BNP Steer Explanation

*** New FX Forecasts ***
FX STRATEGY | FX WEEKLY
Global FX Plus
18 June 2015
Non Independent Marketing Communication
USD: Data Dependent Once Again

FX Recommendations 2 FX Recommendations
FX Weekly Outlook 3 Option structures
G10 Themes 4 3 Month EURJPY 1x2x1 put fly buy 138.00/132.00/126.00 for 80bp.
6 Month EURUSD RKO: 1.1000 strike with KO 0.9950.
Local Markets Themes 9
1 Year EURGBP ratio put spread 1x2x1 buy 1x 0.72 put, sell 2x 0.68 put
FX Volatility Focus 15 buy 1x 0.64 put.
Buy 3 Month EURNZD 1.45 put. Sell 3 Month 1.63 call.
FX Positioning Analysis 18 1 Year USDCHF call spread buy 1.00 sell 1.12.
FX Snapshot 6 Month USDJPY RKO premium rebate: 120.00 strike with KO 130.00.
20
Economic Calendar 24
G10 Themes
Forecasts No help for the USD from the Fed, yet
29
The Fed failed to provide a boost to the USD this week.
Contacts 30 Rates markets are likely to adjust in response to summer data.
We favour positioning for limited USD upside via options.
Yen policy: Tolerance of a steady decline reflecting fundamentals
Japanese officials are unlikely to oppose a steady yen decline.
Fundamentals continue to suggest USDJPY will rise to 130.
We like upside USDJPY option trades cheapened by a RKO.
BNP Paribas STEER: Benefiting from choppy markets
Our BNP Paribas STEER trading strategy has returned 25.0% in 2015
across G10 and EM currencies.
STEER typically performs during period of high risk-taking in FX, but this
year overall FX positioning has been low.
STEER appears to be benefiting from an environment of high intra-day
volatility.
Local Markets Themes
TWD: Change in fortunes
BNPP Estimated FX We had seen the recent strength of the TWD as out of line with regional
Positioning peers and recommended selling the currency. We missed the fact that
CHF 31 Taiwanese asset managers were chronically under hedged, and now appear
13 to be ramping up their hedge ratios.
USD
11
BRL: Adjusted medium-term strategy; new trade idea
GBP
0 Given the changes in our structural model, recent developments around
SEK
USD monetary policy and improved EM risk tone, we have adjusted our 2
-4
CAD June option strategy.
AUD -7 We now recommend going long a call spread at 3.15 and 3.45 (1x2).
-11
NOK Currency Views
-13
EUR Current 1 Month 3 Month
18-Jun-2015
JPY -16 EURUSD 1.1420 1.09 1.04
11-Jun-2015
NZD -40 USDJPY 123.05 124 127
-45 -35 -25 -15 -5 5 15 25 35 45
EURCHF 1.0515 1.06 1.08
GBPUSD 1.5875 1.51 1.51
AUDUSD 0.7820 0.76 0.74
USDCAD 1.2215 1.25 1.28
www.GlobalMarkets.bnpparibas.com Please refer to important information at the end of the report.

This publication is classified as non-objective research
Current FX Recommendations1
Portfolio Overview: Spot Trade Recommendations
Entry Date Position Entry Rate Stop Loss Target Rate Close Rate Close Date Return (%)
21-May-15 Short AUDNZD 1.0780 1.0945 1.0340 1.0945 10-Jun-15 -1.47%
27-May-15 Long USDNOK 7.8030 7.6900 8.1500 7.6900 10-Jun-15 -1.49%
03-Jun-15 Short EURUSD 1.1120 1.1340 1.0500 1.1340 04-Jun-15 -1.94%
20-May-15 Long GBPSEK 12.9750 12.7600 13.4000 12.7600 03-Jun-15 -1.65%
18-Mar-15 Long EURSEK 9.2000 9.2000 9.6000 9.300 20-May-15 1.09%
05-May-15 Long EURUSD 1.1200 1.1390 1.0400 1.1390 07-May-15 -1.70%
01-May-15 Long EURNOK 8.4550 8.3500 8.7715 8.3500 07-May-15 -1.37%
Total 2015 9.82%
2
Portfolio Overview: Option Trade Recommendations
Entry Date Position Entry Rate Close Rate Close Date MTM (%)
3m EURJPY 1x2x1 put fly buy 0.80% 0.57%
11-Jun-15 -0.43%
138.00/132.00/126.00 for 78bp (138.85) (140.10)
The EUR is a more attractive funding currency and market focus is likely to swing back to the EUR and away from the JPY
6 month EURUSD RKO: 1.1000 strike with KO 0.51% 0.39%
04-Jun-15 -0.35%
0.9950 1.1270 1.1400
EUR positioning is now close to neutral levels, setting the stage for renewed weakness.
1 Year EURGBP ratio put spread 1x2x1 buy 1x
1.05% 1.07 %
14-May-15 0.72 put, sell 2x 0.68 put buy 1x 0.64 put. 0.03%
(0.7210) (0.7177)
Restructuring of EURGBP trade on 8 Jan-15.
We expect the Bank of England to hike in Q1 2016. This strategy looks to take advantage of a grind lower to 0.68 year-end.
Buy 3 Month EURNZD 1.45 put. Sell 3 Month 0.00% -2.57%
07-May-15 -2.57%
1.63 call. (1.5178) (1.6450)
NZD offers the most attractive carry opportunity in G10, with curve carry remaining at the highest level of the last 5 years.
1 Year USDCHF call spread buy 1.00 sell 1.12.
0.27% 0.85%
01-Apr-15 Restructuring of USDCHF call spread entered 0.58%
(0.9700) (0.9175)
on 22 Jan 15.
The impact of negative rates and deteriorating BoP to weaken the CHF vs. the USD.
6 Month USDJPY RKO premium rebate: 120.00 0.74% 2.34%
28-Jan-15 3.25%
strike with KO 130.00. (118.00) (123.00)
The reverse knock-out is positioned for a grind higher in USDJPY and gives a significant discount to the vanilla.
1 Year EURGBP Ratio Put Spread 1x2x1 buy 1x
1.57% 3.95%
08-Jan-15 0.78 put, sell 2x 0.72 put buy 1x 0.66 put. 14-May-15 2.27%
(0.7815) (0.7210)
Restructured.
3 Month NZDJPY seagull buy 91.40 call sell 0.00% 0.00%
12-Feb-15 14-May-15 0.00%
85.00/80.00 put spread. (88.20) (89.65)
Total 2015 6.55%
3
BNP Paribas STEER Model Recent Quant Trading Signals
Entry Date Position Entry Rate Stop Loss Target Rate Close Rate Close Date Return (%)
16-Jun-15 Short USDPEN 3.1610 3.1720 3.1389 -0.04%
16-Jun-15 Long EURCHF 1.0497 1.0046 1.0913 -0.11%
15-Jun-15 Long EURPLN 4.1495 4.1327 4.1831 0.62%
15-Jun-15 Long EURUSD 1.1198 1.1063 1.1524 1.81%
29-May-15 Short USDJPY 123.98 125.93 120.45 0.89%
16-Jun-15 Short USDBRL 3.1269 3.0889 17-Jun-15 1.22%
Total 2015 25.46%
Overall portfolio 2015 41.83%
1 Positions highlighted in grey are currently open

Some older positions had to be taken off due to lack of space but their P/L is included in the total.
The above recommendations do not reflect a fully invested, live portfolio and only G10 currencies will be featured.
2 Weighting of option trade recommendations based on risking 1.5% of the notional on the premium.
3 FX Quant trading signals published in the FX Quant Insight Daily updates available via email
18 June 2015 2
www.GlobalMarkets.bnpparibas.com
Weekly FX Outlook: Data to reassure USD bulls

Vassili Serebriakov FOMC perceived as dovish but data could still trigger a summer
+1 212 841 2409 rebound in the USD.
Limited upside bullish USD structures make sense in light of
Feds sensitivity to the USD.
We prefer to fade EUR rallies on any positive outcome to
Greeces situation.
After FOMC Despite a dovish market reaction to this weeks FOMC statement, the Feds
disappointment, its back message remains focused on data dependency, and our economists continue to
to data dependency for believe that conditions will be met for policy tightening to start in September.
the USD
Accordingly, markets should remain focused on upcoming US economic releases.
In the week ahead, a rebound in May core durable goods orders would be
encouraging after a downward revision to April data, while the personal income
and spending report should echo the improvement in retail sales data. We remain
USD bulls but recommend positioning through option structures with limited upside
potential given the Feds sensitivity to dollar strength. We also temper our forecast
for EURUSD weakness somewhat, with the low point of the cycle now at 1.00 vs
0.95 previously. In contrast, we see a slightly faster rise in USDJPY, targeting 130
by Q4 2015 (see table below).
Fade EUR rally on any The coming days may be the final opportunity for some sort of Greek deal to be
Greek resolution agreed ahead of the end-June deadline. Reading EUR moves around Greek
headlines remains complicated by the EURs funding currency status. Our
preference is still to fade any rallies on a Greek resolution as we believe it would
ultimately lead to investors regaining appetite for shorting the EUR against pro-risk
currencies. We are short EURUSD and EURJPY via options.
CAD and NOK on In our view, at these levels USDCAD and USDNOK remain attractive for
slippery slopes positioning for a resumption of USD strength. The Norges Bank cut rates by 25bp
and expectations of BoC policy have scope to turn more dovish if CPI and retail
sales data (both due on Friday 19 June) disappoint. Our commodity strategists
SEK vulnerable to a continue to see near-term downside risks for crude oil which should add to the
Riksbank move bearish case against both the CAD and the NOK. The SEK is also vulnerable to a
policy surprise a formal Riksbank policy meeting is not due until 2 July but a rate
cut at the non-policy meetings on 22 and 26 June cannot be ruled out.
New FX forecasts
Spot Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16
New 1.09 1.04 1.02 1.00 1.00 1.02 1.04
EURUSD 1.1415
Old 1.04 1.02 1.00 0.98 0.95 1.00 1.02
New 1.51 1.51 1.50 1.47 1.45 1.48 1.49
GBPUSD 1.5869
Old 1.46 1.48 1.47 1.44 1.38 1.45 1.46
New 0.97 1.04 1.08 1.10 1.10 1.08 1.06
USDCHF 0.9177
Old 1.02 1.06 1.10 1.12 1.16 1.10 1.08
New 124 127 130 132 132 134 136
USDJPY 122.85
Old 124 125 128 128 130 132 135
New 0.72 0.69 0.68 0.68 0.69 0.69 0.70
EURGBP 0.7181
Old 0.71 0.69 0.68 0.68 0.69 0.69 0.70
New 135 132 133 132 132 137 141
EURJPY 140.24
Old 129 128 128 125 124 132 138
Source: BNP Paribas
18 June 2015 3
No help for the USD from the Fed, yet

Daniel Katzive The Fed failed to provide a boost to the USD this week.
+1 212 841 2408 Rates markets are likely to adjust in response to summer data.
We favour positioning for limited USD upside via options.
The Fed failed to provide As we had expected, the Feds June FOMC statement and press conference failed
catalyst for renewed to provide a catalyst for renewed USD gains and the currency has weakened
USD gains following the meeting. Market participants seemed to focus on the downward shift
in the Feds projection for the Fed funds rate, with the average dot for end 2015
falling from 77bp to 57bp. In her press conference, Fed Chair Janet Yellen
emphasised that economic conditions do not justify policy tightening yet and that,
once tightening begins, the pace of rate hikes will be very gradual.
The Fed remains data The USD has sold off following the Fed meeting, much as it did after the March
dependent FOMC meeting, which also saw a reduction in the Fed funds projections. However,
we would emphasise that a majority of FOMC members continue to anticipate at
least two rate hikes before the end of 2015. Moreover, the message from the Fed
is clearly one of data dependency if data continue to improve over the summer,
markets will be forced to bring forward its pricing in of Fed hikes closer to our
September forecast for lift-off (our economic teams September forecast remains
in place after the meeting).
We expect rates to adjust Following the FOMC meeting, the implied yield on the January Fed funds contract
in the USDs favour over has fallen back to 37.5bp, just 25bp above the current effective rate. Our rates
the summer strategy team continues to anticipate a significant upward adjustment in US front-
end rates over the summer. While the USD has benefitted from policy easing in
other G10 economies over the past year, we expect higher US rates to drive a new
phase of USD gains over the summer.
Position for USDs Following the choppy May and early June price moves, we have brought our spot
upside via options recommendations portfolio to flat. We have also shifted our EURUSD forecast
profile such that we know see the pair bottoming at parity in Q1 2016 rather than at
0.95 in Q2. However, we continue to favour maintaining exposure to the USDs
upside via derivatives structures. Positioning via RKOs is particularly attractive now
in light of the sensitivity of the Fed outlook to big moves in the USD.
Chart 1: Market priced for late and Chart 2: US rates to drive the next phase of
gradual Fed lift-off on rates (%) spread widening in the USDs favour
1.4 Fed funds futures
1.2
1
+75bp
0.8
+50bp
0.6
+25bp
0.4
0.2
0
Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
Source: Bloomberg, BNP Paribas Source: Macrobond, Bloomberg, BNP Paribas
18 June 2015 4
Yen policy: Tolerance of a steady decline reflecting fundamentals

Steven Saywell Japanese officials are unlikely to oppose a steady yen decline.
+44 (0)20 7595 8487 Fundamentals continue to suggest USDJPY will rise to 130.
We like upside USDJPY option trades cheapened by a RKO.
Markets appear confused The market appears confused on the subject of Japanese foreign exchange policy.
on Japanese foreign Looking at the reaction of officials to recent market moves, we conclude that Japan
exchange policy expects further JPY depreciation and is unlikely to stand in its way, as long as the
JPY moves in a controlled and mild manner. We reiterate our call for USDJPY to
move towards 130 by the year end, and our options recommendation for a
USDJPY call with a reverse knock out (RKO).
Bank of Japan Governor Bank of Japan (BoJ) Governor Kurodas rhetoric on the JPY last week is critical in
Kuroda denied reports defining the central banks attitude. After a sharp market reaction to comments
that he did not want a about the weak level of the JPYs real exchange rate, he clarified his comments.
weak yen He stated, I didnt say I do not want a weak yen. He added that a weak yen
boosts exports and profits at companies operating overseas, while noting that as
long as exchange rates move stably in a way reflecting economic fundamentals,
they wont do any harm to the economy.
...and is focused on Kuroda is focused on achieving his inflation goal of 2%. While inflation (headline
achieving 2% inflation and core) rose strongly during 2013 and early 2014, its recent sharp retracement is
goal disappointing for the central bank (Chart 1). Yen appreciation is a key contributor
to higher inflation, but the negative effects cannot be ignored; especially the impact
on households and non-manufacturers who suffer as import costs are pushed
higher. It is clear from Kurodas comments that a steady rise in USDJPY as the Fed
starts to normalise monetary policy and yields spreads widen does reflect relative
fundamentals and will be tolerated. A greater danger would be for the JPY to
appreciate again, as this would worsen the already deteriorating inflation situation.
The MoF is in line with Ultimately, it is Japans Ministry of Finance that is responsible for yen policy. On 24
the BoJ March Finance Minister Aso echoed those at the BoJ: It is important for the yen to
move mildlyin a way reflecting economic fundamentals, as sudden rises and falls
are undesirable, he said. The consistency between the two offices is clear,
especially on approving a steady JPY depreciation that reflects the relative
fundamentals.
Chart 1: Weaker JPY needed to boost inflation Chart 2: Fundamentals suggest higher USDJPY
154
144
Model
134 based
projections
124
114
104
94
84
74
01-Jan-1995 01-Jan-2005 01-Jan-2015
CLEER USDJPY
Source: Macrobond, Bloomberg, BNP Paribas Source: BNP Paribas
18 June 2015 5
4
BNP Paribas CLEER In assessing relative fundamentals, one useful tool is our BNP Paribas CLEER
model sees a steady rise model which estimates fair values for currencies over the medium term. Our
in USDJPY CLEER estimate shows a steady rise in USDJPY over this time frame (Chart 2).
The rise is largely due the anticipated divergence in inflation and short-term
interest rates between the US and Japan. It is interesting to note that the foreign
exchange market has been forward looking in its pricing of USDJPY but the
direction is correct. Relative fundamentals suggest the fair value will continue to
trend higher. It is reasonable to assume that markets will continue to be forward
looking and price in these anticipated shifts in a timely manner. The decline in
Japanese real yields (Chart 3) presents a key incentive for domestic investors to
seek greater returns abroad and/or higher yielding domestic assets.
USDJPY diverges from One point of divergence, as highlighted by Governor Kuroda, is the difference
JPY REER between the JPYs REER exchange rate and the nominal level of USDJPY (Chart
4). These two began to deviate from early 2003 and largely reflects the very low
level of inflation in Japan relative to the United States. By comparison, the REER
JPY is now considerably weaker than during the 1990 and 2000 eras, while
USDJPY still trades below its peak from that time by some margin. Indeed, even
our year-end forecast for USDJPY to reach 130 has the pair trading well below its
Q3 1998 peak of 147.66. Furthermore, we forecast a fall in EURJPY by the year
end, given that this cross appears overvalued relative to fundamentals. This
contrasting trend will mitigate the expected decline in the JPYs REER.
We like upside option In light of the policy analysis, we reiterate a preference for upside option structures
structures on USDJPY on USDJPY towards our forecasts. We maintain the following recommendations:
towards our forecasts
6m USDJPY RKO premium rebate: 120 strike KO at 130 (est. 28 Jan
2015).
3m EURJPY 1x2x1 put fly: buy 138/132/126 for 78 bp (est. 11 June

2015).
Additional recommendation:
3m USDJPY call with RKO at 132 for 62 bp (spot ref. 122.67).
Chart 3: Falling real yields drive portfolio outflow (%) Chart 4: USDJPY diverges from JPY REER
Source: Macrobond, Bloomberg, BNP Paribas Source: Macrobond, Bloomberg, BNP Paribas
4 BNP Paribas CLEER (CycLical Equilibrium Exchange Rate) provide a fair value for a currency based on the relative economic fundamentals.
18 June 2015 6
BNP Paribas STEER: Benefiting from choppy markets

Michael Sneyd Our BNP Paribas STEER trading strategy has returned
+44 20 7595 1307 25.0% in 2015 across G10 and EM currencies.
STEER typically performs during period of high risk-taking
in FX, but this year overall FX positioning has been low.
STEER appears to be benefiting from an environment of
high intra-day volatility.
BNP Paribas STEER BNP Paribas STEER has had a profitable run since the start of the year. From 1
has performed well in the Jan 2015 the trading signals published in the Daily STEER update have returned
first half of 2015 25.0%. This performance has been driven largely by EM trading signals which
have returned a total of 17.3% since the start of the year. The G10 signals have
returned 7.7%, with gains in GBPUSD and EURUSD offsetting losses in EURGBP,
AUDUSD and EURNOK (Table 1).
STEER provides a BNP Paribas STEER provides the fair value of an exchange rate based on the
short-term fair value information that is priced into its short-term fundamental drivers such as rates,
based on rates, equities, equities, commodity prices and credit. STEERs trading strategy works by buying
commodities and credit
currencies that are cheap and selling those that are expensive. This strategy
tends to perform best when an exchange rate is pushed away from its STEER by
FX investors trading a theme, driving an over- or undershooting of the exchange
rate. When a currency has deviated from its STEER it typically takes one to two
weeks to revert back towards it.
STEER typically performs Since STEER was initially launched in early 2012 we have noticed that the trading
when overall positioning in strategy tends to perform best when risk-taking in FX markets is high. When
FX markets is high
investors are building positions this can cause an overshooting of an exchange
rate versus its STEER. STEERs strong performance in 2015, however, does not
appear to have been during a period of elevated risk-taking our positioning
analysis shows that overall FX positioning has remained substantially below its
long-term average.
High implied and What other factors can explain STEERs strong performance in a period of
intraday volatility has relatively low market positioning? In our last commentary on STEER performance
benefited STEER in 2015 we noted that STEER had successfully captured the over- and undershooting of
Table 1: Best and worst trades of 2015 Chart 1: STEER performance since Jan 14
Currency Number of Average Average
Returns Hit Ratio
Pair Trades Win Loss
Best performing
GBPUSD 4.19% 5 2.15% -0.89% 60%

USDSGD 4.00% 14 0.74% -0.32% 57%
USDIDR 3.94% 10 1.06% -0.49% 50%
USDZAR 2.85% 10 0.76% -0.43% 60%
USDCOP 2.80% 17 0.85% -0.44% 47%
Worst performing
EURHUF -0.60% 11 0.70% -0.34% 27%

EURNOK -0.92% 6 1.73% -1.11% 33%
AUDUSD -1.76% 5 1.29% -1.45% 40%
EURGBP -1.93% 9 0.76% -0.99% 44%
USDBRL -2.63% 8 1.71% -0.66% 13%
Source: BNP Paribas Source: BNP Paribas
18 June 2015 7
the USD. Delving further into the markets recent characteristics we note that an
increase in both implied volatility and intraday volatility have corresponded with a
strong STEER performance.
STEER performance has Chart 2 shows a simple average of 3m implied volatilities of all the exchange rates
been correlated with the covered by STEER (the major G10 pairs plus 21 EM exchange rates). It is
direction and level of vol noticeable that the period of low and declining volatility in mid-2014 corresponded
with poor performance from the STEER strategy. Meanwhile, the period of
elevated volatility in 2015 has corresponded with a strong performance.
Elevated intraday Similarly, Chart 3 shows the average intra-day volatility of all the exchange rates
volatility may have also covered by STEER, calculated as the days trading range divided by 3m implied
been a benefit to STEER volatility. Intraday volatility has risen substantially since October 2015, with
STEERs profitable run starting one month later in November. The situation was
similar in early 2014 a rise in intra-day volatility corresponded with a strong
performance of the STEER trading strategy.
STEER takes advantage It therefore appears that, although overall risk-taking in FX is low according to our
of choppy FX markets positioning analysis, the elevated implied and intraday volatility of markets means
investors spot market positions are vulnerable to being squeezed on intra-day
moves. STEERs trading strategy benefits from capturing when misalignments
create vulnerabilities for positions to be squeezed and when overshooting occurs
because of sharp intra-day moves.
With volatility still We expect BNP Paribas STEERs trading strategy to continue to benefit from
elevated, STEER should elevated market volatility going forward. Furthermore, the performance of the
continue to perform STEER strategy has tended to be diversified from macroeconomic-based trades or
common FX trading strategies such as momentum and carry.
STEER is available via Daily updates of STEERs trading signals (including target levels and stop-losses)
daily and weekly updates are published in our Daily STEER Update. A weekly STEER update is available in
the FX Quant Insight published on Mondays. For investors who would like to invest
directly in the STEER strategy, a tradeable index is available and published on
Bloomberg (BPCMSTGU Index).
Chart 2: STEER trading strategy appears to have Chart 3: and higher intra-day
benefited from higher FX vol volatility
Total return Average 3m implied vol, % Total return
14 10.0%
35% 35% Intra-day
Implied volatility 12 volatility (daily
9.5%
(rhs) range/3m
implied vol) (rhs)
25% 25%
10 9.0%
15% 15%
8 8.5%
5% STEER returns 6 5% STEER returns 8.0%
-5% 4 -5% 7.5%

Jan-14 May-14 Sep-14 Jan-15 May-15 Jan-14 May-14 Sep-14 Jan-15 May-15
Source: BNP Paribas Source: BNP Paribas
18 June 2015 8
TWD: Change in fortunes

Mirza Baig We had seen the recent strength of the TWD as out of line with
+65 6210 3262 regional peers and recommended selling the currency. We
missed the fact that Taiwanese asset managers were
Jasmine Poh chronically under hedged, and now appear to be ramping up
+65 6210 3418 their hedge ratios.
With the broader basic balance in surplus, if outflows are being
hedged, there appears little scope for the TWD to depreciate.
The temptation to use the TWD as a funder is best avoided for
now.
The NT dollar (TWD) is the best performing currency in Asia in the year to date
and (excluding the RUB) is also the best performer in emerging markets overall.
We thought that this relative outperformance was set to unwind and recommended
shorting the local currency via options (see Buy USD vs. TWD). However, the
domestic news flow has highlighted a new catalyst which we had not considered
earlier. Factoring that in, we now acknowledge that the currency is not an obvious
short and are closing this recommendation.
Specifically, Taiwans life insurance companies have come under pressure from
ratings agencies to hedge the currency risk on their overseas assets. They appear
to be responding to these pressures and are likely to continue to sell USDTWD
forwards and NDFs for a considerable time to ramp up their hedge ratios.
Moreover, their holdings of foreign assets have reached close to regulatory limits,
5
which may slow fresh investment in offshore assets .
Background
This issue dates back to the Lehman crisis, during which Taiwanese life insurance
companies suffered sharp FX translation losses on overseas assets. Chastened by
the experience, they began to hedge their currency risk more assiduously.
Chart 1: Cost of hedging fell as life insurers Chart 2: Taiwanese life insurers overseas assets
1
became less diligent in hedging via FX forwards nearing 45% of total regulatory cap
USDbn Foreign Assets of Lifers (LHS)
USDTWD 12mNDF - 1m NDF (forward points)
300 Foreign Assets as % of total 50%
0.25 regulatory cap
45%
0.00 250
40%
-0.25 35%
200
30%
-0.50
150 25%
-0.75 20%
FSC allows FX volatility
100
reserve fund ... FX fwds grind higher 15%
-1.00
10%
50
-1.25
5%
Post-Lehman, panic hedging
-1.50 by Taiwanese Lifers 0 0%
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: Bloomberg, BNP Paribas Source: Bloomberg, BNP Paribas
5
There are several exceptions (especially locally issued foreign currency Bao Dao bonds) that do not count towards the 45% limit. In practice,
this creates plenty of wiggle room around the regulatory limit for taking on higher yielding foreign currency exposures.
18 June 2015 9
However, since the cost of hedging was eating into their margins, they canvassed
the regulator to allow a FX volatility reserve fund a sort of loss provision for
future currency fluctuations, to be used as a substitute for currency hedging. The
Financial Supervisory Commission relented in March 2012. Subsequently, life
insurers progressively reduced their FX hedge ratios, on the back of which, the
NDF curve relentlessly moved higher (Chart 1).
Last year, Taiwanese life insurance companies ramped up their purchases of

overseas assets (Chart 2). This was probably motivated by higher yields on
offshore assets, a strong USD trend, and some regulatory easing. According to
several media reports (cited in Appendix), it appears that a large part of these
purchases were not currency hedged.
Reserves depleted, forwards bearing the brunt
Earlier this month, one of the life insurance companies reported that the (modest)
strengthening of the NT dollar had depleted its FX volatility reserve fund (up to the
permitted amount). This probably exposed how chronically under-funded these FX
volatility reserve funds were for the industry as a whole. The news sent alarm bells
ringing, with ratings agencies stepping up their warnings about FX exposure and
lack of hedges. The NDF curve has started to crumble recently, probably as other
life insurance companies have started to ramp up their hedge ratios.
Outlook
The currency hedging dynamics of Taiwanese institutional investors significantly

alter the balance of payments maths. Taiwan is running a large current account
surplus, which is on course to expand to nearly 15% of GDP. This is recycled via
the capital account by net foreign direct investment and portfolio outflows, with the
balance typically mopped up by the central bank in official reserves (see Chart 3
below).
The main drivers of net portfolio flows are net foreign investment in domestic
equities, and overseas investment by Taiwanese institutional investors. The former
are typically currency unhedged. It is thus easy to see that if the domestic capital
Chart 3: Taiwans basic balance is structurally Chart 4: CBC continues to buy

positive, especially if portfolio outflows are FX the USD on dips
hedged
U
Net FDI USD bn
USD billion
Net portfolio flows
32.4 8
25 CA Balance
chg in rsrvs, ex-valn
20 Basic Balance 32.0 6
USD/TWD
15
31.6
10 4
5 31.2
2
0 30.8
-5 0
30.4
-10
-2
-15 30.0
-20 -4
29.6
-25
-30 29.2 -6
02 03 04 05 06 07 08 09 10 11 12 13 14 15 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15
18 June 2015 10
outflows were to be FX hedged, the capital account would fall well short of
recycling the current account surplus. If the CBC does not mop up the excess
USD, the USDTWD would have to adjust downwards.
As such, we think the prospect of increased hedging by Taiwanese life insurance

companies severely limits the scope for TWD depreciation. To be sure, other
catalysts may still prompt weakness (eg broad USD strength, or political
uncertainty ahead of next years presidential elections). But these catalysts are not
in play at present. In fact, the pain trade appears to be for USDTWD spot and NDF
curve to go down.
We are thus closing our long USDTWD recommendation and reverting to a neutral
stance. We also think there is scope for USDTWD NDF points to fall. The CBC will
continue to limit volatility, but is unlikely to worry unless the spot starts breaking
below 30.5.
18 June 2015 11
Appendix: News and stats
1. Yield-chasing Taiwan Insurers Face Rating Risk as Currency Gains
http://www.bloomberg.com/news/articles/2015-06-17/yield-chasing-taiwan-
insurers-face-rating-risk-as-currency-gains
2. Fubon Life depleted FX volatility reserve fund
https://tw.news.yahoo.com/%E5%8C%AF%E5%B8%82%E9%9C%87%E7%9B%
AA-
%E5%AF%8C%E9%82%A6%E5%A3%BD%E5%A4%96%E5%8C%AF%E6%BA
%96%E5%82%99%E9%87%91%E7%94%A8%E5%85%89-215008955--
finance.html
3. Taiwan Ratings Corp. warns life insurers facing higher forex risks
http://focustaiwan.tw/news/aeco/201504040010.aspx
Table 1: Taiwanese life insurance companies foreign assets and FX volatility

reserve funds (as of end 2014)
Total Foreign FX volatility FX loss covered

All amounts in USDbn (end 2014) assets assets* reserves fund by reserves
Top 5 Life Insurance
Cathay Life 225 99 0.54 0.5%
Nan Shan Life 94 42 0.29 0.7%
Fubon Life 90 40 0.11 0.3%
Shin Kong Life 64 28 0.27 1.0%
China Life 31 14 0.17 1.3%
Life Insurance Industry (Total) 603 268 1.77 0.7%
Source: BNP Paribas, Chinatimes, Taiwan FSC, company financial statements

*Assumes each company holds industry average of 44% asset in foreign assets
18 June 2015 12
BRL: Adjusted medium-term strategy; new trade idea

Gabriel Gersztein Given the changes in our structural model, recent
+55 11 3841 3421 developments around USD monetary policy and improved EM
risk tone, we have adjusted our 2 June option strategy.
Gustavo Mendonca We now recommend going long a call spread at 3.15 and 3.45
+55 11 3841 3445 (1x2).
Samuel Castro We have closed our 2 June trade (see BRL: Option strategy to trade medium-term
+55 11 3841 3492 view and opened a similar one with a lower strike due to (a) our structural model
adjusting to 3.07; (b) recent developments around US monetary policy; and (c) the
improved tone on EM risk.
We now recommend going long a call spread at 3.15 and 3.45 (1x2). The
proposed allocation remains unchanged at USD 20mn, forward reference 3.21 and
net premium of -40bp (new minus original trade, or USD 80k); maturity: 1
December 2015. The structure will benefit if USDBRL moves into the 40 to 90
percentile of the error distribution of BNP Paribas forecasts (Chart 1 and Table 1).
The trade is also in line with our short term call on the BRL (it is like a carry trade
at the beginning with delta edging higher as time passes).
The option strategy has two objectives:
(a) To recommend investors position in line with our medium-term view (that the
BRL will fall against the USD despite our more bullish short-term view, reflected in
the recent long trades we proposed), and
(b) To have a position that fits into the balance of risk embedded in the BNP
Paribas longer-term USDBRL forecasts for 2015 and 2016 (Chart 1 and Table 1
below).
In the original trade, we recommended going long a call spread at 3.25 and 3.55
(1x2). The proposed allocation was USD 20mn, forward reference 3.35 and
premium -36bp (USD 72k); maturity: 1 December 2015. The structure was set to
benefit if USDBRL moved into the 60 to 99 percentile of the error distribution of
BNP Paribas forecasts.
Official forecast and strategy
Chart 1: BNP Paribas USDBRL fan chart & Table 1: BNP Paribas USDBRL
forecasts
Source: Bloomberg, BNP Paribas
18 June 2015 13
Annex: Forecast technical note
To improve our forecasting procedures, which are based on both econometric

models and leading indicators of key price dynamics, we are proposing an
approach that not only looks at the central value of our projection, but also
considers the degree of uncertainty of forecasts expressed by confidence intervals
in the form of fan charts. (Such charts represent an extension of the point forecast
and are derived from the historical errors between the theoretical, forecast path
and the actual path for Latin American FX rates.)
Why are we proposing this approach? First, because of the errors and uncertainty
in the past data on which our forecasts are based, second, due to uncertainties
regarding the initial condition (lags in data availability or even revisions), third, as
our models are not perfect, and lastly, as the past is not necessarily a good guide
to the future.
Each quarter we will report the deviations in FX moves from our official forecasts.
In addition, we will provide an update on (a) past and new assumptions based on
current and recent developments and their future outlook, (b) the risks to the
existing call (balance of risks) and (c) the degree of asymmetry of the interval
distribution.
All the information will be factored in, such that the main risks to the baseline
scenario are considered in the construction of the distribution of future FX rate
paths. The shape of the distribution will be adjusted over the quarters: events that
have a transitory effect on FX rates could, for instance, be weighted only for the
estimated length of the shock.
We opted to use stochastic simulations in order to generate the forecast error

bands. We could have chosen to use a two-part normal distribution to create the
fan charts. However, as we are forecasting financial assets, we have used a Monte
Carlo approach, taking into consideration the differences between historical market
and model values and the central forecast derived from our macro models.
dFX rate = drift * dt + * t * dW
As any forecast necessarily incorporates some degree of uncertainty with regard to

its outcome, the purpose of the fan charts is to convey to BNP Paribas clients not
only the expected value for risk assets, but also to clarify the degree of uncertainty
inherent in the forecasts and the associated risks.
Hence the fan chart will represent a probability distribution showing more
information than a simple point forecast (with the width of the fans showing the
overall degree of uncertainty). The fan charts shows all outcomes not just the
central estimate, reflecting the different uncertainties related to the models
forecast.
18 June 2015 14
FX Vol Focus: Position for USD strength via long USD/short EUR
cross vol structures
Vasilis Koutsaftis EUR-bloc vols are elevated relative to USD-bloc vols.
+1 212 471 7973 A re-pricing of front-end US yields higher should trigger a rally
in USD vols outright and relative to EUR vols.
We fade the richness of EUR vols vs USD vols via long USD
topside with a DKO on EUR crosses.
Table 1: EUR bloc-USD bloc Implied Vols

3m Implied Vol Real Vol
%ile
Spread Spread
3m EURJPY-USDJPY Impl Vol 3.25 92% 3.55
3m EURAUD-AUDUSD Impl Vol -0.46 50% -1.58
3m EURMXN-USDMXN Impl Vol 1.57 97% 1.26
3m EURBRL-USDBRL Impl Vol 0.21 29% -0.01
3m EURINR-USDINR Impl Vol 6.06 99% 8.81
3m EURNZD-NZDUSD Impl Vol -0.80 43% -0.02
3m EURCAD-USDCAD Impl Vol 1.72 93% 3.28
3m EURGBP-GBPUSD Impl Vol 1.86 100% 1.47
Currently EUR vols are very expensive relative to USD vols due to outperforming
delivered bund yield vols,and violent position readjustment (table 1).
Currently EURJPY vols trade at the 92nd percentile of richness relative to USDJPY
vols, EURGBP vols trade at the 100th percentile of richness relative to GBPUSD
vols etc (chart 1).
The 18% rise of the USD in trade-weighted terms, has so far been driven almost
exclusively by policy easing outside the US, with very little of the price action being
driven by expectations of US rate hikes. As we approach Fed lift-off and as bund
Chart 1: EUR cross vols-USD cross vols Chart 2: EURAUD spot vs (1.3935, 1.544) barriers
3.0 1.6 EURAUD
EURAUD Lower
2.0
EURAUD Upper
1.55
1.0
0.0 1.5
-1.0
1.45
-2.0
3m EURGBP-GBPUSD Impl Vol 1.4
-3.0 3m EURCAD-USDCAD Impl Vol
-4.0 3m EURMXN-USDMXN Impl Vol 1.35
Aug-11 Aug-12 Aug-13 Aug-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
18 June 2015 15
yields stabilize and push lower, it is increasingly likely that the USD will return to
the driver seat and USD vols are likely to richen relative to EUR-bloc vols.
Expressing this view via spot-starting vol spreads currently suffers from poor static
vol carry, whereas expressing it in forward-vol space suffers from less impressive
spreads as it does not capture the elevated front-end EUR vols.
We instead prefer to express the view in the form of USD calls with a DKO on EUR
crosses.
Below we examine 6m calls struck 2% OTMS with DKOs on the corresponding

EUR cross, struck +/-5% of spot.
Table 2: 6m USDXXX calls with EURXXX DKO

% of
Discount 1m
Low High SCUD Vanilla time
FX Pair Spot to Implied-2w
Barrier Barrier Offer Offer within
Vanilla Realized
barriers
EURJPY 138.68 132.77 147.12 0.3% 1.6% 79.5% 3.3 77.5%
EURAUD 1.4511 1.3935 1.5440 0.4% 2.9% 87.8% 3.1 90.1%
EURMXN 17.33 16.50 18.29 0.3% 3.0% 88.9% 0.1 88.2%
We then identify pairs that offer (i) underperforming EUR xvols, (ii) and range-
bound EUR crosses. Table 2 summarizes the results:
EURAUD has traded within the (1.3935, 1.544) range 90% of the time over the last
12 months (chart 2). EURMXN spot has traded within the (16.502, 18.285)
barriers 88% of the time in the last 12 months, while EURJPY spot has traded
within the (132.77, 147.12) barriers 78% of the time in the last 12 months (chart 3).
Finally EURCAD offers a similarly attractive range having traded within the
(1.3183, 1.4607) range 93% of the time in the last 12 months (chart 4).
Below we display a few indicative levels.
s/r: EURAUD:1.4668, EURMXN:17.32, EURJPY: 138.68.
1. Buy 6m 2% OTMS AUDUSD put, with a (1.3935, 1.5440) EURAUD DKO,
Chart 3: EURJPY spot vs (132.77, 147.12) barriers Chart 4: EURCAD spot vs (1.3183, 1.4607) barriers
155 1.50
1.48
150
1.46
145 1.44
140 1.42
1.40
135
1.38
130 1.36 EURCAD Curncy
EURJPY EURCAD Upper
1.34
125 EURJPY Lower EURCAD Lower
EURJPY Upper 1.32
120 1.30
Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
18 June 2015 16
offered @ 0.35%. EURAUD spot has traded within the (1.3935, 1.5440) barriers
90% of the time in the last 12 months. The trade captures roughly 1/2nd of the
premium in the first 3 months in the form of static rolldown. The vanilla is offered
@ 2.87%. The trade sells front-end EURAUD vols which trade 3.1 vols over 2
week delivered vols.
2. Buy 3m 2% OTMS USDMXN call, with a (16.502, 18.285) EURMXN DKO,

offered @ 0.33%. EURMXN spot has traded within the (16.502, 18.285) barriers
@ 2.97%.
3. Buy 3m 2% OTMS USDJPY call, with a (132.77, 147.12) EURJPY DKO,

offered @ 0.20%. EURJPY spot has traded within the (132.77, 147.12) barriers
@ 1.60%. The trade sells front-end EURJPY vols which trade 3.3 vols over 2
week delivered vols.
For a more detailed discussion please see BNPP FX Vol Focus, Positioning for
USD strength via long USD strength via long USD/short EUR xvol structures,
June 17, 2015.
18 June 2015 17
BNP Paribas FX Positioning Analysis
James Hellawell Long USD positioning has started to fall back again. The current
+44 207 595 8485 score of +13 is close to the May low of +10.
Net short NZD positioning remains at an extreme level of -40,
Michael Sneyd suggesting the currency could see a squeeze.
+44 207 595 1307 Net long GBP positioning has increased over the week to +11, its
highest level since November 2014, but still leaves room for GBP
strength.
Chart 1: BNP Paribas FX positioning analysis overall positioning*
SHORT LONG
CHF 31
USD 13
GBP 11
SEK 0
CAD -4
AUD -7
NOK -11
EUR -13
18-Jun-2015
JPY -16
-40 11-Jun-2015
NZD
-50 -40 -30 -20 -10 0 10 20 30 40 50
Source: BNP Paribas
*The positioning scores above are reported as a percentile FX Fund BNPP

Client Risk
based on the prior five years of data. These percentiles are IMM position trending
exposure reversals
rescaled to give a value between -50 and +50. Values above tracker indicator
40 and below -40 represent extreme positions. 32 39 -8 -14 17 USD
-28 -26 -37 5 19 EUR
To interpret a score of -27, for example, add 50 to give 23.
This tells us that 23% of observations over the past five years -17 -46 12 -1 -26 JPY
have been below the current observation. 38 -24 -9 -1 50 GBP
10 27 33 47 40 CHF
-15 -13 14 -20 12 CAD
0 -18 37 -22 -33 AUD
-40 -50 -34 -25 -50 NZD
9 - -34 -14 -6 NOK
-18 - -22 5 35 SEK
Client exposure Internal sales desks estimate of FX investor exposure

IMM The commitment of traders (COT) is a widely used proxy for US-based hedge-fund/CTA activity
Risk reversals Risk reversals indicate the relative price of calls relative to puts, and thus incorporate an option market sentiment
FX Fund position tracker Regression based decomposition of currency fund positioning
BNPP trending indicator A technical measure of the strength of a currencys momentum
The overall currency score is then calculated as the equally weighted average of the components
18 June 2015 18
BNP Paribas FX Positioning Analysis: Behind the numbers
Chart 2: Net USD Positioning Net long USD positioning has fallen back again and
is approaching its previous low
Long positioning in the USD has started to fall again and
currently stands at +13.
USD positioning is well below its peak at the start of the

year of +36.
During the last squeeze of long USD positioning in mid-

May, net USD positioning pulled back to +10. Hence,
current positioning is similar to the low seen at that time.
Source: BNP Paribas
Chart 3: Net NZD Positioning NZD could see a squeeze as net short positioning
remains extreme
Our positioning analysis suggests caution is warranted
on short NZD positions following the recent move.
Short NZD positioning appears extreme, reaching a

score of -40 (out of 50). This suggests that short
positioning could see a squeeze if the fundamental
outlook for the NZD changes.
The NZD reached such extreme bearish positioning in

2014, 2009 and 2008. However, the large short NZD
tended to be short-lived, perhaps due to the high cost of
carrying a short NZD position.
Source: BNP Paribas
Chart 4: Net GBP Positioning Net long GBP positioning is at a six-month high,
but room for GBP buying persists
Net GBP positioning has risen to a score of +11. This
follows a recent low ahead of the election of -23.
GBP positioning is at its longest level since November

2014, but there is still plenty of scope for long GBP
positioning to rise further.
The components of our positioning analysis indicate that

the client exposure component has turned bullish on
the outlook for the GBP, but IMM and option market
sentiment remains short the GBP.
Source: BNP Paribas
18 June 2015 19
FX Snapshot
G10 BNP Paribas Forecasts

2015 2016
GDP* 2.4% 2.9%
Bullish. Despite the recent set back, we remain USD bulls. The USD will continue
to benefit from higher US yields against a backdrop of ECB and BoJ QE. We are Current Acc.* -2.5% -2.3%
beginning to see a pickup in long-term capital flow support for the USD and expect Policy Rate * 0.50-75% 1.75-2%
USD this to accelerate.
USD Index * 102.81 101.40
GDP* 1.6% 1.9%
Bearish. Interest rates will stay low for a long time and, as a result, the EUR is
likely to continue to trade as a funding currency. In the context of the ECBs Current Acc.* 3.6% 3.8%
quantitative easing programme, real yield differentials should move further against Policy Rate * 0.05% 0.05%
EUR the EUR, resulting in portfolio outflows.
EURUSD * 1.02 1.04
GDP* 0.7% 1.6%
Bearish. The CHFs overvaluation is damping growth and inflation, meaning that
the SNB could intervene in the FX market to lean against CHF appreciation if Current Acc.* 7.0% 7.2%
deemed necessary. Moreover, further rate cuts cannot be ruled out. We therefore Policy Rate * -0.90% -0.70%
CHF expect the CHF to be the weakest performing G10 currency in 2015.
USDCHF * 1.08 1.06
GDP* 2.3% 2.0%
Bullish. With political risk subsiding, there is scope for GBP gains as growth and
wages pick up in 2015. More fundamentally, the UKs balance of payments Current Acc.* -4.7% -3.9%
position continues to improve, with the current account deficit financed by solid Policy Rate * 0.50% 1.50%
GBP underlying FDI and portfolio investment inflows.
GBPUSD * 1.50 1.49
GDP* 0.8% 0.9%
Bearish. We continue to expect the JPY to be one of the weakest performing G10
currencies. BoJ policy should lift inflation expectations resulting in negative real Current Acc.* 2.3% 2.3%
rates which, coupled with normalisation of Fed policy, will lead to capital outflows. Policy Rate * 0.10% 0.10%
JPY Official comments are likely to become geared to maintaining two-way price action.
USDJPY * 130 136
GDP* 1.6% 1.8%
Bearish. Our economists expect the BoC to cut rates by 25bp in September,
which is not fully priced in. In this context the CAD should remain under pressure. Current Acc.* -2.7% -2.9%
However, recovery towards the end of the year is likely as commodity markets Policy Rate * 0.50% 1.50%
CAD stabilise and the BoC gradually shifts to a less dovish stance.
USDCAD * 1.26 1.18
GDP* 2.3% 3.0%
Neutral. In the context of a revised monetary policy outlook and weakening terms
of trade, we expect the AUD to continue to struggle against the USD. However, Current Acc.* -3.4% -3.4%
with market positioning short and carry attractive, the AUD should outperform the Policy Rate * 2.00% 2.00%
AUD JPY, CHF, EUR and SEK. AUD is vulnerable to a fall against the NZD.
AUDUSD * 0.74 0.75
GDP ** 3.0% 2.7%
Bullish. Our view is that the market is pricing in too much easing from the RBNZ.
Meanwhile, with investor positioning very short and risk-adjusted carry the highest Current Acc.** -5.3% -5.7%
in G10, we believe NZD underperformance should be limited. NZD should Policy Rate ** 3.50% 3.50%
NZD outperform the AUD in the commodity bloc.
NZDUSD * 0.69 0.71
GDP* 2.3% 2.1%
Bearish. Despite standing pat at their recent meeting, we expect the Norges Bank
to cut rates faster and by more than the market is currently pricing in. BNP Paribas Current Acc.* 10.6% 10.2%
Positioning Analysis signals that short NOK positioning has been reduced since Policy Rate * 0.75% 0.75%
NOK the start of the year. In this context, we believe the NOK is poised for weakness.
EURNOK * 8.60 8.30
GDP* 3.3% 3.4%

Bearish. The Riksbank has been clear in its aim to prevent the SEK from
strengthening and surprised with further rate cuts and QE. The SEK is likely to Current Acc.* 7.1% 7.2%
remain under pressure, but we see scope for a recovery in H2 2015 as a eurozone Policy Rate * 3.4%
-0.25% -0.25%
SEK economic recovery supports Swedish exports.
EURSEK * 9.10 8.60
* End of year forecasts

** Bloomberg Median
18 June 2015 20
Converging Europe, Russia, Africa and Israel BNP Paribas Forecasts

2015 2016
GDP* 3.7% 3.2%
Bullish. After the National Bank of Polands monetary policy committee Current Acc.* -1.0% -2.8%
announced the end of the cutting cycle, 1y FX implied yields jumped by 50bp. FX
vol is low enough to make the PLN an interesting carry currency. Policy Rate * 1.50% 2.50%
PLN
EURPLN * 3.95 3.85
GDP* 2.4% 2.6%
Bearish. The economy is starting to recover but inflation is very low and the risk of
importing deflation is high, with producer prices already falling 3.7% y/y. With Current Acc.* 0.9% 1.0%
interest rates close to zero, the only effective tool the CNB has left is the exchange Policy Rate * 0.05% 0.05%
CZK rate. As a result of the lack of inflation pressure, EURCZK should drift upwards.
EURCZK * 27.00 27.00
GDP* 3.2% 3.6%
Neutral/bullish. Similar to Poland, external financing requirements remain low. Current Acc.* 3.8% 1.9%
The NBH is afraid of a too strong HUF, and continues to cut interest rates. The
PLN will likely outperform the HUF in the near term. Policy Rate * 1.75% 3.00%
HUF
EURHUF * 300 280
GDP* 3.2% 4.3%
Neutral. Inflation is falling, the central bank is cutting rates and FX implied yields Current Acc.* -2.0% -2.8%
are hovering below 1%. In the near term, the currency has a bias to weaken at
least in line with the EUR. Policy Rate * 2.0% 3.0%
RON
EURRON * 4.40 4.30
Neutral/bearish. In our view, the RUB recovery is too strong, as oil is trading GDP* -2.5% 1.5%
below RUB 3000/bbl and rate cuts are expected to prevent too strong an Current Acc.* 3.5% 4.9%
appreciation. In the longer term, RUB performance will depend on the political
decision to lift sanctions against Russia. We see a risk of a weaker RUB going Policy Rate * 10.00% 7.50%
RUB
forward. USDRUB * 67.39 68.76
Bearish. External financing requirements remain high at around USD 200bn per GDP* 2.2% 4.1%
annum. Flows into FI instruments have stalled and the US Fed is about to tighten
USD liquidity. Turkey is having difficulty financing its external liabilities, and we Current Acc.* -4.3% -4.7%
therefore expect the TRY to continue to weaken against basket. The governments Policy Rate * 9.50% 9.00%
TRY clash with the central bank on interest rates is also undermining Turkeys ability to
USDTRY * 2.85 2.99
meet its inflation targets.
Neutral/bearish. The BoI is waiting to see the impact of currency depreciation on GDP** 3.1% 3.5%
the economy. Commodity prices in USD terms have fallen faster than the ILS has Current Acc.** 1.0% 0.8%
dropped against the USD, so Israel continues to import deflation. Low growth and
low inflation increase the probability that additional action to weaken the ILS will be Policy Rate * N/A N/A
ILS
necessary. USDILS * 3.80 3.80
GDP* 2.0% 2.6%

Bearish. The long-term depreciation trend against the USD is likely to remain in
place as the inflation differential between US and South Africa persists. In March Current Acc.* -4.6% -4.5%
the ZAR was trading at the stronger end of the band, but now we expect it to test Policy Rate * 5.75% 7.0%
ZAR the upper band once more.
USDZAR * 12.90 13.50
*End of year forecasts

**OECD Economic Outlook forecasts
18 June 2015 21
LatAm BNP Paribas forecasts

2015 2016
Neutral. Although we remain bearish on the BRL due to its weak fundamental
aspects, ie poor economic data (very poor economic outlook, twin deficits around GDP* -2.0% 0.5%
11% of GDP), difficulty in approving fiscal measures and political instability, the Current Acc.* -4.3% -4.4%
USDBRL is likely to outperform on a relative basis after the depreciation seen in
January. We like positioning long the BRL against a basket of the AUD and ZAR, Policy Rate * 14.0% 12.50%
BRL
taking advantage of the short-term retracement and decent positive carry. Locals USDBRL * 3.20 3.40
re-building short positions could benefit from our short-term view as well.
Neutral. A meaningful part of the negative scenario for both rates and growth is GDP* 3.0% 4.5%
already embedded into the price of USDCLP. The technical position is at levels at Current Acc.* -1.9% -2.5%
which the risk reward of being short is not as attractive as it has been in past
quarters, and our growth acceleration model suggests the worst of the economic Policy Rate * 3.00% 4.00%
CLP
slowdown is over. USDCLP * 640 650
Bullish. We remain bullish on the MXN as the currency should benefit from growth
outperformance in the US. Furthermore, Mexican terms of trade have suffered the
GDP* 2.7% 3.4%
least in the region, whereas the currency has tended to move in tandem with its
peers. The Foreign Exchange Commission has two intervention mechanisms in Current Acc.* -2.0% -2.3%
place: 1) daily auctions with minimum price (1.5% weaker than previous fixing) and Policy Rate * 3.50% 4.00%
MXN USD 200mn daily maximum amount and 2) daily auctions of USD 52mn without
minimum price until 29 September. We still like being long the MXN against the USDMXN * 15.20 15.20
JPY/EUR/AUD.
Neutral. The peso has appreciated on the back of an increase in oil prices and GDP* 3.50% 4.10%
USDCOP has now recovered from the exaggerated depreciation reason why we Current Acc.* -5.7% -4.2%
hold a neutral stance. However, this does not change our medium-term/long-term
view that a deteriorated terms of trade in Colombia, combined with secular USD Policy Rate * 4.50% 5.00%
COP
strength are likely to pressure the Colombian peso to grind weaker in the long term. USDCOP * 2650 2750
Neutral. The central bank (BCRP) has been visible in USD offerings in the spot
market, currency swaps (similar derivative instrument in Brazil) and CDRs (USD- GDP* 4.1% 4.7%
linked bills). The intervention intended to provide hedge for markets while trying Current Acc.* -3.9% -4.5%
to reduce the economys dollarisation has reduced moderately, as banks have
been meeting the de-dollarisation targets. Economic activity shows signs of Policy Rate * 3.75% 4.00%
PEN
recovery, but neither inflation nor the Fed hikes will pressure the BCRP to hike USDPEN * 3.22 3.25
rates this year.
Bearish. The government unified SICAD I and II into just one SICAD rate, starting
at 12.00. Additionally, it launched the SIMADI rate the legalisation of the black
market but still subject to government intervention. Data from the Banco Central de GDP* -7.0% 0.5%
Venezuela, however, shows that 97% of transactions are still conducted under the Current Acc.* -2.0% 3.0%
regulated systems. Meanwhile, parallel FX rates continue to reach all-time high
levels amid increasing disbelief in local FX system. We remain cautious and still Policy Rate * 14.5% 14.5%
VEF
believe the new measure does not change the macroeconomic deterioration of the USDVEF * 35.00 42.00
Venezuelan economy. In our view, USD supply will not be sufficient to meet the
high demand.
Bearish. We are entering into the terminal stage of a situation in which the
cumulative effects of currency overvaluation plus monetary and fiscal disruptions of
the last seven years are no longer sustainable. Not to mention the systematic GDP* -1.0% 1.0%
strong USD across the globe and the acceleration of the BRL depreciation. Current Acc.* -1.5% -1.0%
However, the upcoming presidential elections in October will prevent a decline in
international reserves and keep the peso stable, possibly at the expense of Policy Rate * 25.0% 35.0%
ARS
domestic activity. We expect further delays in import payments, a new hard USDARS * 12.00 14.25
currency swap with China and mounting pressure to force local firms to sell FX.
Once elections are over, an unavoidable adjustment is our most plausible scenario.
18 June 2015 22
Asia BNP Paribas Forecasts

2015 2016
GDP* 2.50% 3.00%
Bearish. With the SGDs nominal effective exchange rate in the top half of its Current Acc*. 19.2% 18.2%
trading band, there is scope for long USD positions to be rebuilt, especially if US
data improve. We like going short the SGD versus the INR. Policy Rate * - -
SGD
USDSGD * 1.40 1.42
GDP* 4.50% 5.50%
Bearish. Fundamentally, the outlook for the MYR remains poor due to a shrinking
current account balance, falling external liability coverage ratios and tightening of Current Acc*. 1.0% 2.5%
access to offshore funding. However, USDMYR has rallied to this years high and Policy Rate * 3.25% 3.50%
MYR further moves are likely to be smoothed by the central bank.
USDMYR * 3.80 3.85
GDP* 4.9% 5.3%
Neutral. Our year-end forecast for USDIDR is 13,800 based on our cyclically Current Acc.* -3.0% -4.0%
adjusted fair value model. However, at current levels, the non-deliverable forwards
amply discount downside risks. Policy Rate * 8.50% 8.25%
IDR
USDIDR * 13800 14000
GDP* 3.5% 4.5%
Neutral. USDTHB has broken above the holding pattern of 32-33 following the Current Acc.* 5.0% 4.0%
BoTs surprise rate cut in April and the announcement of a relaxation of capital
outflow measures. Topside resistance stands at 34.00. Policy Rate * 1.50% 1.50%
THB
USDTHB * 33.80 34.00
Neutral. We took profit on our 1m USDPHP trade at 45.30, locking in a 1.6%

GDP* 6.0% 5.5%
profit. The technical breakout failed to break new highs and the NDF-onshore risk
premium is now close to an extreme. Hence we think its prudent to take profit on Current Acc.* 5.0% 5.0%
outright short peso positions. We like switching to being long 1x6 USDPHP NDF, Policy Rate * 4.0% 4.0%
PHP targeting +60. The massive inversion of the NDF implied yield curve makes a paid
position in the NDF curve very attractive from a carry perspective. USDPHP * 46.00 47.00
GDP* 1.8% 1.8%

Neutral. The spill-over of Chinas stock market bubble over the border has
resulted in USDHKD hitting the strong side of the trading band (7.75). Track the Current Acc. 3.6% 4.2%
China A/H share premium; expect equity inflows into HK to persist until there is a Policy Rate * 1.00% 2.25%
HKD reversion to the A/H share discount.
USDHKD * 7.80 7.80
GDP 7.1% 7.3%
Neutral. We are neutral on the RMB. Ahead of the SDR review in October, we Current Acc.* 2.6% 2.7%
think the PBoC will engineer stability in the RMB. Policy Rate * 2.25% 2.25%
CNY
USDCNY * 6.20 6.16
GDP* 3.6% 3.4%
Neutral. The strength in the TWD appears out of line with regional peers but the
increase in life insurers hedging suggests that scope for the TWD to depreciate is Current Acc.* 13.7% 10.6%
limited. USDTWD NDF points could also head downwards. We close our Policy Rate * 1.75% 1.75%
TWD recommendation to buy USDTWD via 3m USD calls.
USDTWD * 32.00 32.50
GDP* 2.70% 2.90%
Neutral. We believe USDKRW is going to trade in a holding pattern. Room for Current Acc.* 8.6% 7.1%
appreciation continues to be limited by the BoK but a strong current account and
positive real interest rates limit the scope for a sell-off. Policy Rate * 1.50% 1.50%
KRW
USDKRW * 1140 1160
GDP* 7.1% 7.5%
Bullish. With offshore positioning now much reduced and INR offering the best Current Acc.* -0.9% 0.1%
carry-to-vol ratio in emerging markets we like owning the INR; stay long the INR
versus the SGD. Policy Rate * 7.00% 7.00%
INR
USDINR * 65.00 66.50
18 June 2015 23
Economic calendar: 19 26 June
HIGH-INCOME ECONOMIES
GMT Local Previous Forecast Consensus
Fri 19/06 Spain Moody's ratings review
03:00 12:00 Japan BoJ rate announcement
07:00 09:00 Eurozone EU finance ministers hold meeting with non-euro finance chiefs
07:00 09:00 Ecofin in Luxembourg
08:00 10:00 Current account (sa): Apr EUR 18.6bn EUR 21.0bn -
12:30 08:30 Canada CPI (nsa) m/m: May -0.1% 0.5% -
12:30 08:30 CPI y/y: May 0.8% 0.8% -
12:30 08:30 CPI index: May 126.2 126.8 -
12:30 08:30 BoC core CPI m/m: May 0.1% 0.3% -
12:30 08:30 BoC core CPI y/y: May 2.3% 2.1% -
15:40 08:40 US San Francisco Feds Williams speaks on monetary policy in San Francisco, CA
16:00 12:00 Cleveland Fed's Mester speaks at Fed policy summit in Pittsburgh, PA
Mon 22/06 05:00 14:00 Japan BoJ monthly report

06:30 08:30 Eurozone ECB's Coeur speaks in Paris
09:00 11:00 Former ECB President Trichet speaks in Vienna
14:00 16:00 Consumer sentiment (flash): Jun -5.5 -5.9 -5.7
14:00 10:00 US Existing home sales: May 5.04mn 5.15mn 5.25mn
Tue 23/06 06:45 08:45 France Industry survey: Jun 103 103 -
08:00 10:00 Eurozone PMI manufacturing (flash): Jun 52.2 52.4 52.0
08:00 10:00 PMI services (flash): Jun 53.8 53.5 53.7
08:00 10:00 PMI composite (flash): Jun 53.6 53.3 53.7
10:00 11:00 UK CBI monthly industrial trends: Jun -5 - 3
12:00 08:00 US Fed Governor Powell speaks on monetary policy in Washington, DC
12:30 08:30 Durable goods orders m/m: May -1.0% (r) -0.7% -0.5%
12:30 08:30 Durable goods ex-transport m/m: May -0.2% (r) 0.4% 0.8%
12:30 08:30 Core capital goods shipments m/m: May 0.5% (r) 0.8% -
13:45 09:45 Markit US PMI (prel): Jun 54.0 54.0 54.2
14:00 10:00 New home sales: May 517k 520k 514k
Wed 24/06 23:50 08:50 Japan BoJ minutes

(23/06)
06:45 08:45 France GDP (final, wda) q/q: Q1 0.6% (p) 0.6% -
06:45 08:45 GDP (final, wda) y/y: Q1 0.7% (p) 0.7% -
07:30 09:30 Netherlands Producer confidence: Jun 4.1 4.3 -
07:30 09:30 GDP (final) q/q: Q1 0.4% (p) 0.4% -
07:30 09:30 GDP (final) y/y: Q1 2.4% (p) 2.4% -
08:00 10:00 Germany Ifo business climate: Jun 108.5 107.6 108.0
08:00 10:00 Ifo current conditions: Jun 114.3 113.4 114.1
08:00 10:00 Ifo expectations: Jun 103.0 101.8 102.4
12:30 08:30 US GDP (final, saar) q/q: Q1 -0.7% (p) -0.2% -0.3%
13:00 15:00 Switzerland SNB quarterly MPC report
14:00 16:00 Eurozone ECB Vice-President Constncio participates in a panel in Frankfurt
Thu 25/06 06:00 08:00 Germany GfK consumer confidence: Jul 10.2 10.2 10.1
06:15 08:15 Eurozone ECB speakers at 2015 IIF Europe summit in Frankfurt
07:00 09:00 ECB's Nouy speaks at European parliament in Brussels
08:00 09:00 ECB's Costa attends meeting of central banks in Portugal
14:00 16:00 EU leaders start two-day summit in Brussels
10:00 11:00 UK CBI reported sales: Jun 51 - -
12:30 08:30 US Personal income m/m: May 0.4% 0.5% 0.5%
12:30 08:30 Personal spending m/m: May 0.0% 0.8% 0.7%
12:30 08:30 Initial claims 267k 270k -
18 June 2015 24
Economic calendar: 19 26 June (cont)
HIGH-INCOME ECONOMIES
Fri 26/06 23:30 08:30 Japan Core CPI national y/y: May 0.3% 0.1% 0.0%
23:30 08:30 Core CPI Tokyo y/y: Jun 0.2% 0.2% 0.2%
23:30 08:30 Household consumption y/y: May -1.3% 4.2% 3.6%
23:30 08:30 Unemployment rate (sa): May 3.3% 3.3% 3.4%
(25/06)
Germany Moody's ratings review
France S&P ratings review
06:45 08:45 Consumer confidence: Jun 93 94 -
Belgium Moody's ratings review
07:30 09:30 Eurozone Eurocoin: Jun 0.38 0.32 -
08:00 10:00 M3 y/y: May 5.3% 5.6% 5.4%
08:00 10:00 M3 3m y/y: May 4.7% 5.2% 5.1%
08:00 10:00 EU leaders conclude summit in Brussels
08:00 10:00 Italy ISAE business confidence: Jun 103.5 103.2 -
08:00 10:00 ISAE consumer confidence: Jun 105.7 105.2 -
14:00 10:00 US Michigan sentiment (final): Jun 94.6 (p) 94.6 94.6
16:45 11:45 Kansas City Fed's George speaks on the payments system in Kansas City, MO
Release dates and forecasts as of close of business prior to the date of publication; see Daily Macro Monitor for any revisions; (p) = preliminary; (r) = revised
Source: BNP Paribas, Reuters, Bloomberg, national statistics, central banks, ratings agencies
For our four-week calendar, please click here
18 June 2015 25
ASIA
Fri 19/06 04:00 12:00 Malaysia CPI y/y: May 1.8% 1.9% 2.1%
Mon 22/06 China Holiday
Tue 23/06 01:45 09:45 China HSBC PMI manufacturing (flash): Jun 49.2 49.5 49.4
05:00 13:00 Singapore CPI y/y: May -0.5% -0.2% -0.2%
Wed 24/06 Vietnam CPI y/y: Jun 1.0% 1.0% -

08:00 16:00 Taiwan Industrial production m/m: May -4.0% -0.4% -
08:00 16:00 Industrial production y/y: May 1.1% 0.0% 1.5%
Thu 25/06 Taiwan CBC rate announcement 1.875 1.75 1.875

Thailand Trade balance: May USD -0.5bn USD 1.3bn -
01:00 09:00 Philippines Trade balance: Apr USD 264mn USD -800mn -
08:00 16:00 BSP rate announcement
Fri 26/06 05:00 13:00 Singapore Industrial production y/y: May -8.7% -4.0% -
During 25-30/06 Vietnam Trade balance: Jun USD -900mn USD 200mn -
week 25-30/06 GDP (YTD) y/y: Q2 6.0% 5.8% -
Release dates and forecasts as of close of business prior to the date of publication; (p) = preliminary; (r) = revised
18 June 2015 26
CEEMEA
Fri 19/06 Czech Rep. Moodys ratings review
Tue 23/06 08:00 10:00 South Africa Current account (% GDP): Q1 -5.1% -4.5% -5.1%
11:00 14:00 Turkey CBRT one-week repo rate 7.50% 7.50% -
11:00 14:00 CBRT overnight borrowing rate 7.25% 7.25% -
11:00 14:00 CBRT o/n lending rate to primary dealers 10.25% 10.25% -
11:00 14:00 CBRT overnight lending rate 10.75% 10.75% -
12:00 14:00 Hungary NBH meeting and rate decision 1.65% 1.50% 1.50%
Wed 24/06 08:00 10:00 Poland Unemployment rate: May 11.2% 10.6% 10.8%
Thu 25/06 09:30 11:30 South Africa PPI y/y: May 3.0% 3.2% -
11:00 13:00 Czech Rep. CNB meeting and rate decision 0.05% 0.05% 0.05%
Fri 26/06 07:00 09:00 Hungary Unemployment rate: May 7.6% 7.6% 7.5%
Release dates and forecasts as of close of business prior to the date of publication; (p) = preliminary; (r) = revised
Source: BNP Paribas, national statistics, ratings agencies, central banks, Bloomberg, Reuters
18 June 2015 27
LATIN AMERICA
Fri 19/06 12:00 09:00 Brazil IBGE inflation IPCA-15 m/m: Jun 0.60% 0.85% 0.85%
13:00 08:00 Mexico Aggregate supply and demand: Q1 4.0% - 2.9%
Mon 22/06 14:00 08:00 Mexico Retail sales y/y: Apr 5.5% 5.2% -
Tue 23/06 19:00 16:00 Argentina Trade balance: May USD 0.3bn USD 0.3bn -
Wed 24/06 Colombia Overnight lending rate 4.50% 4.50% 4.50%

11:30 08:00 Brazil Central bank quarterly inflation report
13:30 10:30 Current account balance: May USD -6.9bn - -
13:30 10:30 FDI: May USD 5.8bn - -
12:00 09:00 Chile PPI m/m: May 1.6% - -
14:00 08:00 Mexico Economic activity IGAE y/y: Apr 2.65% 2.3% -
14:00 08:00 Bi-weekly CPI 0.04% 0.09% -
14:00 08:00 Bi-weekly core CPI 0.08% 0.13% -
14:00 08:00 Bi-weekly CPI y/y 2.82% 2.84% -
Fri 26/06 12:30 09:30 Chile Central bank meeting minutes

13:00 08:00 Mexico Trade balance: May USD -0.1bn - -
13:30 10:30 Brazil Credit report: May
19:00 16:00 Argentina GDP q/q: Q1 0.0% 0.1% -
19:00 16:00 GDP y/y: Q1 0.4% 0.6% 0.1%
19:00 16:00 Current account balance: Q1 USD -1.7bn USD -4.2bn -
During 18-22/06 Brazil Tax collections: May BRL 109.2bn - BRL 94.0bn
week 24-25/06 Long-term rate TJLP 6.00% 6.50% -
Release dates and forecasts as of close of business prior to the date of publication: See Daily Latam Spotlight for any revision
18 June 2015 28
FX Forecasts*
USD Bloc Spot Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16
EURUSD 1.14 1.09 1.04 1.02 1.00 1.00 1.02 1.04
USDJPY 123 124 127 130 132 132 134 136
USDCHF 0.92 0.97 1.04 1.08 1.10 1.10 1.08 1.06
GBPUSD 1.59 1.51 1.51 1.50 1.47 1.45 1.48 1.49
USDCAD 1.22 1.25 1.28 1.26 1.24 1.22 1.20 1.18
AUDUSD 0.78 0.76 0.74 0.74 0.73 0.73 0.75 0.75
NZDUSD 0.69 0.69 0.69 0.69 0.68 0.68 0.71 0.71
USDSEK 8.11 8.53 8.94 8.92 8.80 8.60 8.43 8.27
USDNOK 7.76 8.07 8.46 8.43 8.60 8.50 8.24 7.98
EUR Bloc Spot Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16
EURJPY 140 135 132 133 132 132 137 141
EURGBP 0.72 0.72 0.69 0.68 0.68 0.69 0.69 0.70
EURCHF 1.05 1.06 1.08 1.10 1.10 1.10 1.10 1.10
EURSEK 9.25 9.30 9.30 9.10 8.80 8.60 8.60 8.60
EURNOK 8.85 8.80 8.80 8.60 8.60 8.50 8.40 8.30
EURDKK 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46
CEEMEA Spot Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16

USDPLN 3.66 3.80 3.84 3.87 3.85 3.85 3.77 3.70
EURCZK 27.2 27.00 27.00 27.00 27.00 27.00 27.00 27.00
EURHUF 312.9 310 303 300 290 280 280 280
USDZAR 12.2 12.40 12.80 12.90 13.20 13.50 13.50 13.50
USDTRY 2.71 2.65 2.82 2.85 2.86 2.90 2.94 2.99
EURRON 4.49 4.45 4.40 4.40 4.41 4.38 4.34 4.30
USDRUB 53.3 55.74 60.90 67.39 70.00 70.00 69.38 68.76
EURPLN 4.18 4.15 4.00 3.95 3.85 3.85 3.85 3.85
USDILS 3.82 3.80 3.80 3.80 3.80 3.80 3.80 3.80
EURRSD 120.55 115 115 115 115 115 115 115
Asia Bloc Spot Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16
USDSGD 1.33 1.36 1.38 1.40 1.40 1.41 1.42 1.42
USDMYR 3.71 3.72 3.75 3.80 3.80 3.80 3.85 3.85
USDIDR 13307 13300 13500 13800 14000 14000 14000 14000
USDTHB 33.6 33.60 33.70 33.80 33.80 33.80 34.00 34.00
USDPHP 44.9 45.20 45.50 46.00 46.00 46.50 46.50 47.00
USDHKD 7.75 7.80 7.80 7.80 7.80 7.80 7.80 7.80
USDRMB 6.21 6.20 6.18 6.20 6.25 6.22 6.18 6.16
USDTWD 30.7 31.50 31.70 32.00 32.00 32.10 32.30 32.50
USDKRW 1107 1130 1140 1140 1150 1155 1155 1160
USDINR 63.7 64.00 64.50 65.00 65.00 65.50 66.00 66.50
USDVND 21810 21800 21900 22000 22000 22100 22200 22200
LATAM Bloc Spot Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16
USDARS 9.07 9.60 10.00 12.00 13.75 14.00 14.25 14.25
USDBRL 3.04 3.08 3.10 3.20 3.25 3.28 3.30 3.40
USDCLP 626.88 635 630 640 635 635 640 650
USDMXN 15.27 15.25 15.20 15.20 15.20 15.20 15.20 15.20
USDCOP 2530 2550 2600 2650 2620 2700 2700 2750
USDVEF 6.29 13.80 25.60 35.00 35.00 35.00 35.00 42.00
USDPEN 3.16 3.16 3.18 3.22 3.25 3.25 3.25 3.25
Others Spot Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16

USD Index 93.83 97.59 101.30 102.81 104.31 104.24 102.71 101.40
*End Quarter
18 June 2015 29
FX Global Strategy Contacts

Foreign Exchange
Steven Saywell Global Head of FX Strategy London 44 20 7595 8487 steven.saywell@uk.bnpparibas.com
James Hellawell Quantitative Strategist London 44 20 7595 8485 james.hellawell@uk.bnpparibas.com
Michael Sneyd FX Strategist & Lead Quant Strategist London 44 20 7595 1307 michael.sneyd@uk.bnpparibas.com
Sam Lynton-Brown Graduate London 44 20 7595 8467 sam.lynton-brown@uk.bnpparibas.com
Daniel Katzive Head of FX Strategy North America New York 1 212 841 2408 daniel.katzive@us.bnpparibas.com
Vasilis Koutsaftis FX Options Strategist New York 1 212 471 7973 vasilis.koutsaftis@americas.bnpparibas.com
Vassili Serebriakov FX Strategist New York 1 212 841 2409 vassili.serebriakov@us.bnpparibas.com
Emerging Markets FX & IR Strategy
Piotr Chwiejczak FX & IR CEEMEA Strategist London 44 20 7595 8715 piotr.chwiejczak@uk.bnpparibas.com
Erkin Isik FX & IR CEEMEA Strategist Istanbul 90 216 635 2987 erkin.isik@teb.com.tr
Mirza Baig Head of FX & IR Asia Strategy Singapore 65 6210 3262 mirza.s.baig@asia.bnpparibas.com
Jasmine Poh FX & IR Asia Strategy Singapore 65 6210 3418 jasmine.j.poh@asia.bnpparibas.com
Jennifer Kusuma FX & IR Asia Strategy Singapore 65 6210 3263 jennifer.kusuma@asia.bnpparibas.com
Altaz Dagha AU/NZ IR Strategist Singapore 65 6210 4994 altaz.dagha@asia.bnpparibas.com
Gabriel Gersztein Head FX & IR Latam Strategy Sao Paulo 55 11 3841 3421 gabriel.gersztein@br.bnpparibas.com
Samuel Castro FX & IR Latam Strategist Sao Paulo 55 11 3841 3492 samuel.castro@br.bnpparibas.com
Gustavo Mendonca FX & IR Latam Strategist Sao Paulo 55 11 3841 3445 gustavo.mendonca@br.bnpparibas.com
Production and Distribution
Barbara Consuelo, Foreign Exchange, London. Tel: 44 20 7595 8486, Email: Barbara.Consuelo@uk.bnpparibas.com
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Taiwan: BNP Paribas Taipei Branch is registered as a licensed bank under the Banking Act and regulated by the Financial Supervisory Commission, R.O.C. This
document is directed only at Taiwanese counterparties who are licensed or who have the capacities to purchase or transact in such products. This document does not
constitute an offer to sell to or the solicitation of an offer to buy from any person any financial products where it is unlawful to make the offer or solicitation in Taiwan.
Israel: BNP Paribas does not hold a licence under the Investment Advice and Marketing Law of Israel, to offer investment advice of any type, including, but not limited
to, investment advice relating to any financial products
Singapore: BNP Paribas Singapore Branch is regulated in Singapore by the Monetary Authority of Singapore under the Banking Act, the Securities and Futures Act
and the Financial Advisers Act. This document may not be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (i) to an
institutional investor pursuant to Section 274 of the Securities and Futures Act, Chapter 289 of Singapore ("SFA"), (ii) to an accredited investor or other relevant person,
or any person under Section 275(1A) of the SFA, pursuant to and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable provisions of the SFA.
Australia: This material, and any information in related marketing presentations (the Material), is being distributed in Australia by BNP Paribas ABN 23 000 000 117, a
branch of BNP Paribas 662 042 449 R.C.S., a licensed bank whose head office is in Paris, France. BNP Paribas is licensed in Australia as a Foreign Approved Deposit-
taking Institution by the Australian Prudential Regulation Authority (APRA) and delivers financial services to Wholesale clients under its Australian Financial Services
Licence (AFSL) No. 238043 which is regulated by the Australian Securities & Investments Commission (ASIC).The Material is directed to Wholesale clients only and is
not intended for Retail clients (as both terms are defined by the Corporations Act 2001, sections 761G and 761GA). The Material is subject to change without notice and
BNP Paribas is under no obligation to update the information or correct any inaccuracy that may appear at a later date.
Brazil: This document was prepared by Banco BNP Paribas Brasil S.A. or by its subsidiaries, affiliates and controlled companies, together referred to as "BNP Paribas",
for information purposes only and do not represent an offer or request for investment or divestment of assets. Banco BNP Paribas Brasil S.A. is a financial institution
duly incorporated in Brazil and duly authorized by the Central Bank of Brazil and by the Brazilian Securities Commission to manage investment funds. Notwithstanding
the caution to obtain and manage the information herein presented, BNP Paribas shall not be responsible for the accidental publication of incorrect information, nor for
investment decisions taken based on the information contained herein, which can be modified without prior notice. Banco BNP Paribas Brasil S.A. shall not be
responsible to update or revise any information contained herein. Banco BNP Paribas Brasil S.A. shall not be responsible for any loss caused by the use of any
information contained herein.
South Africa: BNP Paribas Cadiz Securities (Pty) Ltd (Registration number 1998/007073/07) (FSP 13062) and BNP Paribas Cadiz Stockbroking (Registration number
1996/009716/07) (FSP 29451) (BNPP Cadiz) are authorised Financial Services Providers in terms of the Financial Advisory and Intermediary Services Act, 37 of
2002. Any view or opinion expressed in this document is based on factual information and must not be seen to constitute advice.
Some or all the information reported in this document may already have been published on https://globalmarkets.bnpparibas.com
BNP Paribas (2015). All rights reserved.
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BNP Steer Explanation

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*** New FX Forecasts ***

USD: Data Dependent Once Again

www.GlobalMarkets.bnpparibas.com Please refer to important information at the end of the report.

1 Positions highlighted in grey are currently open

Weekly FX Outlook: Data to reassure USD bulls

No help for the USD from the Fed, yet

Source: Bloomberg, BNP Paribas Source: Macrobond, Bloomberg, BNP Paribas

Yen policy: Tolerance of a steady decline reflecting fundamentals

Source: Macrobond, Bloomberg, BNP Paribas Source: BNP Paribas

3m EURJPY 1x2x1 put fly: buy 138/132/126 for 78 bp (est. 11 June

3m USDJPY call with RKO at 132 for 62 bp (spot ref. 122.67).

BNP Paribas STEER: Benefiting from choppy markets

GBPUSD 4.19% 5 2.15% -0.89% 60%

EURHUF -0.60% 11 0.70% -0.34% 27%

5% STEER returns 6 5% STEER returns 8.0%

-5% 4 -5% 7.5%

Source: BNP Paribas Source: BNP Paribas

TWD: Change in fortunes

Last year, Taiwanese life insurance companies ramped up their purchases of

Reserves depleted, forwards bearing the brunt

The currency hedging dynamics of Taiwanese institutional investors significantly

Chart 3: Taiwans basic balance is structurally Chart 4: CBC continues to buy

As such, we think the prospect of increased hedging by Taiwanese life insurance

Appendix: News and stats

1. Yield-chasing Taiwan Insurers Face Rating Risk as Currency Gains

2. Fubon Life depleted FX volatility reserve fund

Table 1: Taiwanese life insurance companies foreign assets and FX volatility

Total Foreign FX volatility FX loss covered

Source: BNP Paribas, Chinatimes, Taiwan FSC, company financial statements

BRL: Adjusted medium-term strategy; new trade idea

The option strategy has two objectives:

Official forecast and strategy

Source: Bloomberg, BNP Paribas

Annex: Forecast technical note

To improve our forecasting procedures, which are based on both econometric

We opted to use stochastic simulations in order to generate the forecast error

dFX rate = drift * dt + * t * dW

As any forecast necessarily incorporates some degree of uncertainty with regard to

Table 1: EUR bloc-USD bloc Implied Vols

Below we examine 6m calls struck 2% OTMS with DKOs on the corresponding

Table 2: 6m USDXXX calls with EURXXX DKO

Below we display a few indicative levels.

s/r: EURAUD:1.4668, EURMXN:17.32, EURJPY: 138.68.

1. Buy 6m 2% OTMS AUDUSD put, with a (1.3935, 1.5440) EURAUD DKO,

2. Buy 3m 2% OTMS USDMXN call, with a (16.502, 18.285) EURMXN DKO,

3. Buy 3m 2% OTMS USDJPY call, with a (132.77, 147.12) EURJPY DKO,

BNP Paribas FX Positioning Analysis

Chart 1: BNP Paribas FX positioning analysis overall positioning*

-50 -40 -30 -20 -10 0 10 20 30 40 50

Source: BNP Paribas

*The positioning scores above are reported as a percentile FX Fund BNPP

Client exposure Internal sales desks estimate of FX investor exposure

BNP Paribas FX Positioning Analysis: Behind the numbers

USD positioning is well below its peak at the start of the

During the last squeeze of long USD positioning in mid-

Source: BNP Paribas

Short NZD positioning appears extreme, reaching a

The NZD reached such extreme bearish positioning in

Source: BNP Paribas

GBP positioning is at its longest level since November

The components of our positioning analysis indicate that

Source: BNP Paribas

G10 BNP Paribas Forecasts

* New FX Forecasts *