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BNP Paribas FX Strategy Summary - February 4, 2014

Core Content Overview

This document provides a summary of the BNP Paribas FX Strategy (STEER™) for the week of February 4, 2014, highlighting key currency pair movements, fair value estimates, and forecast biases based on the STEER model. The model considers short-term equilibrium exchange rates, driven by interest rate differentials, equity market performance, and commodity prices.

Main Currency Pair Analysis

Eurozone Currencies

• EURUSD: Overbought, trading at the top of its ±1.5 z-score corridor. Fair value has declined to 1.3380 from 1.3440. STEER indicates potential for a decline ahead of the ECB meeting.
• EURGBP: Overbought, with a fair value of 0.8170. The pair is vulnerable to a downward move.
• EURNOK: Overbought, trading 3.2 z-scores above its STEER. STEER indicates a potential decline.
• EURSEK: Overbought, trading 1.33 z-scores above its STEER. STEER indicates a potential decline.
• EURCHF: Underbought, with a fair value of 1.2295. The pair is not overvalued and may rise.
• EURRON: Converged with its STEER of 4.4550 after a 2% decline. STEER does not indicate a strong signal for movement.
• USDCAD: Extremely overbought, with a fair value of 1.0785 and a deviation of 3.6 z-scores. Vulnerable to a downward move.

Commodity Currencies

• AUDUSD: Underbought, with a fair value of 0.9300. STEER indicates potential for a rise.
• NZDUSD: Underbought, with a fair value of 0.8355. STEER indicates potential for a rise.
• USDTRY: Overbought, with a fair value of 2.2330. STEER indicates potential for a decline.
• USDRUB: Overbought, with a fair value of 34.7030. STEER indicates potential for a decline.
• USDIDR: Overbought, with a fair value of 11341. STEER indicates potential for a decline.
• USDTHB: Overbought, with a fair value of 32.5570. STEER indicates potential for a decline.
• USDPHP: Overbought, with a fair value of 44.3790. STEER indicates potential for a decline.
• USDTWD: Overbought, with a fair value of 29.4940. STEER indicates potential for a decline.
• USDSGD: Underbought, with a fair value of 1.2810. STEER suggests the decline may be unwarranted.
• USDINR: Underbought, with a fair value of 63.4260. STEER indicates potential for a rise.

Key Viewpoints

• EURUSD and EURNOK are overbought and may move lower.
• GBPUSD has declined and is now in line with its STEER, reducing the downward signal.
• AUDUSD and NZDUSD are underbought and may rise due to improved relative equity performance.
• USDCAD is extremely overbought and vulnerable to a sell-off.
• USDTRY and USDRUB are overbought and may decline by 1-2%.
• USDIDR and USDTHB are overbought and may decline, supported by STEER.
• USDSGD is underbought, but the decline may not be justified.
• USDCOP and USDMXN are overbought and may decline, as their rallies are considered too extreme.
• USDBRL and USDCLP have moved in line with fundamentals, suggesting no significant misalignment.

Forecast Bias Summary

Cointegration Filter Notes

• USDTRY, USDRUB pass the cointegration filter, indicating potential for a decline.
• USDIDR, USDPHP, USDTWD do not pass the cointegration filter, suggesting lower forecasting power.
• EURHUF, EURCZK, USDZAR are overbought but do not pass the filter.

Strategic Implications

• The EUR is overbought, with potential for short-term declines.
• Commodity currencies (AUD, NZD) appear undervalued and may rise.
• The GBP has corrected to align with its STEER, reducing the overvaluation.
• The USDCAD remains significantly overbought and vulnerable.
• Emerging market currencies like USDTRY and USDRUB are overbought and may decline.
• The model highlights the importance of equity market performance and interest rate differentials in determining exchange rate movements.

Disclaimer

• This document is classified as non-independent research.
• It is a marketing communication and not an independent investment research.
• It is intended for professional clients and not for retail clients.
• The information is based on public sources and may not be accurate or up to date.
• No liability is accepted for any use of the information or reliance on it.
• BNP Paribas may have a financial interest in the currencies mentioned and may be involved in trading or underwriting activities related to them.