Q1 2015|

Q1 2015| 2

Dear traders,

It may seem the main FX topics for 2015 are crystal clear–appreciation of the US Dollar amid the highly-anticipated Fed

rate hike and broad-based sell-offs of the Euro and the Yen. The common currency may become a victim of the Euro

zone edition of the quantitative easing. On the other hand, the Japanese Yen is expected to suffer more from lagging

growth and stubbornly low inflation, partially a result of the fiscal tightening. There is an important distinction between

the latter two, however.

Nippon citizens are confident in leadership of Shinzo Abe, as the latest parliamentary election results have shown.

Consequently, the government is likely to keep pushing ahead with the planned measures to revive the economy and

catch up to the leaders among the developed nations without any political hindrance, a salient issue in Europe.

Even though there are apparently less opposition to the QE within the ECB itself, unwillingness of politicians to assist

the monetary authority to steer the economy away from the creeping deflation by implementing the often mentioned

by Mario Draghi structural reforms is unlikely to prevent the gap between the business cycles in the Old and New

Worlds from widening further.

What is particularly amusing is that we had a similar situation a year ago, foreseeing together with the whole market

strong outperformance of the US Dollar, but also depreciation of the Euro and the Yen. Yes, the course of events in

2014 deviated from the base case scenario, mainly because of the geopolitical tensions, but that does not fully account

for the distance between the forecasts and the reality. Despite the confidence of the market, there are always

unknowns in the equation that can change the rules of the game.

Something we can draw from the lessons of the past is that you cannot possibly be too cautious or too conservative, at

least in the context of trading and investing. The analogy might be far-fetched, but if you are climbing a mountain, it is

better if your steps are maximally small and careful – one wrong move, and you may find yourself on the ground.

Kind regards,

Alexander Suhobokov, CFA, FRM

Head of Research

Dukascopy Bank SA

Q1 2015| 3

Table of Contents

page 4

Fundamental

Analysis

page 14

Technical

Analysis

page 23

page 30

Trade Pattern

Ideas

page 35

Expert

Commentary

Aggregate

Technical

Indicator

page 12

Community

Forecasts

Q1 2015| 4

Fundamental Analysis

Q1 2015| 5

Following relatively positive first three quarters, the final months of the year have seen the pace of recovery slowing

down and a resurgence of concerns about the Euro zone’s long-term future. The European Commission acknowledged

the EU economy was not only “particularly weak” as compared with other developed countries, but was also

underperforming compared with other post-crisis economies. Substantial risks to the recovery persist, and major

hurdles to growth need to be addressed if the Euro zone economies are to prosper in the medium term. Nevertheless,

2015 should see several headwinds become tailwinds, including the lagged impact of a weakening Euro, easing fiscal

austerity and more certainty in the banking sector. These factors, coupled with plunging oil prices, will strengthen the

recovery of Euro zone. However, the legacy of the crisis means that the recovery will be slower than previous

rebounds.

Ernst & Young expects GDP growth to rise from 0.8% in 2014 to 1.2% in 2015, and then 1.6% a year in 2016–2018. The

European Commission predicts economic output of the Euro bloc to grow 0.8% this year, down from 1.2% anticipated

earlier. In 2015, growth will remain low at 1.1%, before picking up to 1.7% in 2016. The Euro zone growth outlook was

dragged down by lower growth in the biggest countries, including Germany, France and Italy. Meanwhile, the IMF

forecasts the Euro zone's economy to grow 1.3% in 2015, after a 0.8% gain this year.

Despite a slower growth in the emerging markets, the Euro zone will enjoy stronger export demand in 2015, as the US

and UK continue to recover and a weaker Euro offers relief to less competitive economies. Export growth is seen to rise

to 3.7% in 2015 and over 4% the year after, Ernst & Young predicts. On top of that, the Euro zone’s recovery should

become more domestically driven. Households are set to receive a substantial support from lower energy prices, which

should boost net household income.

However, the threat of deflation intensifies, as the Euro zone's inflation rate declined to 0.3% in November, dragged

down by sharp declines of energy costs. Consumer inflation has not been at the ECB's inflation goal of close to 2% since

the beginning of 2013, and has been sliding since late 2011 when it reached 3%. Inflation will remain below the ECB’s

goal until at least 2016, according to the European Commission. The combination of low growth and low inflation

create problems for high-debt countries such as Italy and Greece. It also makes it more likely that the ECB could be

prodded towards more aggressive stimulus measures, such as large-scale purchases of government bonds and other

assets.

Eurozone

The ongoing slump in oil prices is adding to downward pressure on inflation globally and should further strengthen the bias for an easy monetary policy stance.

- Barclays

Q1 2015| 6

Moreover, in the ECB’s second round of targeted long-term loans Euro zone financial institutions borrowed less than

expected, complicating the central bank's balance sheet expansion goal. Altogether, 306 banks took up 129.84 billion

euros in the auction. The cheap long-term loans from the central bank to Euro zone banks are part of the ECB's easing

package, which is aimed at boosting lending in the currency bloc, spur growth and lift inflation. Coupled with purchases

of asset-backed securities and covered bonds, the ECB plans to expand its balance sheet by almost 1 trillion euros to 3

trillion euros by late 2016.

However, following the weak uptake in the TLTRO, pressure has been increasing on the ECB to eventually deploy full-

blown quantitative easing if it is to achieve its goal of expanding the balance sheet to March 2013 levels. The

Bundesbank, in what is seen as an unexpected move, has supported the ECB’s view on taking further stimulus

measures to bolster the Euro zone economy if needed, though the German central bank did not openly back up the

ECB's quantitative easing. The German central bank's language surprised, as Bundesbank Chief Jens Weidmann had

previously reiterated the need of more reforms in Euro zone countries as the main tool for fuelling growth and has

been reluctant to endorse quantitative easing.

Q1 2015| 7

Next year will be a game-changer for the world’s number one economy, which is also expected to be the bright spot of

the global economy, as other advanced nations are expected to grow only modestly. With Europe heading for a

recession, Japan already experiencing one, and China’s and India’s economies slowing, the US will be an even stronger

economic force in the world. While the Fed is predicted to start raising interest rates in the mid-2015 amid brightening

growth outlook, the ECB and BoJ will continue to combat deflationary threat. This policy divergence is likely to continue

to support the US Dollar.

29 October will go down in history as the day when the Fed finally concluded the largest and most aggressive asset-

buying programme in the history of the US, which had supported the world's number one economy since the onset of

the financial crisis in 2008. The six-year old QE allowed the central bank to buy trillions of dollars of mortgage and US

treasury bonds from banks and hedge funds to keep interest rates at zero. Now market participants' curiosity turns to

how the Fed plans to get rid of abundant number of assets it has purchased.

The Fed made the decision to end its QE programme in light of upbeat economic data. The US GDP rose 3.9% in the

third quarter following a robust growth in the preceding quarters. GDP growth, however, will slow slightly a bit below a

3.0% rate in the fourth quarter, but will still remain around 2.5% for the whole 2014, making it the best year for GDP

growth since before the “Great Recession.” Moreover, the jobless rate slipped from 5.9% to 5.8%, the lowest since July

2008. US job market is recovering much faster than initially estimated, as the Fed had projected the unemployment to

reach around 5.9%-6% in the last quarter of this year.

GDP growth is seen improving further to about 3% for 2015. The IMF projects the US economy to expand at annual

3.1% next year, while the OECD also sees growth rate of around 3% in 2015 and 2016. The unemployment rate is

expected to drop to about 5.5% nationwide next year.

Concluding the final in 2014 FOMC's meeting, Fed Chair Janet Yellen said the US central bank plans to hike interest

rates next year, but it would take a patient approach to decide on the timing of the first rate hike, which would not

take place any earlier than late April. Yellen's comments along with the FOMC statement indicated the Fed was not

inclined to start normalizing its monetary stance sooner despite the recent upbeat economic data, including stronger

employment growth and falling oil prices. Still-elevated jobless rate and below-target inflation provides the central

bank with flexibility to take gradual approach to lifting rates. The FOMC statement also showed that the overwhelming

majority of policy makers expect the Fed to raise the federal funds rate by 0.75-1.75 percentage points in 2015.

USA

Based on its current assessment, the Committee judges that it can be

patient in beginning to normalize the stance of monetary policy.

- FOMC statement

Q1 2015| 8

The Bank of England should start lifting interest rates next year to cool the economy as Britain's booming jobs market

leads to stronger wage growth and higher inflation, according to the OECD. The think-tank expects policy makers to

raise rates from a record low of 0.5% in mid-2015. Tighter monetary policy would be a mark of success for the UK

economy, which would support future pay growth through stronger productivity.

Bank of England Governor Mark Carney said the UK economy could benefit from the recent slump in oil prices, which is

seen boosting consumers' spending power and supporting the global demand. The British Chambers of Commerce

upgraded its growth forecasts for the next two years from 2.8% to 3.1% in 2014 and from 2.5% to 2.7% in 2015. With

expected growth of 3.1% this year, it will be the first time since 2007 that annual growth has been above 3%. According

to forecasting group EY Item Club, the UK economy will grow by 2.4% in 2015, well below the 3.1% growth expected

this year. Growth will also be constrained by concerns over the Euro zone and the Ukraine conflict. The Bank of

England's most recent forecasts predict GDP growth of 3.5% this year and 3% next, while the IMF says it will be 3.2%

followed by 2.7% and the CBI estimates are 3% and then 2.7%. The OECD trimmed its forecast for UK growth to 2.7% in

2015, but the UK economy is expected to grow by 3% in 2014 and secure its position as the fastest growing economy in

the G7 this year. In 2016, the UK growth is expected to slow to 2.5%.

One of the main concerns of the BoE was weak inflation, as it slipped to 1%, the lowest level in 12 years in November

as falling fuel prices pushed down transport costs while food prices declined. Despite the weak inflation in the UK, the

Bank of England officials expect their next decision will be to hike interest rates and now they are focused on timing

and a degree of an eventual tightening in policy. Nevertheless, the BoE Governor Mark Carney highlighted the external

risks are the main menace to the UK economy, given that two major economies, Europe and Japan, see their economic

conditions deteriorating, while geopolitical situation remain difficult.

Great Britain

The recent sharp fall in the oil price should support global and U.K. growth.

- Mark Carney, BoE Governor

Q1 2015| 9

China

It has been a bumpy ride for the Chinese economy this year, with multiple growth scares followed by the government’s

policy stimulus to address financial vulnerabilities and structural constraints, and 2015 seems to be no different.

Goldman Sachs sees a moderate but "choppy growth deceleration”, reinforcing the view the world's second biggest

economy is becoming a drag on global economy. According to the World Bank’s forecast, China will expand 7.4% this

year and 7.2% next year, compared with 7.6% and 7.5% previously expected. Meanwhile, the IMF projects a 7.1%

growth for China’s economy. Growth rate at above 7% level is considered high compared with other nations, but for

China it means the lowest in 15 years. Nevertheless, China's government said it would tolerate a “new normal”

economic growth. In the long-run, the Conference Board expects the Chinese economy expanding at a 4% pace

annually after 2020 following decades of rapid growth.

World Bank Managing Director Sri Mulyani urged Chinese policymakers to deepen and implement reforms at a much

faster manner and not rely solely on fiscal and monetary policy to fuel growth. The bank is predicting a 6% growth in

the medium to long term.

Australia

The Australian economy is in the midst of a major transition, moving from growth led by resource-sector investment to

broader-based drivers of activity in the non-resources sectors. During this transformation, the economy is expected to

continue to grow slightly below trend and the jobless rate is seen rising further by mid-2015.

The government highlighted the Australian economy would continue to be bolstered by historically low interest rates,

lower energy prices, and a weaker Australian Dollar. Australia's economic growth rate is estimated to remain

unchanged at 2.5% in the current fiscal year and 3% next fiscal year. Nevertheless, the pace of growth would not be

fast enough to ensure a decline in the jobless rate. In contrast, unemployment rate is seen rising to 6.5% from the

current 6.3%, the highest level in 12 years. Inflation estimates were slightly higher at 2.5% against 2.25% previously.

The Reserve Bank of Australia reiterated the Aussie Dollar remained above most estimates of its fundamental value,

especially considering the recent significant falls in commodity prices, as monetary policies of other central banks are

causing the exchange rate to remain elevated, which is limiting growth in Australia's economy. Thus, the board agreed

that further depreciation of Aussie was likely to be needed to achieve balanced growth in the economy. The bank still

believes the interest rates should be kept unchanged, rather than be reduced further. The policy makers made no

indication they intend to ease the monetary policy further despite investors' speculation that the central bank will cut

rates next year given growing concerns over the Australian economy, as it rose 0.3% in the third quarter, the weakest

quarterly growth since the beginning of 2013. Several trustworthy forecasters, including economists at Westpac,

Goldman Sachs, National Australia Bank, Deutsche Bank and AMP Capital see the RBA slashing interest rate next year.

Asia & Pacific

Q1 2015| 10

Japan

Japan’s economy shrank 1.9% in annual terms in the third quarter, as the hit from April's sales tax increase turned out

to have a longer-lasting and more devastating impact on consumer spending and business investment than expected.

On a quarterly basis, the Japanese economy contracted 0.5% in the July-September period, technically remaining in

recession. As a result, on October 31 the Bank of Japan unexpectedly increased the size of its monetary-expansion

programme from 60-70 trillion yen per year to 80 trillion yen, attempting to bring consumer-price inflation to 2% and

end the deflationary threat which has hampered growth in the economy for the past 15 years. BoJ Governor Haruhiko

Kuroda defended the decision and stressed the central bank stands ready to deploy more stimulus to meet its inflation

goal. On top of that, Prime Minister Shinzo Abe offered a relief to the world’s third biggest economy, as he decided to

postpone a scheduled increase of the tax to 10% that was due to take place in 2015, putting it off until April 2017.

Analysts remain sceptical of the BoJ’s ability to get inflation to 2% in the fiscal year which starts in April 2015. The

Moody's rating agency cut Japan's sovereign rating by one notch as it doubts Prime Minister Shinzo Abe's economic,

fiscal and monetary reforms will help to revive the nation's economy and achieve fiscal deficit reduction goals. The

rating agency lowered its rating to A1 from Aa3, with the outlook remaining at stable.

As to the nation’s currency, after plunging 14% since mid-year, the Japanese Yen's drop is about to stop, the former

Minister of Finance Eisuke Sakakibara said. He believes that the Yen is unlikely to hit its low of 124.14 per Dollar in the

run-up to the financial crisis in June 2007. Sakakibara also highlighted that the Japanese economy is not that weak

despite the fact that negative impact of April's sales tax appeared to be prolonged. Thus, eventually, the tax increase

will loosen its chocking impact on the world's third biggest economy and the Yen will start to strengthen.

The OECD has downgraded its projections for Japan’s economic growth in 2014 and 2015. The international economic

organization said that the world’s third-largest economy is expected to expand 0.4% this year and 0.8% in 2015.

New Zealand

New Zealand's economy expanded at a faster-than-expected pace in the third quarter as low interest rates and record

immigration boosted consumption, while primary-industry production rose to a 15-year high. GDP rose 1% in the July-

September period, up from the 0.7% growth in the preceding quarter.

The Reserve Bank of New Zealand kept interest rates unchanged at 3.5%, with modest inflation pressures allowing the

central bank some time for assessment and more gradual rate hikes. The central bank reiterated its stance that the

New Zealand Dollar is unjustifiably and unsustainably strong, which is keeping inflation contained. The central bank

indicated that it intends to raise the Official Cash Rate three more times over the next two years by 25 basis points in

each case. The RBNZ has already hiked the OCR by 1 percentage point since March.

Q1 2015| 11

New Zealand's economic growth is running at an annual rate of around 3.5%. Threats to the growth outlook include

dairy prices, which are expected to rebound in 2015, the overvalued Kiwi Dollar, and the strength of construction

activity. NZIER forecasts economic growth will average 2.5% in the next five years, after a strong 3.4% in 2014.

Q1 2015| 12

Community Forecasts

Q1 2015| 13

The last quarter of this year was marked by mixed but generally downward development of the EUR/USD currency

pair. In October the Euro rebounded gradually, after the ECB President Mario Draghi outlined that it would not

embark on quantitative easing for now, saying that the regulator would reassess its stimulus program in the first

quarter of 2015. Nevertheless, then the pair faced a moderate decline and set new 2014 low for a number of times in

November and December. During last month of the period, the shared currency fell even more considerably, as the

Fed announced that it expects to start raising interest rates in the upcoming year, despite the previous pledge to keep

them low for a considerable period of time. Despite that, Dukascopy traders believe the pair will rebound

significantly in the first quarter, as the consensus forecast for December 31 is located around the 1.27 mark. While

more than 66% of the votes are bullish, more than 53% of forecasts suggest the pair will stay below 1.27, meaning

that the cross will remain under pressure in the Q1. While trader Rokasltu thinks that rate has potential for growth,

ThePolarFox suggests the Euro will be declining due to inflation issues in the Eurozone and potential QE.

ThePolarFox “With Europe having deeper inflation issues and Mario Draghi struggling with the urge of taking decisions to fix them, the Euro is more likely to keep declining in the first quarter of 2015.”

Rokasltu “Despite the end of the year,

when EUR/USD rate is at 1.22 lows and there is possibility

for further downside, I think that during the 1Q of 2015

rate has potential for the upside movement.”

EUR/USD

Q1 2015| 14

Technical Analysis

Q1 2015| 15

EUR/USD

2014 Q4 Summary

Last quarter turned to be rather negative in terms of Euro’s development. Even though the pace of decline of the single

currency was not as strong as a quarter ago, the EUR/USD cross dropped to move closer to the long-term bearish target

at 1.2040, which is represented by the 2012 low. The beginning of the previous quarter in October was marked by a

modest rebound of the shared currency, as it advanced above the 2013 low and 38.2% Fibonacci retracement of the

May-December down-move to hit the quarterly high at 1.2888. Despite that, the pair was unable to sustain growth and

continued moving South. The only strong support line was represented by the 23.6% retracement, but the breach of it

strengthened bearish pressure and the pair plummeted to reach the yearly high at 1.2219 by the end of the quarter.

2015 Q1 Outlook

Considering the amplitude of the sell-off from 1.40, which started back in May, it is reasonable to expect a bullish

correction that would remove the strain from the market. At the same time, it is observed that there are no

considerable support levels left in order to push the pair upwards. One of the few is the 2012 low at 1.2040, and it is

considered to be the long-term target for EUR/USD’s bears and it is likely to be reached in January. Two next major

levels are located at 1.1875 and 1.1639 and are represented by the 2010 and 2005 lows, respectively. It seems that the

latter will become the target level for the pair towards the end of the first quarter of 2015. Still, there is a possibility

that bulls will manage to send the pair back to the upside from one of these important levels. If this is the case, bulls

will aim to cross the area around the 2013 low at 1.2750 to ensure stability of the Euro in the Q1 2015.

100-day SMA 200-day SMA

Daily Chart

Q1 2015| 16

2014 Q4 Summary

In course of the last quarter of this year, British Pound continued underperforming versus the American dollar. Since

July, the Cable lost more than 10% of its value, and the decline amounted to 3.9% only in the first quarter. In the course

of previous three months, the GBP/USD pair crossed two major demand areas. One of them was represented by the

23.6% Fibonacci retracement of July-December down-trend move at 1.5918, around which the pair hovered for the

whole October and gained a strong bearish impetus. Despite that, the bearish pressure continued to persist and mostly

reflected strength of the US currency, rather than weakness of the British pound. In November, the pair pierced

through a support at 1.5852, represented by the 2013 Q4 low. The yearly low at 1.5540 was reached on December 7

and since then the pair was unable to decline below this level.

2015 Q1 Outlook

Given that the market proved to be respectful of the six-month down-trend and then updated the lows, the outlook

appears to be strongly bearish with respect to the British currency. As mentioned before, the 2014 low is now placed at

1.5540, which currently manages to play the role of a sustainable support and is likely to act so in the beginning of

2015. Any rebound from here is projected to be capped by the 2013 low/23.6% Fibonacci retracement around 1.59,

which is unlikely to let bulls to go further. However, if the bullish break-out becomes the case, we can see a climb

towards the major level at 1.70, but the probability of this scenario is still rather low. From the downside, unless the

current 2014 low is crossed, the medium-term outlook for January remains neutral. Meanwhile, taking into account the

long-term perspective for the whole first quarter of the upcoming year, GBP/USD’s main target remains 1.48 – the

lowest level seen in 2013.

100-day SMA 200-day SMA

GBP/USD Daily Chart

Q1 2015| 17

2014 Q4 Summary

Despite the growth difficulties USD/JPY currency pair faced in the beginning of the previous quarter, the US currency

appreciated considerably in November and December, posting the steepest rise in value since Q4 2012 – Q1 2013 time

period. The cross started last quarter on a bearish note just below the 110 major level, as it was unable to hold there

for a long period of time and declined to 105 in first two weeks of October. However, after that the bearish trend was

momentarily changed by a strong movement to the north. Confident bullish momentum let the pair erase the 2008

high 110.70 and surge above this level. Some minor stops were registered at 2007 December high and 2007 October

high at 114.70 and 118, respectively, but the Greenback generally continued to climb against the Japanese yen. As a

result, the new annual high was set at 121.84.

2015 Q1 Outlook

In the previous quarter we estimated the Japanese currency to depreciate down to around the 2007 December high at

114.70. However, the reality turned to be much pessimistic for the Yen, as it dropped to 121.84 versus the US dollar

already by mid-December. After these developments, we would suggest the currency pair to consolidate around this

year’s high during the first month of the next year. Nevertheless, the long-term continuation of the bullish trend seems

more realistic for the time being, as there are major support clusters that are keeping the pair uplifted. They include

the 2007 October high together with the 23.6% Fibonacci retracement of Oct-Dec up-move around 118, as well as 2007

December high and 38.2% retracement around the major level of 115. From the upside, however, the biggest problem

for bulls is going to be created by the 2007 high at 124.15, which is expected to be reached by the end of March 2015.

100-day SMA 200-day SMA

USD/JPY Daily Chart

Q1 2015| 18

2014 Q4 Summary

After Gold’s unsuccessful three months through September, the yellow metal stabilised during the last quarter of this

year. The very beginning of the quarter was marked by a positive development for Gold, as it reached the quarterly

high at $1,255 by the end of October. However, the US dollar overtook a lead and started to climb, which drove the

price of Gold to the downside in November and it hit the 2014 low $1,131. Therefore, the bullion fell as much as $260

per ounce from this year’s high at $1,389 back in March. During the second part of the quarter, the bullion traded in

the direction of a round level at $1,200, around which it decided to close the Q4 and whole year 2014.

2015 Q1 Outlook

Presently the XAU/USD cross is trading around the major level at $1,200, which is limiting Gold from moving in any

direction. From the upside the pair is capped by the 38.2% Fibonacci retracement of March-December down-trend

move, 100-day simple moving average and the long-term downtrend at $1,230. This resistance is very unlikely to be

breached with relative ease. From the other side, the bullion is well-supported by the 2013 low at $1,180 and minimum

of this year around $1,131. They both are strong enough to keep the metal hovering at least around the current market

price. It is possible these factors will contribute to the fact that we are going to see the sideways movement in course

of first three months of the next year. Despite that, usually the Gold is a subject to a strong influence from fundamental

aspects, which are reflected in bullion’s quotes and may drive the price without considering low-impact technical

levels.

100-day SMA 200-day SMA

XAU/USD Daily Chart

Q1 2015| 19

EUR/JPY Daily Chart

100-day SMA 200-day SMA

2014 Q4 Summary

In general, the last quarter of 2014 was distinctly Euro-positive due to the weakness of the Japanese Yen. Interestingly,

the year’s low and high were reached during Q4, meaning the trading range was relatively wide. However, most of the

time the pair was trending upwards, as the Euro appreciated from this year’s low of 134.14 to the highest point at

149.80. The psychological level of 150 seems to have scared the EUR/JPY bulls away, as the pair started to decline after

approaching the market at the beginning of December.

2015 Q1 Outlook

After reaching the highest level in 2014 (149.80), EUR/JPY started to fall towards the monthly PP that is located at

145.73 and eventually touched it. The main question remains whether the pair continues to trade above the 145 mark

or falls below the threshold. In case the Euro holds its positions above the monthly PP and the 145 level, then a

rebound is likely to follow, and 2014 high should become the target in the first quarter of 2015. Nonetheless, the pair is

in a down-trend unless the 148 level is broken, thus the bearish scenario may not be ruled out. As mentioned, the

selling pressure noticeably increased after a test of 149.80, and the pair has lost around 400 pips since then; therefore,

a strong support area would be necessary to stop the current retreat. Moreover, the 100 and 200-day SMAs are well

below the current trading level, namely around the 140 level, also adding to the bearish picture. All in all, if there are

no major headwinds in the market, we see the pair trading in the 145-148 range for most of Q1, as both currencies are

relatively weak.

Q1 2015| 20

Daily Chart AUD/USD

100-day SMA 200-day SMA

2014 Q4 Summary

In Q4, AUD/USD prolonged the down-trend that started to form in the last month of the third quarter. Following a

sharp decline in September, the pair consolidated during October and even showed some promising bullish signs;

however, they soon vanished, as the Aussie started to retreat in the mid-November. Since then there have only been a

couple of positive daily gains, and the cross still remains biased to the downside. Moreover, the pair is trading below

the 0.82 mark, which is the lowest level seen in 2014.

2015 Q1 Outlook

It is hard to call the pair’s performance calm, as AUD/USD has been declining all the second half of the previous year.

The driving forces have been one-sided, with the Aussie being outperformed by the strong US Dollar. In our view, the

biggest challenge the pair is going to face is the psychological level at 0.80. This level has not been reached since the

middle of 2009. However, even if this support is probed, we believe AUD/USD cross will manage to remain above it.

The currency pair dropped to the levels seen back in 2009 and 2010, thus a decline lower seems highly unlikely.

Nevertheless, a strong rebound also does not seem like an undertaking the currency is willing to commit to. Therefore,

a partial negation of the latest retreat is to our mind the most probable scenario in the Q1. An alternative course of

events is consolidation around 0.81/0.82, which is yet another possibility.

Q1 2015| 21

USD/CAD Daily Chart

100-day SMA 200-day SMA

2014 Q4 Summary

The US Dollar has been constantly outperforming its Canadian counterpart since July, after the greenback fell to the

lowest levels in 2014, namely 1.06. Overall, the fourth quarter was very similar to the preceding three months, as USD/

CAD continued to hover withing the boundaries of the bullish channel. Moreover, the pair is trading substantially above

the 100 and 200-day SMAs located at 1.1160 and 1.1027, respectively. This further confirms the strength of the US

currency. The highest level was reached just recently, on the 14th of December, when the currency pair jumped to

1.1673.

2015 Q1 Outlook

USD/CAD chart is a mirror image of AUD/USD, as the US Dollar heavily outperformed both currencies. Our expectations

for Q1 is that the US Dollar will remain bullish; however, the first month of 2015 may well have a corrective nature. It

could be a decline towards the 1.1500/1.1450 levels, while later in the quarter the pair could test 1.17 and then hover

near 1.16/1.17.

Nonetheless, there is still some downside risk for USD/CAD if it fails to gain a foothold at current levels. In case the

currency pair dips below the up-trend, this may prompt the bears to drag the pair lower; especially with the 100 and

200-day SMAs being substantially below the current market price. The up-trend started to form early July and still

remains in effect. It is expected to keep determining the pair’s movements also in the first quarter of 2015.

Q1 2015| 22

NZD/USD Daily Chart

100-day SMA 200-day SMA

2014 Q4 Summary

The last quarter of 2014 has been considerably less turbulent for NZD/USD, and the pair has been trading in relatively

narrow range, following pronounced bearishness in Q3. The New Zealand Dollar did not fall significantly below than last

quarter; although, it did set a new minimum at 0.7608. Additionally, the cross formed a triple bottom pattern during

the quarter, with the neck-line standing next to the psychological level of 0.80.

2015 Q1 Outlook

Just like many other currencies, the New Zealand Dollar also underperformed relative to the US Dollar; however,

throughout the Q4 it has mostly been fluctuating in the range stretching from 0.77 to 0.80. At first it seemed like the

pair might form a triple bottom pattern, eventually leading to a recovery. Now the chart resembles a falling wedge

pattern. Nevertheless, the falling wedge pattern is a reversal pattern as well, meaning the possibility of an upswing has

not diminished.

If NZD/USD does rebound, it will have a chance to touch 0.80, which in turn is likely to give the pair a downward

impetus, forcing the it to return to the present trading levels. The expectations of a sustained rally still remain low due

to the fundamental strength of the Greenback and a lack of faith in the kiwi among the market participants. Despite the

pattern there is higher probability of NZD/USD sliding lower, and we expect it to sink below the 2014’s low at 0.7608.

The potential Q1 minimum could be around 0.75/0.74; however, by the end of the quarter we see the commodity

currency around 0.76.

Q1 2015| 23

Expert Commentary

Q1 2015| 24

What performance do you expect from the Euro versus its major

counterparts during the fourth quarter of this year?

We expect the Euro will continue to fall during Q1 of next year. The

depreciation against the Dollar will be larger, since the greenback is

rising more broadly. Independently, we are much less negative on the

Euro and expect it to trade with the much more mixed spectrum on

the crosses. Thus, our expectations are driven by the general Dollar

gain against most of its major currencies.

What will be the main drivers for the Euro during the fourth quarter

of this year?

We assume the Euro zone drivers are quite neutral. Although expectations for the ECB QE program, particularly with

sovereign

bonds, is going to be a major factor, we believe the market is now largely taken on board. The central bank will act to

include sovereign bonds in its asset purchases, since surveys indicate that we have moved to around the 77%

probability of that by now. Thus, we assume it does move up towards 100% in the first quarter, but any damage done

to the Euro has mostly already happened.

What are your forecasts for EUR/USD, EUR/AUD and the EUR/GBP for the fourth quarter of this year?

We expect the EUR/USD pair trading down to around 1.20 levels. We expect to see the EUR/GBP at 0.80 in the Q1.

And finally, talking about the EUR/AUD currency pair, we can see it rolling up to 1.46 levels by the same period of

time.

Euro

Adam Cole

Global Head: FX Strategy

RBC Capital Markets

UK

Although expectations for the ECB QE program, particularly with sovereign bonds, is going to be a major factor, we believe the

market is now largely taken on board. - Adam Cole

Q1 2015| 25

What performance do you expect from the British Pound versus its

major counterparts during the fourth quarter of this year?

We believe the Pound will most probably fall against the US Dollar,

partly due to the fact the financial markets are pushing back the

expectations of the timing of first rise in UK interest rates, partly

because we have moved closer to the May 2015 general election,

which could bring some concerns about political risk. Moreover, the

government begins to step up its planned fiscal tightening. That tends

to slow growth slightly, which may also influence the currency.

What will be the main drivers for the Pound during the fourth quarter

of this year?

Certainly, the most important driver in the short term are the

expectations around the timing of interest rate moves. We anticipate

the US Federal Reserve will raise interest rates around the middle of 2015, but the ECB will not be raising it until the

early 2016. Thus, we believe the interest rate differential will be the main factor pushing the Pound lower. However,

there are also some structural factors, for example, that UK has relatively large fiscal and current account deficits.

These factors, I suppose, over time will definitely weaken the currency.

What are your forecasts for EUR/GBP and GBP/USD for the fourth quarter of this year?

On the GBP/USD forecast, our official house forecasts are 1.55 at end Q1 2015 and 1.52 at end Q2 2015. Talking about

the Euro, we expect less movement. We look for the Sterling to decline only slightly with the EUR/GBP rate coming

down to around 0.78.

We anticipate the US Federal Reserve will raise interest rates around the middle of 2015, but the ECB will not be raising it

until the early 2016. - Ross Walker

Ross Walker

Economist

Royal Bank of Scotland Group

UK

Pound Sterling

Q1 2015| 26

What performance do you expect from the US Dollar versus its major

counterparts during the Q1 of 2015?

In general, the US economy has pleasantly increased the pace of development,

which will obviously lift up the currency. Hence, we expect some further

strength in the US Dollar against the vast majority of the Group of ten

countries’ currencies, particularly the Euro and the Japanese Yen.

What will be the main drivers for the Dollar during the same period?

I believe the ECB is going to broaden its asset purchase program to sovereign

bonds in January. That will be an important factor driving the EUR/USD pair

lower. Yet, our overall outlook on the matter is that the US data will remain

consistent with the Fed tightening the monetary policy in the middle of the

year 2015. In addition to that, the US rates should continue to move higher,

which will widen the interest rate differentials in favor of the Greenback and

support the US currency.

What are your forecasts for EUR/USD and USD/CAD for the Q1 of 2015?

We see the EUR/USD currency pair trading at 1.20 levels, and the USD/CAD to be at 1.14 for the first quarter of the

upcoming year.

US Dollar

We expect some further strength in the US Dollar against the vast majority of the Group of ten countries’ currencies, particularly the Euro and the Japanese Yen.

- Vassili Serebriakov

Vassili Serebriakov

FX Strategist

BNP Paribas

US

Q1 2015| 27

What performance do you expect from the Canadian Dollar versus its major

counterparts during the Q1 of 2015?

First of all, we are already touching our Q1 next year forecast for the USD/CAD;

therefore, we may have to revise the numbers. However, essentially, we think it is a

story of a gradual appreciation for the specified pair during the year of 2015, and we

see the US dollar outperforming its counterpart. However, we would expect the

Loonie to pick up a little versus the Japanese Yen, and the Euro to weaken against

the Canadian Dollar over the course of the next year. Overall, we foresee the

Canadian Dollar to follow the anticipated appreciation we have for the greenback

against the lags of the Euro and the Yen but to a slightly lesser extent.

What will be the main drivers for the CAD during the same period?

The US interest rates that are expected to rise a little more strongly than Canadian, at

least in the first part of 2015. The Bank of Canada is going to stay on hold for as long

as possible, which will keep the interest rates widening in favor of the US Dollar

against the Canadian Dollar. Eventually, we are not quite negative on the economy. Yet, it is more likely to see some

downward divisions to growth expectations in Canada with commodity prices weakening and, perhaps, more is still to

come.

What are your forecasts for EUR/CAD, GBP/CAD for the Q1 of 2015?

The Canadian Dollar has weakened a little more than we expected for the end of this year. Regarding the EUR/CAD pair

we are looking at something in the region of 1.41, whereas for the GBP/CAD 1.79 level is likely.

Canadian Dollar

The Bank of Canada is going to stay on hold for as long as possible, which will keep the interest rates widening in favor of the US Dollar against the Canadian Dollar.

- Shaun Osborne

Shaun Osborne

Chief FX Strategist

TD Securities

Canada

Q1 2015| 28

What performance do you expect from the JPY versus its major

counterparts during the Q1 of 2015?

Over the months of Q1 2015 we continue to expect the Japanese currency to

trade on the softer side with the Greenback rally broadening, whereas the

financial conditions remaining fairly favourable for risk assets. We see the

USD/JPY pair trading quite close to current levels. Talking about the EUR/JPY,

it could even move a little lower from where the pair is located now, with the

primary focus in G10 markets on the ECB. This, however, has more impact on

the EUR/USD in particular.

What will be the main drivers for the Yen throughout the first quarter of

2015?

While the strength of Japanese Yen seems unlikely to be pronounced, we

anticipate some risks from an improved Bank of Japan outlook or slowing pace of outflows to foreign assets leaning

against the softening we have seen in past months.

With the sales tax pushed further back, the consolation is that volatility in output and prices should be lower and more

predictable. While the Yen depreciation has been significant, the fall in energy prices keeps risks for inflation on the low

side. Investors should pay attention to the spring wage negotiations, as these will form the basis of more medium term

views for inflation on the part of policymakers.

What are your forecasts for USD/JPY and EUR/JPY for Q1 of 2015?

Citi expects to see the USD/JPY pair to trade close to 120 levels for the end of the first quarter and as concerns the

EUR/JPY our forecast is 145 for the same period.

With the sales tax pushed further back, the consolation is that volatility in output and prices should be lower and more predictable.

- Josh O’Byrne

Japanese Yen

Josh O’Byrne

FX Strategist

CITIgroup Global Market LTD

UK

Q1 2015| 29

What performance do you expect from the Aussie during the Q1 of 2015?

It is clear that the Reserve Bank of Australia wants to have a weaker currency,

which is going to help the economy in terms of the rebalancing story. Therefore, it

will make exports more competitive, as well as help the manufacturing, tourism

and educational sectors. The situation should start to improve under a lower

exchange rate. Moreover, it should certainly help to offset part of the damage been

done by the low terms of trade and a weaker backdrop from some of the major

trading partners and the decline in mining investment.

What could be the main drivers for the AUD during the first quarter of 2015?

Commodity prices are going to be an extremely critical factor in terms of the Aussie

behaviour alongside with the awaited interest rate outlook in Australia. In addition, I would like to mention that

prospect on the Greenback will be quite influential on where the AUD trends. At this stage we think that the US

Dollar is generally going to remain on quite a firm footing, particularly against the Euro and the Japanese Yen. We

believe the domestic interest rates have a high possibility to come down, and we anticipate that commodity prices

are probably going to move sideways from current levels before moving higher into the second half of 2015, as

Chinese growth and global economic activity look better.

What are your forecasts for AUD/USD, EUR/AUD and AUD/JPY for the end of 2014 and Q1 of 2015?

We expect the AUD/USD currency pair to trade at 0.82 levels by the end of Q1 of 2015. Talking about the AUD/JPY

we see the pair at 101 and we anticipate that the Euro will touch the 0.6068 level versus the Australian Dollar in Q1

of 2015.

It is clear that the Reserve Bank of Australia wants to have a weaker currency, which is going to help the economy in terms of the rebalancing story.

- Jonathan Cavenagh

Australian Dollar

Jonathan Cavenagh

Currency Strategist

Westpac

Singapore

Q1 2015| 30

Trade Pattern Ideas

Q1 2015| 31

USD/ZAR

200-week SMA

By establishing a solid support at 6.50 in 2011 USD/ZAR was able to initiate formation of the bullish channel that

remains topical to this day, already consisting of more than 200 weekly bars. Accordingly, unless the lower boundary of

the pattern at 11.0 is breached, the outlook for the currency pair will be positive. And even though the indicators are

mixed on the weekly chart, most of the monthly technical studies suggest the momentum will stay intact in the

foreseeable future. Therefore, a pronounced bearish correction is not expected until the upper trend-line forming the

pattern is reached, and thus the current up-swing will be completed.

Nevertheless, there is a significant probability of the current upward trend reversing, and this risk should not be

ignored. The potential turning point is the resistance at 11.84. USD/ZAR has already made an attempt to surpass the

2008 high, but so far to no avail.

Moreover, we have spotted a divergence between the price and some of the technical indicators, a fact that also

speaks in favour of a reversal. For example, while the latest high was charted above the penultimate peak, both RSI

and Stochastic failed to step over their Sep 21 values. Meanwhile, the SWFX market participants are undecided with

respect to the future of USD/ZAR, as 46% of open positions are long and 54% are short.

USD/ZAR

Channel Up

A pronounced bearish correction is not expected until the upper trend-line forming the pattern is reached, and thus the current up-swing will be completed.

Weekly Chart

Q1 2015| 32

AUD/NZD

200-week SMA

During the 2007-2010 period the pair was explicitly dominated by the Australian Dollar; however, there was a transfer

of power to its neighbour in the beginning of 2011. There are no signs the bulls are going to regain control any time

soon.

Regarding a more recent development, AUD/NZD has recently bounced off the upper trend-line at 1.13 and thus

confirmed the relevance of the pattern once again. A more important event involved the 2008 low at 1.0640, which the

pair left behind and continued to move deeper south. Since there are no noteworthy demand areas anywhere near,

the sell-off may extend through the intermediary supports until 0.98 (lower down-trend line of the channel) without

any hindrance.

Nonetheless, we should recognise there is a chance of a short-term pullback before the bearish momentum resumes

with new strength. Perhaps because of this possibility an overwhelming majority of the traders, namely 70% of them,

are planning to profit from appreciation of the Aussie. Still, the technicals are against such a scenario—most of the

weekly and monthly studies give ‘sell’ signals, and right now it seems impossible to accurately guess which of the

nearby supports can trigger buying.

AUD/NZD

Channel Down

there are no noteworthy demand areas anywhere near, the sell-off may extend through the

intermediary supports until 0.98 (lower down-trend line of the channel) without any hindrance.

Weekly Chart

Q1 2015| 33

NZD/CAD

200-week SMA

NZD/CAD bottomed out at 0.6160 during the first months of 2009, leading to incipience of the bullish channel that now

has an impressive length of more than 300 bars. In the course of these six years the New Zealand Dollar appreciated

47% relative to its Canadian counterpart and appears to be in a good position to keep advancing even further.

The main reason for a bullish outlook, both in the short and long term, is the proximity of the currency pair to the

major trend-line that connects the 2009 Feb 1 and 2013 Jun 9 lows. Additional support is provided by a combination of

the 200-day simple moving average and some of the 2007-2012 peaks at 0.84. Consequently, the most likely scenario is

a rally from the current levels up to the previous top of 0.9654. If this resistance is broken, we can expect an extension

of the surge up to 1.00, near which NZD/CAD will come into contact with the upper boundary of the channel and thus

will be poised for a bearish correction.

Meanwhile, the sentiment is neither bullish nor bearish—the long positions constitute 45% of the market, even though

in general the Canadian Dollar is currently one of the least preferred currencies in the SWFX market, bought only in

40% of cases in all its crosses.

NZD/CAD

Channel Up

The most likely scenario is a rally from the current levels up to the previous top of 0.9654.

Weekly Chart

Q1 2015| 34

EUR/GBP

200-week SMA

Starting from the very beginning of 2009 the single European currency has been largely weakening against the Pound,

which has ultimately led to formation of the bearish channel on the weekly chart. And just recently, after bouncing off

the upper boundary of the corridor, EUR/GBP formed yet another downward-sloping channel, confirming the pair’s

intention to remain on the bearish course.

However, the pair needs to overcome a serious obstacle represented by the support at 0.7760 so that it can fully

realise the bearish potential. Thus, if the 2012 and 2014 lows give in before the accelerated down-trend at 0.79 is

violated, the Euro will be expected to underperform until the pair hits the lower edge of the major channel,

presumably in the region of 0.70.

Conversely, should the bulls at 0.7760 withstand the selling pressure and throw the price above 0.79, there will be few

reasons for EUR/GBP not to recover to 0.83. But once in the vicinity of the major down-trend and 200-day SMA, the

bullish momentum should dry out, exposing the common currency to a decline towards the lower boundary of the

main channel. It is also worth mentioning the negative bias is reinforced by the monthly technical indicators—at the

moment five out of eight studies are sending ‘sell’ signals.

EUR/GBP

Channel Down

Should the bulls at 0.7760 withstand the selling pressure and throw the price above 0.79, there will be few reasons for EUR/GBP not to recover to 0.83.

Weekly Chart

Q1 2015| 35

Aggregate Technical Indicator

Q1 2015| 36

EUR/USD

GBP/USD

Daily chart

Daily chart

Q1 2015| 37

USD/JPY Daily chart

USD/CHF Daily chart

Q1 2015| 38

EUR/JPY

AUD/USD

Daily chart

Daily chart

Q1 2015| 39

USD/CAD

NZD/USD

Daily chart

Daily chart

Q1 2015| 40

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