This together with a low risk chance of further policy-easing from a current 1.50%, given undershooting CPI, can keep NOK gains limited. Norges Bank meets on 20 June.

INGs new global outlook is particularly difficult to map on to NOK


prospects. Our lower oil price projection lessens one pillar of NOK support. Yet a deepening EU17 crisis, with EUR/USD falling to 1.15, might see NOK gain given a post-2008 safe-haven status.

EUR/NOK may now struggle to revisit its 7.40 low in 1Q. Against
its formal guidance we see Norges Bank easing policy further. Suggestions from some that Norway could implement an SNB style EUR/NOK floor are not credible in our opinion.
3M 7.90 (7.65) 6M 7.90 (7.69) 12M 7.70 (7.76)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 7.80 (7.63)

Tom Levinson, London +44 20 7767 8057

EUR/SEK
SEK past its prime?
12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0

Current spot: 9.09

Over the last few days EUR/SEK has broken out to the topside of
the 8.75-8.95 range that it has been stuck within over recent months. As the prospects for a near-term intensification of the EU17 crisis increase the upside risks to EUR/SEK rise.

It is noticeable that (1) there has been no particularly soft


domestic data and (2) SEK depreciation has been greater than that experienced by NOK. If down to renewed stress within the EU17 this would go some way to confirming an assumption that SEK is a more vulnerable to a sharp pick-up in risk aversion.

Third party estimates (ie, IMF, EC) foresee negligible economic


growth in Sweden this year. Should the Riksbanks long-standing doves gain support in July and the bank cut from 1.50% rates, a EUR/SEK return below 9.00 would be much less likely.
3M 9.50 (9.13) 6M 9.50 (9.17) 12M 9.30 (9.23)

Source: Reuters, ING ING forecasts (mkt fwd) 1M 9.40 (9.11)

Tom Levinson, London +44 20 7767 8057

EUR/DKK
Prepare for renewed FX intervention
7.48 7.47 7.46 7.45 7.44 7.43 7.42 7.41 7.40 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 7.48 7.47 7.46 7.45 7.44 7.43 7.42 7.41 7.40

Current spot: 7.43

EUR weakness this month has placed EUR/DKK under renewed


downward pressure. The Danish central bank had not intervened in FX markets through April this year, but may now be readying itself as EUR/DKK heads toward 7.43. Renewed EU17 stress has reinvigorated safe-haven demand for DKK and if sustained, an independent interest rate cut is possible.

On 8 May the government announced a new economic plan,


aiming to balance the budget by 2020, but grow public spending by up to 0.8% YoY. PM Thorning-Schmidt is keen to point out the difference from the EU17s all out and failing austerity drive. Her party does though need the support of its coalition partners.

Source: Reuters, ING

Our estimate for EUR/USD to fall to 1.15 in 3Q is consistent with


the tightly managed EUR/DKK falling to new lows below 7.43.
1M 7.430 (7.432) 3M 7.427 (7.430) 6M 7.425 (7.428) 12M 7.435 (7.423)

ING forecasts (mkt fwd)

Tom Levinson, London +44 20 7767 8057

FX talkING

May 2012

USD/CAD
CAD better placed than most to resist a global sell-off
1.30 ING f'cast 1.20 1.10 1.00 0.90 Jan08 Mkt Fwds 1.20 1.10 1.00 0.90 Jan09 Jan10 Jan11 Jan12 Jan13 1.30

Current spot: 1.01

Canada reported a second straight big rise in employment in April,


reinforcing our view that the BoC will be the next G10 central bank to increase interest rates. Robust growth (forecast at 2.4% this year and next) and little spare capacity means a move is possible before year-end. Look for hints at the 5 June BoC meeting.

As always the US outlook is crucial. For now this is reasonable


and certainly superior to Europe. Concern over sequestration in the US from 2013 is a risk, albeit one we assume resolved. Also, the recent decline in oil prices supports the US consumer outlook, upon which Canadian exports rely so heavily.

In a risk-averse environment we see CAD as more insulated than


most G10 FX peers. The BoC notes persistent CAD strength but claims not to be obsessed by it suggesting it remains relaxed.

Source: Reuters, ING ING forecasts (mkt fwd) 1M 1.01 (1.009)

3M 1.02 (1.010)

6M 1.02 (1.012)

12M 1.00 (1.016)

Tom Levinson, London +44 20 7767 8057

AUD/USD
Major forecast revision lower
1.10 1.00 0.90 0.80 0.70 0.60 Jan08 ING f'cast Mkt Fwds 0.60 Jan09 Jan10 Jan11 Jan12 Jan13 1.10 1.00 0.90 0.80 0.70

Current spot: 0.99

We have made a significant downward revision to our AUD view


for the next twelve months. We base this on a very tight fiscalloose monetary policy mix typically a negative scenario for FX.

A new Budget (8 May) confirmed PM Gillards intention to return


Australias budget to surplus by the year-ending June 2013. As a result we expect a deeper RBA easing cycle. A surprise 50bp rate cut on 1 May to 3.75% might be the first move in a cycle that takes rates to 3% or even below. A weaker AUD outlook is no accident with government officials on record stating that this is the designed outcome of the newly engineered policy-mix.

Albeit still high by historical standards, AUD terms-of-trade are


falling. Taken with high global risk aversion and aligned domestic policy, AUD/USD can extend its slide below parity and test 0.90.

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 0.97 (0.991)

3M 0.94 (0.985)

6M 0.92 (0.978)

12M 0.90 (0.965)

Tom Levinson, London +44 20 7767 8057

NZD/USD
NZD following AUDs lead lower
0.95 0.85 0.75 0.65 0.55 0.45 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 0.95 0.85 0.75 0.65 0.55 0.45

Current spot: 0.77

On 26 April the RBNZ threatened that a strong NZD would force it


to reassess the outlook for monetary policy. The market brushed off this claim, but in any case NZD/USD has fallen 5% to its lowest level this year. Although a circular argument the decline, triggered by global anxieties, boosts the chance of an RBNZ hike this year, even if it is the catalyst of NZD declines that proves the eventual justification for RBNZ to do nothing.

Statistical revisions show NZ growing 1.1% in 2011 vs a previous


1.4% estimate. Looking ahead, a decline in dairy prices of 30% over the last year will dampen growth and income projections and is also reducing NZD terms-of-trade appeal.

Source: Reuters, ING

It might not be long before RBNZ rates are the highest in the G10
FX space. But this will be little defence in a risk off environment.
1M 0.75 (0.765) 3M 0.74 (0.762) 6M 0.73 (0.758) 12M 0.72 (0.750)

ING forecasts (mkt fwd)

Tom Levinson, London +44 20 7767 8057

FX talkING

May 2012

Emerging markets
EUR/PLN
Duration of weakness depends on the ECB action
5.0 4.5 4.0 3.5 ING f'cast 3.0 Jan08 Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 3.0 5.0 4.5 4.0 3.5

Current spot: 4.35

PLN is suffering as is usual when renewed tensions in the EU17


arise. The relative importance of financial flows relative to trade in the balance of payments keeps the zloty vulnerable to banking system stress.

Even without fresh stress emanating from the EU17 we were


sceptical about the zloty, given the likelihood of a domestic demand slowdown, which would require a weaker zloty to keep output and employment intact. Consequently, we consider further rate hikes (after the May increase to 4.75%) unlikely.

INGs lower EUR/USD path puts PLN at risk, but the fallout may
be limited by any renewed ECB action taken. Either LTRO3 or a rate cut both of which occur in INGs central scenario would help to stabilise pressure on the PLN.
3M 4.35 (4.39) 6M 4.24 (4.43) 12M 4.10 (4.51)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 4.43 (4.36)

Mateusz Szczurek, Warsaw +48 22 820 4698

EUR/HUF
Deteriorating market sentiment hits HUF
340 320 300 280 260 240 220 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 340 320 300 280 260 240 220

Current spot: 294.9

EUR/HUF dropped rapidly but only temporarily below 285 after


the EU gave the green light for it to begin IMF negotiations. The EUs first reaction on the fiscal adjustment was positive, which increases the chance that the Excessive Deficit Procedure against Hungary can be cancelled on 22 June, which would be supportive for the HUF.

Although 1Q12 GDP was subdued (0.7% YoY contraction) NBH


can moderate slightly its dovish tone as CPI is higher than expected and the risk premium has also started to increase again.

The market seems to be waiting for some positive news from the
IMF about an agreement and without this, in the current rather negative international sentiment, we believe EUR/HUF can range trade between 285 and 300.
3M 290 (298.7) 6M 280 (301.4) 12M 285 (306.9)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 300 (296.2)

David Nemeth, Budapest +36 1235 8800

EUR/CZK
CZK to weaken on the back of expected CNB rate cuts
30 29 28 27 26 25 24 23 22 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 ING f'cast Mkt Fwds 30 29 28 27 26 25 24 23 22

Current spot: 25.48

Flash 1Q12 GDP showed the economic contraction deepened to


-1% QoQ, likely signalling that the positive impetus from foreign demand has been depleted. Leading economic indicators suggest that economic activity should remain weak in 2Q as well.

In the minutes to the latest CNB board meeting the possible


deterioration of economic activity is mentioned among the main disinflation risks. Faced with the adverse GDP reading we suspect CNB will cut rate by 25bp to 0.5% already at its next meeting on 28 June and one more 25bp cut seems likely in 2H12.

We now see 25.40 as medium-term EUR/CZK support, while the


expectations on further cuts of CNB interest rates and softening export activity offers scope for a EUR/CZK rally beyond 26.0 on a six-month horizon in our opinion.
3M 26.3 (25.5) 6M 25.5 (25.5) 12M 24.9 (25.5)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 26.0 (25.5)

Vojtech Benda, Prague +420 257 474 432

FX talkING

May 2012

EUR/RON
RON Weaker for longer
4.75 4.45 4.15 3.85 3.55 3.25 Jan08 ING f'cast Mkt Fwds 3.25 Jan09 Jan10 Jan11 Jan12 Jan13 4.75 4.45 4.15 3.85 3.55

Current spot: 4.44

The combination of increasing domestic political tension and


persisting external stress has made the central bank allow for more flexibility in the FX market.

For the moment the NBR looks to have only softened the
weakening trend of the RON. A lack of clear intervention should encourage the weakening pressure in the immediate future and so we have revised our near-term forecast lower, believing the RON could record a string of record lows against the euro.

The depreciation trend could also be longer than previously


envisaged. The large array of plans (which carry a fiscal easing flavour) that the new ruling alliance plans to implement after the November elections may keep the RON under pressure into early 2013.
3M 4.50 (4.48) 6M 4.50 (4.51) 12M 4.45 (4.59)

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 4.45 (4.45)

Vlad Muscalu, Bucharest +4021 209 1393

EUR/HRK
Advanced 2012 refinancing stabilises kuna
7.80 7.70 7.60 7.50 7.40 7.30 7.20 7.10 7.00 Jan08 Jan09 Jan10 Jan11 ING f'cast Mkt Fwds Jan12 Jan13 7.80 7.70 7.60 7.50 7.40 7.30 7.20 7.10 7.00

Current spot: 7.54

EUR/HRK is threatening its highest levels for two months. HRK


supportive factors are that the MinFin already has assured HRK7bn and US$1.5bn a majority of 2012 refinancing needs. The CNB has eased domestic FX demand lately with the release of EUR110m foreign reserves and local financial institutions are liquid. Further, the start of the tourism season has been strong.

Kuna appreciation potential is limited by the deteriorating foreign


trade balance, company deleveraging, bank provisioning, higher bank dividend payments to non-residents in 2012 and monetary easing from the HNB (HRK4bn) with 1.5% kuna MRR rates.

Once the tourism season is over kuna could face limited


depreciation as attention turns to Croatias low growth profile and unsolved structural problems.

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 7.54 (7.545)

3M 7.55 (7.560)

6M 7.56 (7.604)

12M 7.57 (7.679)

Elena Ganeva, Sofia +3592 917 6720

EUR/RSD
Weak dinar ahead of cabinet formation and the IMF
120 110 100 90 80 70 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 120 110 100 90 80 70

Current spot: 112.8

Serbias next government will be formed after the presidential


elections on 20 May. The incumbent Democratic Party is likely to stay in power, in coalition with the Socialists. It raises prospects for the continuation of pro-reform/EU policies. Fiscal consolidation and the regaining of the IMF back-up will be on top of the new governments agenda, as the new cabinet strives to lower external refinancing risks.

SNB is likely to continue with FX interventions (0.8bn sold YTD).


We think the SNB will keep the key rate at 9.5% on 7 June, unless pressure on the dinar remains in place. FX reserves stood at 10.4bn at end April, down from 12.9bn at end-2011.

Source: Reuters, ING

The dinar should stay under pressure prior to the formation of the
new government and progress on fiscal consolidation and IMF talks.
1M 112 (112.8) 3M 112 (112.9) 6M 110 (113.1) 12M 110

ING forecasts (mkt fwd)

Elena Ganeva, Sofia +3592 917 6720

FX talkING

May 2012

USD/RUB
Hit hard by global worries
37.5 35.0 32.5 30.0 27.5 25.0 22.5 Jan08 ING f'cast Mkt NDF Jan09 Jan10 Jan11 Jan12 Jan13 37.5 35.0 32.5 30.0 27.5 25.0 22.5

Current spot: 30.9

On the eve of the current risk-off action, the RUB was more
resilient than many EMEA currencies due to rising exporter selling, which was still a function of pure USD/RUB rate. With EUR/USD heavily sold, markets plunging and foreign capital leaving, the RUB has been unable to resist and finally entered the CBR no-intervention range of 34.65-35.65/basket.

Downward revision of INGF for Brent from US$130-135/bbl to


US$115-120/bbl for 2012 and EUR/USD call for 1.15-1.20 means that our 32.50/basket call by mid-year now looks out of reach.

We still see room for 34/basket level in 3-6 months, but the RUB
then can move south to above 35/basket by year-end. USD/RUB should move higher anyway, given our EUR/USD call.

Source: Reuters, ING

ING forecasts (NDF)

1M 31.1 (31.0)

3M 31.5 (31.4)

6M 32.6 (31.8)

12M 31.8 (32.7)

Dmitry Polevoy, Moscow +7 495 771 7994

USD/UAH
No serious depreciation risk until 2H12
10 9 8 7 6 5 4 Jan08 ING f'cast Mkt NDF Jan09 Jan10 Jan11 Jan12 Jan13 10 9 8 7 6 5 4

Current spot: 8.05

The FX market calmed down in April. FX reserves inched up 1.7%


MoM. The NBU purchased US$0.3bn for its reserves the largest monthly amount for eight months. Depreciation fears on the cash FX market are also reduced. Net purchases of foreign currency over April were the lowest since July 2010.

The merchandise trade balance improves on flat steel prices, high


grain exports and lower gas imports. We do not expect this to deteriorate until at least the middle of the year.

We maintain our forecasts of a flat hryvnia until October elections.


Any possible imbalances in the autumn will be covered though FX reserves. We expect gradual depreciation following the October elections. Any near-term UAH weakness would, if required, be minimised by NBU intervention.
3M 8.03 (8.20) 6M 8.06 (8.52) 12M 8.49 (9.25)

Source: Reuters, ING

ING forecasts (NDF)

1M 8.03 (8.06)

Alexander Pecherytsyn, Kyiv +38 044 2303017

USD/KZT
Enviably untouchable by global concerns
155 150 145 140 135 130 125 120 115 Jan08 Jan09 Jan10 Jan11 Jan12 ING f'cast Mkt NDF Jan13 155 150 145 140 135 130 125 120 115

Current spot: 148.0

The KZT continues to be stuck in a very tight range 147.7148.1/USD over the recent month. Under risk-on action it looked unpromising, but with a risk-off wave it could be a plus. It looks as if the NBK prefers to keep the current stance over the KZT, trying to alleviate in advance any negative effects of global worries and falling commodities prices on the economy/budget.

GDP growth in 1Q12 came in at 5.6% YoY, ie, above market


consensus of 5.5% and INGF of 4.6%. Yet, we still see growth slower in the quarters ahead, especially given global concerns.

Having approved a 6% growth target for 2012, the government


may not favour any KZT strength. Once factoring in a lower oil price call, we have changed our 1-12M KZT forecast to a 147.8148.5/USD range.
3M 147.8 (148.0) 6M 148 (148.2) 12M 148.5 (148.8)

Source: Reuters, ING

ING forecasts (NDF)

1M 148 (147.9)

Dmitry Polevoy, Moscow +7 495 771 7994

FX talkING

May 2012

USD/TRY
Local policy to be tested against Eurozone concerns
2.1 1.9 1.7 1.5 1.3 1.1 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 2.1 1.9 1.7 1.5 1.3 1.1

Current spot: 1.82

The CBTs elevated sensitivity to currency moves and its


correlation with inflation expectations has led to the possibility of additional tightening, supporting the lira. Despite the rising credibility of this flexible yet strong tightening, continued doubledigit inflation (after a temporary fall in May) and rising Eurozone concern signals a testing time over the near-term.

Official FX reserves have been mostly stable at US$80bn since


end-March (vs US$78bn 1Q12 average). Both local growth and the market outlook remains bounded by global credit conditions, but an easing repayment schedule of long-term private sector external debt and high local FX deposits will remain supportive.

Source: Reuters, ING

We revise our short-term TRY forecasts down (50:50 EUR:USD


basket to 2.05-2.10) and earlier USD/TRY peaks might be tested.
1M 1.85 (1.83) 3M 1.86 (1.86) 6M 1.85 (1.90) 12M 1.76 (1.96)

ING forecasts (mkt fwd)

Sengl Dadeviren, Istanbul +90 212 329 0752

USD/ZAR
May turn more hawkish if ZAR stays weak
11 10 9 8 7 6 5 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 11 10 9 8 7 6 5

Current spot: 8.28

Recent EUR/USD action highlights how vulnerable the ZAR is to


spillover from abroad, as the SARB is not in a strong conviction mode to hike rates to protect the rand, given it seems to prefer supporting the recovery story, against a backdrop of still very high levels of youth unemployment.

However, recent comments and a SARB study indicate in our


view that the SARB is more or less comfortable with USD/ZAR trading between 7.95-8.25 levels, while being biased towards a more hawkish stance if it sees the ZAR weakening above these levels for a sustained amount of time, given the pass-through risk into inflation and CPI at the top end of the 3-6% CPI target range.

Source: Reuters, ING

We would thus expect to see a change in rhetoric if USD/ZAR


remains above the 8.25 mark through June.
1M 8.50 (8.29) 3M 8.30 (8.36) 6M 8.25 (8.47) 12M 8.25 (8.68)

ING forecasts (mkt fwd)

Simon Quijano-Evans, London +44 20 7767 5310

USD/ILS
ILS stays soft, even though the local story is strong
4.5 4.2 3.9 3.6 3.3 3.0 Jan08 ING f'cast Mkt Fwds Jan09 Jan10 Jan11 Jan12 Jan13 4.5 4.2 3.9 3.6 3.3 3.0

Current spot: 3.83

The sharp pick-up in risk aversion over the last month has seen
the dollar bought broadly across the board. Foreigners have continued to sell Makam (short-term Israeli government paper) and now hold just 4% of the market. Given a difficult environment ahead of Greek elections in mid June, we see USD/ILS pushing up to 3.90 and possibly 4.00 this summer.

The domestic Israeli story is actually quite good. Growth is still


seen at 3.1% this year and a little higher next year. However, the market is now pricing out any further BoI tightening and the risk is that rates have peaked for the time being at 2.50%.

In the past BoI has been keen to let the ILS fall to support the
export sector. We assume that there will not be too much resistance to $/ILS above 4.00, unless CPI moves above 3% YoY.

Source: Reuters, ING

ING forecasts (mkt fwd)

1M 3.90 (3.83)

3M 4.00 (3.84)

6M 4.10 (3.84)

12M 4.25 (3.86)

Chris Turner, London +44 20 7767 1610

FX talkING

May 2012

Latam
USD/BRL
Too much of a good thing
2.6 2.4 2.2 2.0 1.8 1.6 1.4 Jan08 ING f'cast Mkt NDF 2.6 2.4 2.2 2.0 1.8 1.6 1.4 Jan09 Jan10 Jan11 Jan12 Jan13

Current spot: 1.99

With the USD/BRL now testing the 2.00 marker, the Brazilian
central bank is probably concerned that BRL weakness, to a large degree triggered by the administrations anti-appreciation FX strategy, has now gone a bit too far. Inflation concerns are centrestage now.

In fact, once/if risk appetite subsides, we expect the BRL to


outperform on the back of reduced FX intervention risk in the context of still favourable balance of payment dynamics.

Near-term policy rate actions remain highly uncertain but CB


rhetoric could also turn less dovish. Recent guidance seemed to indicate that BACEN was ready to extend the easing cycle with an additional 100bp in rate cuts. But the weak BRL has raised nearterm inflation risks, while rising inflation expectations continue to challenge the banks benign medium-term inflation assessment.
3M 1.95 (2.03) 6M 1.85 (2.05) 12M 1.80 (2.10)

Source: Reuters, ING

ING forecasts (NDF)

1M 2.05 (2.01)

Gustavo Rangel, New York + 1 646 424 6465

USD/MXN
MXN appetite hurt by election noise and a dovish CB
16.5 15.5 14.5 13.5 12.5 11.5 10.5 9.5 Jan08 Jan09 Jan10 Jan11 Jan12 ING f'cast Mkt Fwds Jan13 16.5 15.5 14.5 13.5 12.5 11.5 10.5 9.5

Current spot: 13.80

Near-term FX trends remain biased toward a weaker peso as we


near the July Presidential elections. Polls have consistently favoured the opposition PRI candidate, and chances of a surprise turnaround are dimming, but political noise should not be ignored particularly as the PAN and the PRD parties remain immersed in a tight contest for runner-up and for Congressional seats.

A dovish turn by the CB is also not MXN-supportive. The latest


monetary policy minutes indicated that Banxico has shifted to an accommodative policy bias. Risk of external headwinds together with relatively restrictive monetary policy stance, in the context of low rates abroad, could prompt a rate cut, possibly post-elections.

Source: Reuters, ING

Strong presence of European financial institutions also boost the


risk of FX outflows as recapitalization pressures rise in Europe.
1M 13.85 (13.85) 3M 13.80 (13.93) 6M 13.75 (14.03) 12M 13.75 (14.25)

ING forecasts (mkt fwd)

Gustavo Rangel, New York + 1 646 424 6465

USD/CLP
Following global trends
700 650 600 550 500 450 400 Jan08 ING f'cast Mkt NDF 700 650 600 550 500 450 400 Jan09 Jan10 Jan11 Jan12 Jan13

Current spot: 500.40

Near-term CLP drivers such as copper prices and Chinas growth


outlook still seem to offer little sustained upside for the currency over the coming months, implying a less favourable balance of risks for the peso.

The currency appears to be broadly aligned with medium-term


fundamentals, however, while a more hawkish CB stance could also provide some support. As a result, we maintain a more neutral currency outlook.

Should the copper/China outlook improve though, the CLPs


appeal could benefit sharply from the fact that the political resistance to a stronger CLP seems to have eased. Inflation has become a bigger concern and, should the CLP strengthen again, BCCh should resist political pressure to intervene.
3M 525 (505) 6M 510 (510) 12M 485 (518)

Source: Reuters, ING ING forecasts (NDF) 1M 510 (501)

Gustavo Rangel, New York + 1 646 424 6465 10

FX talkING

May 2012

USD/ARS
The rising official/non-official divide
6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Jan08 Jan09 Jan10 Jan11 Jan12 ING f'cast Mkt NDF Jan13 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0

Current spot: 4.44

The surprising government takeover of YPF, amid still intense FX


market repression, has triggered sharp ARS depreciation in the non-official market. The official rate remains relatively stable, closely following the government-sanctioned path, but the official/non-official premium has now surged above 30%.

The combination of deteriorating investor sentiment and strict FX


trading curbs suggests that FX premiums will stay high.

But maintaining a gradually depreciating official FX rate remains a


policy priority, and the administration has sufficient tools to ensure a tightly managed FX path. The high FX premium is beginning to erode the pesos ability to serve as the main price anchor in the economy, adding upside inflation risk. But the government is unlikely to add fuel to fire and sanction a faster ARS depreciation.
3M 4.58 (4.69) 6M 4.8 (4.95) 12M 5.15 (5.57)

Source: Reuters, ING

ING forecasts (NDF)

1M 4.47 (4.56)

Gustavo Rangel, New York + 1 646 424 6465

11

FX talkING

May 2012

Asia
USD/CNY
Greater two-way risk
7.00 6.80 6.60 6.40 6.20 6.00 Jan09 NDFs ING f'cast 6.00 Jan10 Jan11 Jan12 Jan13 7.00 6.80 6.60 6.40 6.20

Current spot: 6.3180

The authorities widened the USD/CNY trading band from +/-0.5%


to +/-1%. Citing the narrower current account surplus and NDF market pricing, PM Wen enunciated the new official line that the USD/CNY is subject to more two-way risk.

We ascribe some of the greater two-way USD/CNY risk to greater


two-way USD/majors risk. When the USD is not a one-way view against major currencies there is less speculative interest in AXJ, currencies. In such an environment we expect the PBOCs USDCNY fixings to track moves in DXY, similar to other ACBs.

SAFE reported a US$74.8bn increase in foreign currency reserve


assets excluding valuation changes in 1Q12. Based on this we estimate that foreign exchange market intervention in 1Q12 was 46% below its year-earlier level.
3M 6.2780 (6.3365) 6M 6.2560 (6.3525) 12M 6.2130 (6.3750)

Source: Bloomberg, ING Bank

ING forecasts (mkt fwd)

1M 6.2920 (6.3185)

Tim Condon, Singapore +65 6232 6020

USD/INR
INR to remain vulnerable
58 56 54 52 50 48 46 44 42 40 38 Jan08 58 56 54 52 50 48 46 44 42 40 38

Current spot: 54.3

USD/INR is at record highs as markets doubt the governments


ability to adopt aggressive reforms to revive economic activity and curb the fiscal deficit. Capital outflows of almost US$750m have taken place since April causing INR to fall by 7%.

Recently, the RBI has stepped up its measures to boost dollar


liquidity to stem the fall in INR. The decision to force exporters to convert 50% of their forex holdings into rupees is expected to increase the supply of dollars by almost US$2.5bn over the next two weeks. The government has also deferred the very controversial GAAR by a year, removing the uncertainty on taxation on the foreign investors.

ING f'cast Mkt NDF Jan09 Jan10 Jan11 Jan12 Jan13

Source: Reuters, ING

Also an oil price fall of 6% since April will provide some temporary
support, but uncertainties will keep the pressure on INR intact.
1M 53.50 (54.83) 3M 51.50 (55.52) 6M 49.50 (56.28) 12M 48.50 (57.57)

ING forecasts (mkt fwd)

Upasna Bhardwaj, India, +91 22 3309 5718

USD/IDR
IDR Little speculative interest
13000 12000 11000 10000 9000 8000 7000 Jan09 NDFs ING f'cast Jan10 Jan11 Jan12 Jan13 13000 12000 11000 10000 9000 8000 7000

Current spot: 9270

We had thought fairly-valued currencies whose central banks had


a low-discretion exchange rate policy, a group comprised of HKD, IDR and PHP, would underperform in risk-on. We thought an absence of interest rate cover would mean IDR and PHP also would underperform in risk off.

We now think the low-discretion exchange rate policy has made


IDR and PHP more like HKD, which is subject to little speculative interest. We no longer expect them to underperform in risk-off.

Inflation was 4.5% in April. BIs inflation target is 4-6% for this
year and 3.5-5.5% for next year. We expect inflation to remain sticky downward this year. For this reason we pushed out our forecast of 75bp of BI rate cuts from end-2012 to end-2013. We no longer expect any more cuts this year.
3M 9100 (9436) 6M 9100 (9532) 12M 9100 (9792)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 9100 (9350)

Tim Condon, Singapore +65 6232 6020 12

FX talkING

May 2012

USD/KRW
Asias underperformer in April
1600 1500 1400 1300 1200 1100 1000 900 Jan09 NDFs ING f'cast Jan10 Jan11 Jan12 Jan13 1600 1500 1400 1300 1200 1100 1000 900

Current spot: 1154.0

Risk-off April saw KRW depreciate 0.8% (monthly average), the


most of any AXJ currency. The BOKs heavy-discretion exchange rate policy leads us to expect the KRW will underperform in riskoff and outperform in risk-on.

GDP growth slowed to 2.8% YoY in 1Q12 from 3.3% in 4Q11.


The BOK cut its 2012 growth forecast to 3.5% from 3.7%. At 2.5% YoY in April inflation is off the BOKs radar screen.

We believe post-GFC trend NGDP growth is 5.6%, down from


6.9%. Slower NGDP growth implies a lower neutral level of the BOK policy rate. We estimate 3% based on a pre-GFC neutral rate of 4.25%. We expect the BOK to wait for the Fed before moving the Base Rate, currently 3.25%. We think our forecast is subject to asymmetric risk that it cuts by 25bp this year.
3M 1120.0 (1159.8) 6M 1120.0 (1164.8) 12M 1120.0 (1172.1)

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 1120.0 (1155.8)

Tim Condon, Singapore +65 6232 6020

USD/SGD
Is inflation a rich country problem?
1.60 1.50 1.40 1.30 1.20 1.10 Jan09 Mkt Fwds ING f'cast Jan10 Jan11 Jan12 Jan13 1.60 1.50 1.40 1.30 1.20 1.10

Current spot: 1.2560

SGDs 0.6% appreciation made it the best-performing AXJ


currency in risk-off April, in contrast with our view that undervalued currencies whose central banks employ heavy exchange market discretion would underperform in risk-off and outperform in risk-on. We credit the April 13 surprise MAS policy tightening.

The MAS retained its downgraded 1-3% real GDP growth forecast
for 2012 (INGF 2.7%, cons. 2.9%) but revised its headline and core inflation forecasts higher.

Singapore and Hong Kong have the highest inflation in Asia. We


think it is related to them also having the lowest short-term interest rates. Persistent asset price inflation may cause inflation expectations to become unanchored. With short-term rates expected to stay low we expect inflation to be sticky downward.
3M 1.2371 (1.2558) 6M 1.2284 (1.2550) 12M 1.2113 (1.2525)

Source: Bloomberg, ING Bank

ING forecasts (mkt fwd)

1M 1.2429 (1.2561)

Tim Condon, Singapore +65 6232 6020

USD/TWD
TWD is sensitive to USDJPY
37.00 35.00 33.00 31.00 29.00 27.00 Jan09 Mkt Fwds ING f'cast 27.00 Jan10 Jan11 Jan12 Jan13 37.00 35.00 33.00 31.00 29.00

Current spot: 29.48

TWD is the most sensitive AXJ currency to swings in USDJPY.


We think the CBC stabilised USDTWD during the post-Feb BoJ meeting rally in USDJPY and the JPYTWD cross retraced to what we believe is the CBCs preferred range, 0.33-0.37.

If USDJPY retraces to its level prior to the February BoJ meeting


we think the CBC would allow JPYTWD to rise. If USDJPY stabilises we think TWD (and CNY) would underperform among undervalued AXJ currencies whose central banks exercise heavy exchange market discretion CNY, KRW, MYR, SGD, TWD and THB in risk-on and outperform in risk-off.

We forecast real GDP growth slowing to 3.0% from 4.0% in 2011


(cons. 3.1%). The bond market is telling us that the slowdown is going to persist.

Source: Bloomberg, ING Bank

ING forecasts (NDF)

1M 29.25 (29.50)

3M 29.35 (29.42)

6M 29.40 (29.34)

12M 29.50 (29.14)

Tim Condon, Singapore +65 6232 6020

13

FX talkING

May 2012

ING foreign exchange forecasts


EUR cross rates Developed FX EUR/USD EUR/JPY EUR/GBP EUR/CHF EUR/NOK EUR/SEK EUR/DKK EUR/CAD EUR/AUD EUR/NZD EMEA EUR/PLN EUR/HUF EUR/CZK EUR/RON EUR/HRK EUR/RSD EUR/RUB EUR/UAH EUR/KZT EUR/TRY EUR/ZAR EUR/ILS Latam EUR/BRL EUR/MXN EUR/CLP EUR/ARS Asia EUR/CNY EUR/HKD EUR/IDR EUR/INR EUR/KRW EUR/MYR EUR/PHP EUR/SGD EUR/TWD EUR/THB
Source: Reuters, ING

Spot 1.27 102.5 0.80 1.20 7.62 9.09 7.433 1.28 1.28 1.66 4.35 295 25.5 4.44 7.54 113 39.3 10.22 188.6 2.32 10.57 4.88 2.54 17.58 638 5.66 8.06 9.90 11897 69.25 1489 3.97 54.7 1.61 37.7 40.0

1M 1.24 99.2 0.79 1.20 7.80 9.40 7.430 1.25 1.28 1.65 4.43 300 26.0 4.45 7.54 112 38.6 10.0 183.5 2.3 10.5 4.8 2.50 17.2 632.4 5.50 7.80 9.60 11284 66.3 1389 3.80 53.1 1.50 36.3 38.1

3M 1.18 95.6 0.76 1.20 7.90 9.50 7.427 1.20 1.26 1.59 4.35 290 26.3 4.50 7.55 112 37.2 9.5 174.4 2.2 9.8 4.7 2.30 16.3 619.5 5.40 7.40 9.20 10738 60.8 1322 3.60 51.0 1.50 34.6 36.0

6M 1.15 96.6 0.75 1.20 7.90 9.50 7.425 1.17 1.25 1.58 4.24 280 25.5 4.50 7.56 110 37.5 9.3 170.2 2.1 9.5 4.7 2.10 15.8 586.5 5.50 7.20 8.90 10465 56.9 1288 3.40 49.5 1.40 33.8 34.5

12M USD cross rates 1.20 108.0 0.77 1.20 7.70 9.30 7.435 1.20 1.33 1.67 4.10 285 24.9 4.45 7.57 110 38.2 10.2 178.2 2.1 9.9 5.1 2.20 16.5 582.0 6.20 7.50 9.30 10920 58.2 1344 3.50 50.8 1.50 35.4 36.0

Spot

1M

3M

6M

12M

USD/JPY GBP/USD USD/CHF USD/NOK USD/SEK USD/DKK USD/CAD AUD/USD NZD/USD USD/PLN USD/HUF USD/CZK USD/RON USD/HRK USD/RSD USD/RUB USD/UAH USD/KZT USD/TRY USD/ZAR USD/ILS USD/BRL USD/MXN USD/CLP USD/ARS USD/CNY USD/HKD USD/IDR USD/INR USD/KRW USD/MYR USD/PHP USD/SGD USD/TWD USD/THB

80.5 1.59 0.94 5.98 7.13 5.833 1.008 0.994 0.766 3.41 231.3 20.0 3.49 5.92 88.5 30.9 8.05 148 1.82 8.28 3.83 1.99 13.80 500 4.44 6.32 7.77 9237 54.34 1168 3.12 42.95 1.27 29.6 31.4

80.0 1.57 0.97 6.29 7.58 5.99 1.01 0.97 0.75 3.57 233.9 20.8 3.59 6.08 90.16 31.1 8.03 148 1.85 8.50 3.90 2.05 13.85 510 4.47 6.29 7.76 9100 53.50 1120 3.03 42.8 1.24 29.3 30.7

81.0 1.55 1.02 6.69 8.05 6.29 1.02 0.94 0.74 3.69 241.5 22.0 3.81 6.40 92.37 31.5 8.03 147.8 1.86 8.30 4.00 1.95 13.80 525 4.58 6.28 7.76 9100 51.50 1120 3.02 43.2 1.24 29.4 30.5

84.0 1.53 1.04 6.87 8.26 6.46 1.02 0.92 0.73 3.69 243.5 22.2 3.91 6.57 94.00 32.6 8.06 148 1.85 8.25 4.10 1.85 13.75 510 4.80 6.26 7.76 9100 49.50 1120 3.00 43.0 1.23 29.4 30.0

90.0 1.56 1.00 6.42 7.75 6.20 1.00 0.90 0.72 3.42 237.5 20.8 3.71 6.31 91.25 31.8 8.49 148.5 1.76 8.25 4.25 1.80 13.75 485 5.15 6.21 7.76 9100 48.50 1120 2.96 42.3 1.21 29.5 30.0

14

FX talkING

May 2012

FX derivatives idea
Using a Reset Cylinder strategy to hedge EUR/USD downside
The quick decline in EUR/USD may have caught some off-guard. We offer a strategy for those trying to play catch-up.
Greek elections and the lack of a clear government have been the catalyst for EUR/USD to break lower. A Greek exit from the Eurozone is no longer such a distant prospect even though such a decision does remain in the hands of the Greeks. And it looks as though the narrow EUR/USD range trading environment seen between February and April may have lulled many into a false sense of security. Having briefly traded below 10% in late April, 3 month implied volatility is now on its way to 12% and calls for 1.20 are now looking more credible. Those looking to hedge against further EUR/USD downside over the next year (we now forecast a low at 1.15) may choose to hedge with a forward (one year forward at 1.2865 at time of writing). A simple alternative in the options market would be to enter a zero cost cylinder, where current pricing determines that the worst case rate to sell EUR/USD would be 1.2400 and the best case rate at 1.3175. However, we believe there is a case to explore a Reset Cylinder, where hedgers can do substantially better than 1.2400 assuming that 1.3400 never trades over the next twelve months. Strategy: Client buys one year EUR put/USD call, strike 1.2900, KO 1.3400. Client buys one year EUR put/USD call strike 1.2400, KI 1.3400. Client sells EUR call/USD put, strike 1.2900, KI 1.3400.

Rationale

A conventional, one year zero cost cylinder at time of writing would see strikes set at 1.2400 and 1.3175. In other words the worst rate to
sell EUR/USD could be locked at 1.2400, the best rate locked at 1.3175. However, 1.2400 might be a little painful for a corporate treasurer who just a few weeks ago thought that EUR/USD would be trading in a 1.30-35 range indefinitely. Our recommended strategy seeks to improve a lot on 1.2400. And if you believe (like us) that EUR/USD is now embarking on a multi-quarter down-trend, and that 1.3400 will not trade over the next twelve months, then the worst case rate to sell EUR/USD can be improved to 1.2900 by using the Reset Cylinder.

What if we are wrong and EUR/USD does trade higher to 1.3400? If 1.3400 ever trades over the life of the option, the 1.2900 EUR put will
be knocked out and the corporate will be left with a 1.2400-1.2900 cylinder. In this case the best case rate to sell EUR (1.2900) would be worse than the conventional cylinder of 1.3175.

So clearly this strategy depends on a conviction call on a lower EUR/USD. The trade-off here is trying to improve the worst case rate to
hedge (1.2900 instead of 1.2400) against a lower strike on the top-side of the cylinder. Given that we see most scenarios leading to a weaker EUR, we believe this is a hedging strategy worth pursuing. Chris Turner, Head of FX Strategy, London +44 20 7767 1610
For more detailed discussions on corporate FX hedging strategies, prices and other trade specific requirements, please contact in the first instance your local FX Trading and Sales teams or the following specialists in the Client Solutions Group in Amsterdam, Alexander Schreuder Goedheijt, Fahd El Habti and Michel Hensen on +31 20 563 8171.

Using a Reset Cylinder to hedge EUR/USD downside and improve on a conventional cylinder.
1.36 1.34 Realised hedging rate 1.32 1.30 1.28 1.26 1.24 1.22 1.20 1.18 1.2000 1.2500 1.3000 Spot on expiry Forward
Source: ING

Current spot

1.3500

1.4000

Reset cylinder if 1.3400 is not hit

Reset cylinder if 1.3400 is hit

15

FX talkING

May 2012

Research analyst contacts


Developed Markets London Mark Cliffe Rob Carnell James Knightley Chris Turner Tom Levinson Amsterdam Maarten Leen Martin van Vliet Teunis Brosens Dimitry Fleming Padhraic Garvey Jeroen van den Broek Maureen Schuller Alessandro Giansanti Job Veenendaal Roelof-Jan van den Akker Mark Harmer Max Castle Malin Hedman Brussels Peter Vanden Houte Carsten Brzeski Manuel Maleki Julien Manceaux Philippe Ledent Paolo Pizzoli Title Global Head of Financial Markets Research Chief International Economist Senior Economist, UK, US $ Bloc Head of Foreign Exchange Strategy Foreign Exchange Strategist Head of Macro & Consumer Economics Senior Economist, Eurozone Senior Economist, US Senior Economist, Netherlands Global Head of Developed Markets Debt Strategy Head of Developed Markets Credit Strategy Senior Credit Strategist Senior Rates Strategist Quantitative Strategist Technical Analyst Head of Developed Markets Credit Research Credit Analyst Credit Analyst Chief Economist, Belgium, Eurozone Senior Economist, Germany, Eurozone Senior Economist, France Economist, Belgium, Switzerland Economist, Belgium Senior Economist, EMU, Italy, Greece Title Global Head of Emerging Markets Strategy Chief Economist, Brazil, Argentina, Chile, Peru Head of Research & Chief Economist, EMEA Economist, Bulgaria, Croatia Senior Economist, Czech Republic Senior Economist, Hungary Economist, India Economist, Mexico Economist, Mexico Economist, Philippines Chief Economist, CEE Chief Economist, Poland Economist, Poland Economist, Romania Economist, Russia & Kazakhstan Senior Credit Analyst Head of Research & Chief Economist, Asia Economist, Asia Senior Economist, Slovakia Head of Research & Chief Economist, Turkey Senior Economist, Turkey Economist, Turkey Head of Research, Ukraine Financial Markets Research Analyst Telephone Email +44 20 7767 6283 mark.cliffe@uk.ing.com +44 20 7767 6909 rob.carnell@uk.ing.com +44 20 7767 6614 james.knightley@uk.ing.com +44 20 7767 1610 christopher.turner@uk.ing.com +44 20 7767 8057 tom.levinson@uk.ing.com +31 20 563 4406 +31 20 563 9528 +31 20 563 6167 +31 20 563 9497 +31 20 563 8955 +31 20 563 8959 +31 20 563 8941 +31 20 563 8801 +31 20 563 8956 +31 20 563 8178 +31 20 563 8964 +31 20 563 8815 +31 20 563 8962 +32 2 547 8009 +32 2 547 8652 +32 2 547 3995 +32 2 547 3350 +32 2 547 3161 maarten.leen@ing.nl martin.van.vliet@ing.nl teunis.brosens@ing.nl dimitry.fleming@ing.nl padhraic.garvey@ingbank.com jeroen.van.den.broek@ingbank.com maureen.schuller@ingbank.com alessandro.giansanti@ingbank.com job.veenendaal@ingbank.com roelof-jan.van.den.akker@ingbank.com mark.harmer@ingbank.com max.castle@ingbank.com malin.hedman@ingbank.com peter.vandenhoute@ing.be carsten.brzeski@ing.be manuel.maleki@ing.be julien.manceaux@ing.be philippe.ledent@ing.be

Milan

+39 02 89629 3630 paolo.pizzoli@ing.it Telephone +1 646 424 6464 +1 646 424 6465 Email david.spegel@americas.ing.com gustavo.rangel@americas.ing.com

Emerging Markets New York London Bulgaria H David Spegel Gustavo Rangel Simon Quijano-Evans Elena Ganeva

+44 20 7767 5310 simon.quijano@uk.ing.com +359 2 917 6720 elena.ganeva@ingbank.com

Czech Rep Vojtech Benda Hungary India Mexico David Nemeth Upasna Bhardwaj Debora Luna Ezequiel Garcia

+420 2 5747 4432 vojtech.benda@ing.cz +36 1 255 5581 nemeth.david@ing.hu

+91 22 3309 5718 upasna.bhardwaj@ingvysyabank.com +52 55 5258 2095 debora.luna@americas.ing.com +52 55 5258 2064 ezequiel.garcia@americas.ing.com +632 479 8855 +48 22 820 4698 +48 22 820 4696 +48 22 820 4608 +40 21 209 1393 +7 495 771 7994 +7 495 755 5480 +65 6232 6020 +65 6232 6181 joey.cuyegkeng@asia.ing.com mateusz.szczurek@ingbank.pl rafal.benecki@ingbank.pl grzegorz.ogonek@ingbank.pl vlad.muscalu@ing.ro dmitry.polevoy@ingbank.com egor.fedorov@ingbank.com tim.condon@asia.ing.com prakash.sakpal@asia.ing.com

Philippines Joey Cuyegkeng Poland Mateusz Szczurek Rafal Benecki Grzegorz Ogonek Vlad Muscalu Dmitry Polevoy Egor Fedorov

Romania Russia

Singapore Tim Condon Prakash Sakpal Slovakia Turkey Eduard Hagara Sengl Dadeviren Muhammet Mercan mer Zeybek Alexander Pecherytsyn Halyna Antonenko

+421 2 5934 6392 eduard.hagara@ing.sk +90 212 329 0752 sengul.dagdeviren@ingbank.com.tr +90 212 329 0751 muhammet.mercan@ingbank.com.tr +90 212 329 0753 omer.zeybek@ingbank.com.tr +38 044 230 3017 alexander.pecherytsyn@ingbank.com +38 044 590 3584 halyna.antonenko@ingbank.com

Ukraine

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Disclosures Appendix
ANALYST CERTIFICATION The analyst(s) who prepared this report hereby certifies that the views expressed in this report accurately reflect his/her personal views about the subject securities or issuers and no part of his/her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report. IMPORTANT DISCLOSURES Company disclosures are available from the disclosures page on our website at http://research.ing.com. The remuneration of research analysts is not tied to specific investment banking transactions performed by ING Group although it is based in part on overall revenues, to which investment banking contribute. Securities prices: Prices are taken as of the previous days close on the home market unless otherwise stated. Conflicts of interest policy. ING manages conflicts of interest arising as a result of the preparation and publication of research through its use of internal databases, notifications by the relevant employees and Chinese walls as monitored by ING Compliance. For further details see our research policies page at http://research.ing.com. FOREIGN AFFILIATES DISCLOSURES Each ING legal entity which produces research is a subsidiary, branch or affiliate of ING Bank N.V. See back page for the addresses and primary securities regulator for each of these entities.

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AMSTERDAM
Tel: 31 20 563 9111 Bratislava Tel: 421 2 5934 6111 Bucharest Tel: 40 21 222 1600 Budapest Tel: 36 1 235 8800 Buenos Aires Tel: 54 11 4310 4700 Dublin Tel: 353 1 638 4000

BRUSSELS
Tel: 32 2 547 2111 Geneva Tel: 41 22 593 8050 Hong Kong Tel: 852 2848 8488 Istanbul Tel: 90 212 329 0752 Kiev Tel: 380 44 230 3030 Madrid Tel: 34 91 789 8880

LONDON
Tel: 44 20 7767 1000 Manila Tel: 63 2 479 8888 Mexico City Tel: 52 55 5258 2000 Milan Tel: 39 02 89629 3610 Moscow Tel: 7 495 755 5400 Paris Tel: 33 1 56 39 32 84

NEW YORK
Tel: 1 646 424 6000 Prague Tel: 420 257 474 111 Sao Paulo Tel: 55 11 4504 6000 Seoul Tel: 82 2 317 1800 Shanghai Tel: 86 21 2020 2000 Sofia Tel: 359 2 917 6400

SINGAPORE
Tel: 65 6535 3688 Taipei Tel: 886 2 8729 7600 Tokyo Tel: 81 3 3217 0301 Warsaw Tel: 48 22 820 5018

Research offices: legal entity/address/primary securities regulator


Amsterdam Bratislava Brussels Bucharest Budapest Istanbul Kiev London Manila Mexico City Milan Moscow Mumbai New York Prague Singapore Sofia Warsaw ING Bank N.V., Foppingadreef 7, Amsterdam, Netherlands, 1102BD. Netherlands Authority for the Financial Markets ING Bank N.V., pobocka zahranicnej banky, Jesenskeho 4/C, 811 02 Bratislava, Slovak Republic. National Bank of Slovakia ING Belgium S.A./N.V., Avenue Marnix 24, Brussels, Belgium, B-1000. Financial Services and Market Authority (FSMA) ING Bank N.V. Amsterdam - Bucharest Branch, 48 Lancu de Hunedoara Bd., 011745, Bucharest 1, Romania. Romanian National Securities and Exchange Commission, Romanian National Bank ING Bank N.V. Hungary Branch, Dozsa Gyorgy ut 84\B, H - 1068 Budapest, Hungary. Hungarian Financial Supervisory Authority ING Bank A.S., ING Bank Headquarters, Resitpasa Mahallesi Eski Buyukdere Cad. No: 8, 34467 Sariyer, Istanbul , Turkey. Capital Markets Board ING Bank Ukraine JSC, 30-a, Spaska Street, Kiev, Ukraine, 04070. Ukrainian Securities and Stock Commission ING Bank N.V. London Branch, 60 London Wall, London EC2M 5TQ, United Kingdom. Authorised by the Dutch Central Bank ING Bank N.V., Manila Branch, 20/F Tower One, Ayala Triangle, Ayala Avenue, 1226 Makati City, Philippines. Philippine Securities and Exchange Commission ING Grupo Financiero (Mxico) SA de CV, Bosque de Alisos 45-B, Piso 4, Bosques de las Lomas, 05120, Mexico City, Mexico. Comision Nacional Bancaria y de Valores ING Bank N.V. Milano, Via Paleocapa, 5, Milano, Italy, 20121. Commissione Nazionale per le Societ e la Borsa ING BANK (EURASIA) ZAO, 36, Krasnoproletarskaya ulitsa, 127473 Moscow, Russia. Federal Financial Markets Service ING Vysya Bank Limited, Plot C-12, Block-G, 7th Floor, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051, India. Securities and Exchange Board of India ING Financial Markets LLC, 1325 Avenue of the Americas, New York, United States,10019. Securities and Exchange Commission ING Bank N.V. Prague Branch, Plzenska 345/5, 150 00 Prague 5, Czech Republic. Czech National Bank ING Bank N.V. Singapore Branch, 19/F Republic Plaza, 9 Raffles Place, #19-02, Singapore, 048619. Monetary Authority of Singapore ING Bank N.V. Sofia Branch, 49B Bulgaria Blvd, Sofia 1404 Bulgaria. Financial Supervision Commission ING Bank Slaski S.A, Plac Trzech Krzyzy, 10/14, Warsaw, Poland, 00-499. Polish Financial Supervision Authority

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18 Additional information is available on request