FX Strategy Research

FX Compass
Results of the July 2011 poll
29. Juli 2011
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For the first time Euro-bears gain the upper hand in the short-term, too
For the first time in six months German corporates see no potential for a further Eurorise in the short-term. Instead, expectations shifted in July in favour of the Euro bear camp. (Chart 1) What happened? It seems as if rising uncertainty (e.g. fears of contagion effects of the Eurozone debt crisis) is actually the main driver behind the move A more detailed look at the data offers some interesting aspects: (1) German corporate expectations are at least in the short term not influenced by the 1 EUR-USD spot price. Indeed the current assessment shift comes at a time when EURUSD is neither close to excessive levels nor shows tendencies of a short-term market correction from a technical point of view. These are good news in our view, because it shows corporates are neither one-dimensional in their way of thinking nor simple trend followers. (2) However, it seems as if the risk environment (in this case illustrated by the 3 months EURUSD volatility) at least in these unsecure times of sizzling Eurozone crisis is a main driver for the short-term EUR-USD-assessment of German trade oriented companies. As chart 5 on page 2 illustrates, the Euro bull camp increased during times of decreasing volatility. Vice versa you can see Euro-bullishness declining or like in the actual July figures turn into the Euro-bear camp when the risk measure is rising. And what about the hit ratio of the companies EUR-USD-assessments? Whereas it is still too early for analytical modelling, the first results look encouraging: The companies polled were correct with their Euro-bullish 3 month outlook in February and March, but were on the wrong side in April (chart 6, p.2) CHART 1: German companies look for Euro weakness
Index depiction: total euro bulls minus total euro bears

EUR-GBP: Between a rock and a hard place 3 EUR-CHF: Companies expect further Franc strengh 4 EUR-PLN: Zloty bulls continue to dominate 5 EUR-RUB: Long-term ruble bulls are decreasing in numbers 6

+40 +30 +20 +10 +0 -10 -20 -30 -40 -50 3 months +15 +5 +22 +24

+28 +11

+5 -1 -14 -26 -45 -46 12 months Jun 11 Jul 11

-13

-7 -16 -19 -27

-7

6 months Feb11 Mar11 Apr11 May 11

Source: Commerzbank FX Research Author: Alexandra Bechtel +49 69 136 41250 alexandra.bechtel@commerzbank.com

In the long-term, however, it seems likely that expectations are influenced by extreme exchange rate levels and corporates assume them to move towards fair values such as the PPP.

For important disclosure information please refer to the back pages

FX Compass

CHART 2: EUR-USD: June poll

CHART 3: EUR-USD: July poll

40% 20% 0% -18% -20% -40% -60% 3 months 6 months decrease increase 12 months -44% -63% 46% 25% 17%

40% 20% 0% -20% -40% -60% 3 months 6 months decrease increase 12 months -41% -43% -35% 36% 34%

28%

Source: Commerzbank FX Research

Source: Commerzbank FX Research

CHART 4: EUR-USD outlook of exporters and importers (12 month horizon, poll July 2011)

CHART 5: Volatility seems to be a main driver behind corporate expectations at least in these unsecure times
FX Compass (index depiction, short-term outcome) vs. 3 months EURUSD-volatility
Eurobears

60% 15% 40% 20% 0% -20% -40% -60% importers decrease increase exporters -39% 40% 39%

15 14 13 12 11 10 Jan-11 Feb-11 Mar-11 May-11 Jun-11

-20 -10 0 10 20 30 40 Jul-11

Eurobulls

3 months EURUSD volatility FX Compass (rhs, invers)

Source: Commerzbank FX Research

Source: Bloomberg, Commerzbank FX Research

CHART 6: Average EUR-USD levels at FX polling date

1, 5 0 1, 4 5 1, 4 0

TABLE 1: FX Compass positioning index (EUR-USD) Poll 3 months +15 +22 +24 +5 +28 -13 6 months +11 -7 -27 -16 -19 -7 12 months +5 -14 -45 -26 -46 -1

1,4461 1,416 1,4388 1,4107 1,4192

February 2011 March 2011 April 2011 May 2011 June 2011 July 2011

1, 3 5

1,3576
1, 3 0 1, 2 5 Ja n- 1 1 F e b -11 M ar -1 1 Ap r-1 1 M a y-11 Ju n-1 1 Jul-1 1
EU R-USD A ve ra ge e xc h an ge r ate d ur ing the mo nthl y po ll

Source: Commerzbank FX Research, Bloomberg

Source: Commerzbank FX Research

29/07/11

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EUR-GBP: Between a rock and a hard place

The deterioration of the Eurozone debt crisis over the past few weeks is also affecting the poll results for EUR-GBP: Short term the camp of the euro bulls has fallen notably from 29% to 18% (chart 7 & 8). The camp of the euro bears on the other hand has hardly changed against the previous month. The result is likely to reflect the difficulties in the UK. At above 4% the inflation rate is well above the Bank of Englands inflation target (2%). Markets nonetheless do not expect a rate rise this year as the British economy has been weak for some time and there are no signs as yet that the recovery is picking up speed. This caused speculation recently about the Bank of England re-introducing measures of quantitative easing to support the economy. Economic concerns as well as the BoEs continued conundrum are putting pressure on Sterling, also against the background that the ECB began its exit from the expansionary monetary policy some time ago. In the case of EUR-GBP market participants clearly face the choice between a rock and a hard place. This is illustrated by the fact that the camp of the euro bears and euro bulls is of similar size throughout all forecasting horizons. Moreover the number of companies expecting to see a EUR-GBP sideways range short to medium term has risen compared with the previous month.

CHART 7: EUR-GBP: June poll

CHART 8: EUR-GBP: July poll

40%

40%

20%

29%

20%
20% 17%

18% 0% -21% -20%

18%

22%

0% -19% -20% -33% -32%

-23%

-28%

-40% 3 months 6 months decrease increase 12 months

-40% 3 months 6 months decrease increase 12 months

Source: Commerzbank FX Research

Source: Commerzbank FX Research

CHART 9: EUR-GBP development since 2009

0,96

TABLE 2: FX Compass positioning index (EUR-GBP) Poll February 2011 3 months +5 +0 +10 -5 +10 -3 6 months +4 -2 -19 -6 -13 -5 12 months +5 -2 -30 -13 -15 -5

0,92

March 2011 April 2011

0,88

May 2011 June 2011 July 2011

0,84

0,80 2009

2010

2011

Source: Bloomberg

Source: Commerzbank FX Research

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EUR-CHF: Companies expect to see further franc strength

Despite the fact that the franc has been moving from peak to peak over the past few weeks, probably distancing itself further and further from its fair value (according to our exchange rate model approx. 1.50 EUR-CHF) opinions among the companies polled has changed. So far the majority of companies were unable to image that the franc might be able to appreciate further short term. Bit in July the positioning index turned negative (table 3). Even at the current peaks 44% of companies polled expect a further appreciation of the franc (chart 11): This is hardly surprising as uncertainty on the markets has risen over the past few weeks and there does not seem to be a real alternative to the Swiss franc as a safe haven. While the Eurozone has been battling with the debt crisis for some time, the US now has its own debt crisis (raising the debt ceiling). Moreover the US central banks monetary policy is putting pressure on the dollar. Switzerland on the other hand is in a very stable position as far as its public finances are concerned and so far the Swiss economy has been able to withstand the strong franc. Medium to long term the outlook among the companies polled has changed hardly at all. The franc is likely to be overvalued at current levels and the strength is unlikely to be sustainable. As a result the majority of companies expect an upward correction in EUR-CHF for the 6 and 12 month horizon. CHART 10: EUR-CHF: June poll CHART 11: EUR-CHF: July poll

40% 48% 35% 50%

40% 20% 25% 0% -24% 41% 47%

20%

0% -35% -25% -22%

-20% -40%

-29% -44%

-20%

-40% 3 months 6 months decrease increase 12 months

-60% 3 months 6 months decrease increase 12 months

Source: Commerzbank FX Research

Source: Commerzbank FX Research

CHART 12: EUR-CHF development since 2009

TABLE 3: FX Compass positioning index (EUR-CHF) Poll February 2011 3 months +29 +10 +23 +6 +0 -20 6 months +28 +28 +8 +5 +23 +12 12 months +33 +30 +9 +20 +28 +24

1,50 1,40 1,30 1,20 1,10 2009

March 2011 April 2011 May 2011 June 2011 July 2011
2010 2011

Source: Bloomberg

Source: Commerzbank FX Research

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EUR-PLN: Zloty bulls continue to dominate

The EUR-PLN outlook amongst the companies polled has changed hardly at all for the 3-month horizon. For the 6 and 12 month horizon on the other hand the number of EUR-PLN bears has fallen notably. Central bank governor Marek Belka signalling at the last rate meeting that the extent of further rate rises was limited supports this change of view. According to Belka current market expectations roughly corresponds to that of the central bank (NBP), suggesting that there will only be one further rate rise this year. This is probably going to take place in the autumn, which as a result should support the zloty further short term. This factor does however not apply long term and the central banks slightly more pessimistic growth outlook for this and the coming year is likely to have more of an impact. In its July meeting the NBP revised its GDP outlook for 2012 from approx. 3.6% yoy to only 3.2%. On an overall basis the EUR-PLN bears still outnumber the EUR-PLN bulls. From a fiscal policy point of view the Polish government was able to surprise positively recently. The development of the current account deficit was better than expected. On the whole the zloty remains an attractive currency by regional comparison. CHART 13: EUR-PLN: June poll CHART 14: EUR-PLN: July poll

40%

40%

20% 16% 0% -32% 17% 17%

20% 17% 0% -31% -25% -25% 14% 14%

-20%

-20%

-38%

-38%
-40% 3 months 6 months decrease increase 12 months

-40% 3 months 6 months decrease increase 12 months

Source: Commerzbank FX Research

Source: Commerzbank FX Research

CHART 15: EUR-PLN development since 2009

TABLE 4: FX Compass positioning index (EUR-PLN) Poll 3 months -4 +7 -13 -4 -16 -14 6 months -2 -3 -21 -16 -21 -11 12 months +3 -13 -32 -19 -21 -11

5,00

February 2011 March 2011

4,50

April 2011 May 2011

4,00

June 2011 July 2011

3,50 2009

2010

2011

Source: Bloomberg

Source: Commerzbank FX Research

29/07/11

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EUR-RUB: Long-term ruble bulls are decreasing in numbers

The positioning of German companies regarding the ruble has further lost its clarity. In particular the long-term view has changed considerably: while in June 47% had expected falling EURRUB prices for the 12 month horizon only 15% considered that to be likely in July. For the 6 month horizon the share of the EUR-RUB bears has fallen by 14 percentage points. Short term the number of EUR-RUB bears has remained stable, while the EUR-RUB bulls recorded a rise in numbers by 6 percentage points. The less certain positioning in one or the other direction reflects the current uncertainty on the markets. First of all the European debt crisis and the debates about raising the debt ceiling in the US have led to a significant rise in risk aversion. Moreover ruble-positive factors seem to be concentrating on one aspect: the oil price. The high dependency on the development of the oil price combined with weak long term growth outlook make the ruble susceptible to a surprising oil price collapse, putting pressure on the long term ruble outlook. The investment climate remains weak, the inflation rate has remained above 9% for some months and the central bank does no longer seem willing to change interest rates.

CHART 16: EUR-RUB: June poll

CHART 17: EUR-RUB: July poll

40%

40%

20% 18% 0% -29% -47% -47% 18% 24%

20% 24% 0% -15% -29% -20% -33% 19% 20%

-20%

-40% 3 months 6 months decrease increase 12 months

-40% 3 months 6 months decrease increase 12 months

Source: Commerzbank FX Research

Source: Commerzbank FX Research

CHART 18: EUR-RUB development since 2009

TABLE 5: FX Compass positioning index (EUR-RUB) Poll 3 months +10 -11 +3 -42 -12 -5 6 months +7 +6 -3 -35 -29 -14 12 months +11 +8 -16 -40 -24 +5

48

February 2011 March 2011 April 2011 May 2011

46

44

42 40

June 2011 July 2011

38

36 2009

2010

2011

Source: Bloomberg

Source: Commerzbank FX Research

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FX Compass

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