Financial pacific, Wealth Management Research (third party)


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Financial pacific, Wealth Management Research (third party)

  1. 1. Wealth Management Research 26 July 2010 UBS daily forex US Giovanni Staunovo Big Mac Index: European strategist, UBS AG currencies are overvalued The Economist's latest Big Mac Index compares the prices of a Big Mac burger around the globe and highlights which currencies are overvalued/ undervalued. The index suggests that European currencies, such as the Norwegian krone and the Swiss franc, are considerably overvalued; while the Argentinean peso, and several Asian currencies are clearly undervalued. Despite the correction in EURUSD in the first half of 2010, the euro remains slightly overvalued against the US dollar, according to the Big Mac Index. Although the index is an easy way to compare the price of the same item around the globe, it remains only a lighthearted attempt to gauge the fair price of a currency. Furthermore, most of the costs of a burger depend on local inputs such as rent and wages, which are normally lower in poor countries. Last but not least, any investor taking a view on a correction in the direction of the fair value usually requires a very long investment horizon. s EUR: stress test over, earnings data in focus s AUD: PPI below expectations s SGD: economy is decelerating FX Heat map Currency Pair Actual Forecast Technical Indications Implied Volatility Volatility Comment 3m 6m Bias 2. Support 1. Support 1. Resistance 2. Resistance 3m 6m Comment EURUSD 1.2983 1.25 1.32 neutral 1.1877 1.2523 1.3094 1.3689 12.01 12.42 Volatility is high in USDJPY 87.25 90 92 neutral 84.83 86.27 92.89 94.99 11.30 12.40 relation to last 12 months. GBPUSD 1.5500 1.50 1.55 bearish 1.4231 1.4784 1.5524 1.7041 11.12 11.65 Volatility is low in USDCHF 1.0472 1.04 0.98 neutral 1.0131 1.0400 1.1138 1.1731 10.33 10.73 in relation to last 12 months. USDSEK 7.2854 7.52 7.12 neutral 0.7000 0.7102 7.6193 8.1372 13.50 13.97 USDNOK 6.1636 6.24 5.76 neutral 5.8241 6.1003 6.7281 7.3144 13.50 13.73 Clients can find information on USDCAD 1.0306 1.00 0.97 bearish 1.0000 1.0268 1.0781 1.0870 12.10 12.45 the construction and elements AUDUSD 0.8996 0.88 0.90 neutral 0.7268 0.8067 0.8871 0.9406 13.95 14.55 of the FX Heat Map under NZDUSD 0.7320 0.71 0.73 neutral 0.6197 0.6561 0.7326 0.7635 14.35 14.95 Currencies from the Online USDBRL 1.7694 1.80 1.80 na na na na na 14.40 15.25 Services Research platform. USDMXN 12.6900 12.70 12.30 bearish 11.8212 12.4870 13.2529 13.4416 12.85 13.25 USDZAR 7.3550 7.70 8.00 na na na na na 14.50 15.30 Date & Time / 26.07.2010 / 11:43:29 / EST Source: THOMSON REUTERS; UBS WMR This report has been prepared by UBS AG. Please see important disclaimers and disclosures that begin on page 3.
  2. 2. UBS Wealth Management Research 26 July 2010 UBS daily forex US EUR: stress test over, earnings data in focus The stress test has not been as negative for the euro as many had expected. The small capital shortfall might raise doubts about the test's credibility, but at the end of the day the test has not changed anybody’s opinion about the state of the European banking system. This week more US earning results will be published, and a bunch of important US data (GDP Q2, Consumer Confidence) will be released. EURUSD is likely to stay shaky in the next days. Giovanni Staunovo, strategist AUD: PPI below expectations Australian Q2 producer price index (PPI) was below consensus. AUDUSD largely ignored the weaker data. The next focus will be Wednesday's CPI data. As correlation between PPI and CPI on a quarterly basis is not compelling, the PPI data cannot be used as a leading indicator for the CPI. However, the still elevated inflation pressure will keep the RBA hiking over the next 12 months. We keep our long-term positive view on the AUD, however in the short term AUDUSD is likely to stay shaky. Giovanni Staunovo, strategist SGD: economy is decelerating After an astonishing growth in the first half of 2010, the latest data releases signal that Singapore's economy is decelerating. Lower than expected industrial production figures and lower CPI data reduce the probability of MAS tightening in October. However, the decision is not yet off the table and will depend on how global and local data will turn out in the next few months. Despite the recent data flow, the structural story for a stronger SGD remains intact. Giovanni Staunovo, strategist UBS daily forex US - 2
  3. 3. UBS Wealth Management Research 26 July 2010 UBS daily forex US Appendix The FX Heatmap is designed to serve as a guide to short-to-medium-term investment decisions concerning major currency pairs. The elements in this concise table may help your timing and positioning decisions when considering a foreign exchange transaction. WMR Foreign Exchange Research publishes the FX Heatmap in the UBS daily forex and UBS daily guide. In our view, an ideal FX Heatmap should contain the relevant items that an investor should consider when making short- to medium-term decisions in the foreign exchange market. The WMR FX Heatmap contains in the first column the spot rate (actual rate), provided as a mid-rate by Reuters and refreshed daily. In the second and third columns are the three-month and six-month WMR forecasts. Next come the technical indications, and in the last two columns, the traded volatility of the exchange rate is indicated. Fundamental Forecast is not a trading target WMR makes its three- and six-month forecasts using its 'three-pillar' approach: Fundamentals, cyclical influences and market drivers. The purpose of the forecast is to indicate a direction, justified by the fundamentals, and to show the strength of drift within a given forecast horizon. WMR forecast the exchange rate that we consider most likely to be reached in the last couple of weeks of the forecast horizon. This might differ substantially from a trading target, which we define as an exchange rate that diverges as much as possible from spot while having a fair chance to be reached at any point within the next three (or six) months. Chart Technical Support and Resistance The technical elements within the FX Heatmap are first and second supports and resistances, and a technical bias, which can be bullish (exchange rate moves higher), bearish (exchange rate moves lower) or neutral. Technical analysis is one approach to market forecasting. It is based on the study of past price movements, human psychology and the laws of probability. Technical analysts study market behavior, primarily using charts, for the purpose of forecasting future price trends. WMR chartists use bar charts that consist of daily highs, lows and closes. First-level support/resistance is then defined as initial support/resistance and comprises of a technical outlook of several days to several weeks. Second-level support/resistance is secondary support/resistance encompassing several weeks to several months. Typically, they utilize one- to three-months of daily bar charts for most of the FX technical analysis. Volatility Indication The last two columns of the FX Heatmap table contain the one- and three-month implied option volatility, as they are traded in the interbank over-the-counter option market. The data provider is Reuters. WMR indicates the volatilities, which are relevant for option contracts with a strike level at the one-month (or three-month) forward rate of the exchange rate. Historical analysis suggests that most currency volatilities tend to revert to a stable mean. We use this characteristic to evaluate the level of current volatility. Global Disclaimer Wealth Management Research is published by Wealth Management & Swiss Bank and Wealth Management Americas, Business Divisions of UBS AG (UBS) or an affiliate thereof. In certain countries UBS AG is referred to as UBS SA. This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS and its affiliates). All information and opinions as well as any prices indicated are current as of the date of this report, and are subject to change without notice. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. At any time UBS AG and other companies in the UBS group (or employees thereof) may have a long or short position, or deal as principal or agent, in relevant securities or provide advisory or other services to the issuer of relevant securities or to a company connected with an issuer. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is considered risky. Past performance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in FX rates may have an adverse effect on the price, value or income of an investment. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein. This document may not be reproduced or copies circulated without prior authority of UBS or a subsidiary of UBS. UBS expressly prohibits the distribution and transfer of this document to third parties for any reason. UBS will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This report is for distribution only under such circumstances as may be permitted by applicable law. Australia: Distributed by UBS Wealth Management Australia Ltd (Holder of Australian Financial Services Licence No. 231127), Chifley Tower, 2 Chifley Square, Sydney, New South Wales, NSW 2000. Austria: This publication is not intended to constitute a public offer or a comparable solicitation under Austrian law and will only be used under circumstances which will not be equivalent to a public offering of securities in Austria. The document may only be used by the direct recipient of this information and may under no circumstances be passed on to any other investor. Bahamas: This publication is distributed to private clients of UBS (Bahamas) Ltd and is not intended for distribution to persons designated as a Bahamian citizen or resident under the Bahamas Exchange Control Regulations. Canada: In Canada, this publication is distributed to clients of UBS Wealth Management Canada by UBS Investment Management Canada Inc.. 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Luxembourg: This publication is not intended to constitute a public offer under Luxembourg law, but might be made available for information purposes to clients of UBS (Luxembourg) S.A., a regulated bank under the supervision of the "Commission de Surveillance du Secteur Financier" (CSSF), to which this publication has not been submitted for approval. Singapore: Please contact UBS AG Singapore branch, an exempt financial adviser under the Singapore Financial Advisers Act (Cap. 110) and a wholesale bank licensed under the Singapore Banking Act (Cap. 19) regulated by the Monetary Authority of Singapore, in respect of any matters arising from, or in connection with, the analysis or report. Spain: This publication is distributed to clients of UBS Bank, S.A. by UBS Bank, S.A., a bank registered with the Bank of Spain. UAE: This research report is not intended to constitute an offer, sale or delivery of shares or other securities under the laws of the United Arab Emirates (UAE). The contents of this report have not been and will not be approved by any authority in the United Arab Emirates including the UAE Central Bank or Dubai Financial Authorities, the Emirates Securities and Commodities Authority, the Dubai Financial Market, the Abu Dhabi Securities market or any other UAE exchange. UK: Approved by UBS AG, authorized and regulated in the UK by the Financial Services Authority. A member of the London Stock Exchange. This publication is distributed to private clients of UBS London in the UK. Where products or services are provided from outside the UK, they will not be covered by the UK regulatory regime or the Financial Services Compensation Scheme. USA: Distributed to US persons by UBS Financial Services Inc., a subsidiary of UBS AG. UBS Securities LLC is a subsidiary of UBS AG and an affiliate of UBS Financial Services Inc. UBS Financial Services Inc. accepts responsibility for the content of a report prepared by a non-US affiliate when it distributes reports to US persons. All transactions by a US person in the securities mentioned in this report should be effected through a US-registered broker dealer affiliated with UBS, and not through a non-US affiliate.Version as per January 2010. UBS daily forex US - 3
  4. 4. UBS Wealth Management Research 26 July 2010 UBS daily forex US Appendix © UBS 2010.The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. UBS daily forex US - 4