Etikett: Trade Idea

Poised for further weakness?

USD Poised for further weakness? ETF SecuritiesPoised for further weakness?

ETF Securities Weekly Investment Insights USD Poised for further weakness?

Trade idea – LUSB LN & SUSB LN

Highlights

  • USD has fallen against its major currency counterparts as the US Federal Reserve (Fed) projections fell short of hawkish expectations.
  • The EUR/USD and GBP/USD are trading at the top of their respective ranges established after Trump’s election.
  • Further upside would require a significant catalyst, which could come in the form of a failed attempt to pass healthcare reform in US House of Representatives. In this scenario the GBP has potential to gain as shorts remain considerably elevated.
  • Otherwise, these pairs could retrace recent gains as the probability of rate hikes later in the year appear largely underpriced according to Federal Fund futures.

Last week, the failure of the Fed to raise its prospective interest rate trajectory put pressure on the US Dollar. The trade weighted value of the currency has fallen almost 2% in recent days tracing a 20 basis point (bp) drop in 10 year nominal US treasury yields. Despite raising the benchmark Federal funds rate by 25 bps as expected, the Federal Open Market Committee (FOMC) kept its December projections for the benchmark rate virtually intact, defying market expectations of a more aggressive tightening plan.

US Dollar weakness has coincided with positive news for the Euro and Sterling sending both pairs higher. Moderating rate hike expectations surfaced as Emmanuel Macron delivered strong performances in the first series of live presidential debates and the UK released healthy retail sales data. The confluence of factors has prompted both pairs to break through both their respective 50 and 100 day moving averages but remain at the top of recent ranges.

From a technical standpoint, the EUR/USD and GBP/USD have both reached key resistance points that have emerged following the Trump election. Traditional momentum indicators have yet to signal that either pair is overbought but are approaching such levels. A move higher above these levels would likely trigger buying but would require a significant catalyst.

One such catalyst could emerge from the contentious vote on a healthcare reform bill that is scheduled to be held in the House of Representatives today (having been postponed from yesterday) and acts as a precursor to Trump’s ability to pass his sweeping fiscal reform program. Should Trump fail then the US Dollar could come under pressure as optimistic growth and tightening expectations are curbed. In the alternative case where the bill is passed, then prospects for the US Dollar would be more positive. The market is currently pricing in a probability of a June rate hike at 54%, which could rise in coming months and allow the currency to retrace recent losses.

In terms of speculative positioning, shorts against the US Dollar are 70% below their five year average while longs have been trimmed to more reasonable levels. Meanwhile, Euro longs are at record highs and GBP shorts at record lows. In this respect, any further weakness in the US Dollar could be best expressed through GBP. Poised for further weakness?

Important Information

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the ”FCA”).

This communication is only targeted at qualified or professional investors.

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value. This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction.  No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek

Trade Idea Dollar downside

Trade Idea Dollar downside

Trade Idea – Foreign Exchange – Dollar downside

Talked lower

Next Friday, 2017’s first US nonfarm payroll report will be released and could determine the near term fate of the US Dollar. The widely monitored DXY dollar basket has moved 2.9% lower over the month, retracing a portion of the sharp 7.1% rally experienced in the fourth quarter of last year. A strong payroll figure could re-ignite rate hike expectations and put the US Federal Reserve’s (Fed) March meeting back into play (rate hike currently priced at around 20%*), while a weak slate could confirm predictions that the Fed will adopt a more dovish stance than is currently being suggested. We believe it is likely that the US Dollar has further room to run lower in the coming months as the Fed remains on the side-lines (i.e. does not hike rates in March) and extended speculative positioning unwinds. This is most likely to be witnessed against the GBP and EUR, as the JPY has already experienced a considerable correction and oil-related currencies remain subject to supply concerns. Rhetoric from Trump’s administration, specifically him and his Treasury secretary nominee, Steven Mnuchin, also has potential to weigh on the US Dollar from a sentiment perspective. Both figures have emphasised the detrimental effect of an “excessively strong US Dollar” on the wider American economy and further comments could add to bearish momentum currently surrounding the currency.

Overstretched and overdone

Speculative futures positioning data suggests that net long US Dollar positions have moderated somewhat in recent weeks. However, gross long US Dollar positions remain considerably elevated and short positing near record lows (see Figure 1), so further correction potential remains. Technically speaking, while momentum indicators turned lower for the US Dollar at the start of the year, they remain on an established downward trend and some way from bottoming. The EUR/USD is trading near its 38.2% Fibonacci retracement at 1.07, and any break could see it head towards its 100 daily moving average (DMA) of 1.082. Meanwhile, the GBP/USD recently broke through its 50 DMA and has potential to head towards its own 38.2% Fibonacci retracement at 1.28. Investors wishing to express the investment views outlined above may consider using the following ETF Securities ETPs:

Currency ETPs

GBP Base ETFS Long EUR Short GBP (GBUR) ETFS Short EUR Long GBP (URGB) ETFS Long USD Short GBP (GBUS) ETFS Short USD Long GBP (USGB) USD Base ETFS Long GBP Short USD (LGBP) ETFS Short GBP Long USD (SGBP) ETFS Long EUR Short USD (LEUR) ETFS Short EUR Long USD (SEUR) EUR Base ETFS Long USD Short EUR (XBJP) ETFS Short USD Long EUR (XBJQ) ETFS Long GBP Short EUR (EUGB) ETFS Short GBP Long EUR (GBEU) 3x ETFS 3x Long USD Short EUR (EUS3) ETFS 3x Short USD Long EUR (USE3) ETFS 3x Long GBP Short EUR (EGB3) ETFS 3x Short GBP Long EUR (GBE3) ETFS 3x Long GBP Short USD (LGB3) ETFS 3x Short GBP Long USD (SGB3) ETFS 3x Long EUR Short USD (LEU3) ETFS 3x Short EUR Long USD (SEU3) ETFS 3x Long USD Short GBP (USP3) ETFS 3x Short USD Long GBP (PUS3) ETFS 3x Long EUR Short GBP (EUP3) ETFS 3x Short EUR Long GBP (SUP3) 5x ETFS 5x Long GBP Short EUR (EGB5) ETFS 5x Short GBP Long EUR (GBE5) ETFS 5x Long USD Short EUR (5CH5) ETFS 5x Short USD Long EUR (5CH6) ETFS 5x Long USD Short GBP (USP5) ETFS 5x Short USD Long GBP (PUS5) Basket ETFS Bullish GBP vs G10 Currency Basket Securities (LGBB) ETFS Bearish GBP vs G10 Currency Basket Securities (SGBB) ETFS Bullish USD vs G10 Currency Basket Securities (LUSB) ETFS Bearish USD vs G10 Currency Basket Securities (SUSB) ETFS Bullish EUR vs G10 Currency Basket Securities (LEUB) ETFS Bearish EUR vs G10 Currency Basket Securities (SEUB) The complete ETF Securities product list can be found here.

Important Information

This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”). The products discussed in this document are issued by ETFS Foreign Exchange Limited (“FXL”). FXL is regulated by the Jersey Financial Services Commission. This communication is only targeted at professional investors. In Switzerland, this communication is only targeted at Regulated Qualified Investors. The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value. This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit. Short and/or leveraged exchange-traded products are only intended for investors who understand the risks involved in investing in a product with short and/or leveraged exposure and who intend to invest on a short term basis. Potential losses from short and leveraged exchange-traded products may be magnified in comparison to products that provide an unleveraged exposure. Please refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks. Securities issued by FXL are direct, limited recourse obligations of FXL alone and are not obligations of or guaranteed by any of Morgan Stanley & Co International plc, Morgan Stanley & Co. Incorporated, any of their affiliates or anyone else or any of their affiliates. Each of Morgan Stanley & Co International plc and Morgan Stanley & Co. Incorporated disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might have in respect of this document or its contents otherwise arising in connection herewith. The Morgan Stanley Indices are the exclusive property of Morgan Stanley & Co. Incorporated (”Morgan Stanley”). Morgan Stanley and the Morgan Stanley index names are service mark(s) of Morgan Stanley or its affiliates and have been licensed for use for certain purposes by ETF Securities Limited in respect of the securities issued by FXL. The securities issued by FXL are not sponsored, endorsed, or promoted by Morgan Stanley, and Morgan Stanley bears no liability with respect to any such financial securities. The prospectus of FXL contains a more detailed description of the limited relationship Morgan Stanley has with FXL and any related financial securities. No purchaser, seller or holder of securities issued by FXL, or any other person or entity, should use or refer to any Morgan Stanley trade name, trademark or service mark to sponsor, endorse, market or promote this product without first contacting Morgan Stanley to determine whether Morgan Stanley’s permission is required. Under no circumstances may any person or entity claim any affiliation with Morgan Stanley without the prior written permission of Morgan Stanley.

Crude oil prices at risk

Crude oil prices at risk

Weekly Investment Insights: Crude oil prices at risk. In 2017, ETF Securities will be broadening its weekly FX insights to cover all asset classes including commodities, equities and fixed income. We hope you continue to find these updates useful

Highlights

  • The November oil accord is likely to do little in the face of strong Iraqi exports and growing US production.
  • Momentum underpinning oil prices is wavering and a downside correction is likely in the short term.
  • Beyond Q1-17, the fundamental outlook for oil is more positive as global demand marches higher.

ETF Securities Trade Idea – Commodities & Foreign Exchange – Crude oil prices at risk

Volatility abound

The OPEC/non-OPEC compliance and monitoring committee, charged with ensuring successful implementation of the November accord (which entailed a 1.2mbpd reduction in output), will meet for the first time this weekend as uncertainty continues to drive fluctuations in global oil markets. While statements professing compliance by key oil ministers in Saudi Arabia and Algeria have kept prices elevated (supported somewhat by reports of falling production in the latest monthly OPEC report), downside risks loom. Participants continue to be wary of whether Iraq will comply with the deal, as the nation has been asked to reduce production by the second largest amount (within OPEC) in spite of its challenging economic circumstances. Meanwhile, output and exports in the US continue to expand in the higher-price environment. Our view is that oil prices are likely to come under further pressure in the coming month as considerable downside risks overcome market optimism over the November agreement, which in itself is only expected to last until June.

Risks ahead

During last week’s Global Energy Forum in Abu Dhabi, senior cartel officials from Saudi Arabia, Kuwait and Algeria all publically announced commitment to the November production agreement and some even stated a willingness to exceed requirements in order to see the deal work. While on the surface this appears very positive, the reality is that risks actually emanate from OPEC’s second largest producer, Iraq, where oil exports hit an unprecedented level in December. Therefore, the success of the landmark accord still remains in the balance and in any case, is only expected to be a feature of the oil market for a short six months. Also, with oil prices above the key $50/bbl level, US oil production is ramping up quickly (see Figure 1), with the Energy Information Administration (EIA) reporting that oil output has hit an eight month high. This creates a landscape where support for oil prices looks fragile and a downward correction looks likely.

Figure 1: US output grows

(Click to enlarge)

From a technical perspective, momentum indicators appear to be waning for crude benchmarks and point to moves lower in coming sessions. Speculative futures positioning for Brent and WTI crude oil has moderated in recent weeks but still remains at levels that suggest downward correction potential. Any move lower in oil prices is likely to face resistance from their 8th December lows of around $52.8/bbl and $50.9/bbl for Brent and WTI respectively, which sits near their current 50 dmas.

Prospects diverge

While the short-term outlook above is broadly negative for the oil-exporting currency complex (CAD and NOK), prospects are not uniform. The CAD has the benefit of 76% of its exports going to the US and accordingly is directly exposed to the improving growth outlook there. Meanwhile, Norway is still struggling through a structural transition away from oil industries while growth and inflation are moderating, painting a less positive picture for the NOK. Beyond Q1-17, we expect to continue to see the global oil market returning to a balanced state and offering further upside to crude prices.

Investors wishing to express the investment views outlined above may consider using the following ETF Securities ETPs:

Currency ETPs

EUR Base

ETFS Long CAD Short EUR (ECAD) ETFS Short CAD Long EUR (CADE) ETFS Long NOK Short EUR (EUNO) ETFS Short NOK Long EUR (NOEU)

GBP Base

ETFS Long CAD Short GBP (GBCA) ETFS Short CAD Long GBP (CAGB) ETFS Long NOK Short GBP (GBNO) ETFS Short NOK Long GBP (NOGB)

USD Base

ETFS Long CAD Short USD (LCAD) ETFS Short CAD Long USD (SCAD) ETFS Long NOK Short USD (LNOK) ETFS Short NOK Long USD (SNOK)

3x

ETFS 3x Long CAD Short EUR (ECA3) ETFS 3x Short CAD Long EUR (CAE3)

5x

ETFS 5x Long CAD Short EUR (ECA5) ETFS 5x Short CAD Long EUR (CAE5)

Currency Baskets

ETFS Bullish USD vs Commodity Currency Basket Securities (SCOM) ETFS Bearish USD vs Commodity Currency Basket Securities (LCOM)

Commodity ETPs

ETFS Brent Crude (BRNT) ETFS WTI Crude Oil (CRUD) ETFS Longer Dated Brent Crude (FBRT) ETFS Longer Dated WTI Crude Oil (FCRU)

2x & -1x

ETFS 2x Daily Long Brent Crude (LBRT) ETFS 2x Daily Long WTI Crude Oil (LOIL) ETFS 1x Daily Short Brent Crude (SBRT) ETFS 1x Daily Short WTI Crude Oil (SOIL)

3x

ETFS 3x Daily Long WTI Crude Oil (3CRL) ETFS 3x Daily Short WTI Crude Oil (3CRS)

ETFS EUR Daily Hedged Brent Crude (EBRT) ETFS EUR Daily Hedged WTI Crude Oil (ECRD) ETFS GBP Daily Hedged Brent Crude (PBRT) ETFS GBP Daily Hedged WTI Crude Oil (PCRD)

The complete ETF Securities product list can be found here.

Important Information

This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”). The products discussed in this document are issued by ETFS Foreign Exchange Limited (“FXL”). FXL is regulated by the Jersey Financial Services Commission.

This communication is only targeted at professional investors. In Switzerland, this communication is only targeted at Regulated Qualified Investors.

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value. This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit. Short and/or leveraged exchange-traded products are only intended for investors who understand the risks involved in investing in a product with short and/or leveraged exposure and who intend to invest on a short term basis. Potential losses from short and leveraged exchange-traded products may be magnified in comparison to products that provide an unleveraged exposure. Please refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks.

Promises to plans

Promises to plans

FX Weekly – Promises to plans

Trade Idea – Foreign Exchange  – Promises to plans

Highlights

  • Focus on the EUR/USD will intensify next week as Trump is inaugurated and the ECB meet for the first time in 2017.
  • Longer term risks to the EUR/USD remain skewed to the downside as inflationary pressures mount in the US.
  • The EUR/GBP appears increasingly overvalued and a downward correction could be in store.

Time for action

In 2017, the investment landscape will be dominated by the ability of politicians in the US and Europe to deliver on promises of change made last year. Next week, President Elect Trump will be inaugurated as the 45th president of the US and his landmark speech will be scrutinised by market participants for signs of what proposed policy measures will take priority at the start of his four year term. Meanwhile, the European Central Bank (ECB) will meet for the first time in 2017, placing market focus on the EUR/USD exchange rate which has recently rebounded from fifteen year lows. Our view is that in the short term the EUR/USD could tick modestly higher but will face technical resistance and in the longer term risks remain skewed to the downside. A better short term opportunity involving the EUR exists against the GBP, where negative sentiment has pushed the pair to expensive levels and a downward correction could be looming.

Inflation risks

The USD has lost ground so far this year as US treasury yields have moderated (down approximately 30bps*) and the market pricing of interest rate rises for 2017 has fallen from three to two. The EUR/USD has accordingly risen to around 1.064 (see Figure 1), which is near its 23.6% Fibonacci retracement level*, a resistance established in December last year. With Trump expected to enact considerable fiscal stimulus measures, wage growth at the fastest rate since the recession and climbing energy prices, the risks to inflation are skewed to the upside. Over the next quarter, higher inflation risks have the potential to prompt the US Federal Reserve to pursue a more hawkish interest rate tightening cycle than is currently being expected which could see the EUR/USD fall back again towards the 1.04 level and potentially beyond.

Figure 1: US rates have moderated for now

(click to enlarge)

Brexit clarity

The EUR/GBP has recently climbed as Sterling has shown vulnerability to speculation over whether Brexit will entail an exit from the single market. Theresa May’s recent interview with Sky paid testament to this and highlighted the volatility we could expect from the currency in the coming two and a half months. However, the EUR is not insulated from its own political threats as elections in France, Netherlands and Germany this year raise the risks of a Eurozone break-up. In the near term, we believe the GBP could climb from current levels as negative speculation proves overdone and resilient economic performance continues. This dynamic could see the EUR/GBP fall back to its 50 daily moving average of 0.85, a fall of 2.8%*. Investors wishing to express the investment views outlined above may consider using the following ETF Securities ETPs: Currency ETPs GBP Base ETFS Long EUR Short GBP (GBUR) ETFS Short EUR Long GBP (URGB) ETFS Long USD Short GBP (GBUS) ETFS Short USD Long GBP (USGB) USD Base ETFS Long GBP Short USD (LGBP) ETFS Short GBP Long USD (SGBP) ETFS Long EUR Short USD (LEUR) ETFS Short EUR Long USD (SEUR) EUR Base ETFS Long USD Short EUR (XBJP) ETFS Short USD Long EUR (XBJQ) ETFS Long GBP Short EUR (EUGB) ETFS Short GBP Long EUR (GBEU) 3x ETFS 3x Long USD Short EUR (EUS3) ETFS 3x Short USD Long EUR (USE3) ETFS 3x Long GBP Short EUR (EGB3) ETFS 3x Short GBP Long EUR (GBE3) ETFS 3x Long GBP Short USD (LGB3) ETFS 3x Short GBP Long USD (SGB3) ETFS 3x Long EUR Short USD (LEU3) ETFS 3x Short EUR Long USD (SEU3) ETFS 3x Long USD Short GBP (USP3) ETFS 3x Short USD Long GBP (PUS3) ETFS 3x Long EUR Short GBP (EUP3) ETFS 3x Short EUR Long GBP (SUP3) 5x ETFS 5x Long GBP Short EUR (EGB5) ETFS 5x Short GBP Long EUR (GBE5) ETFS 5x Long USD Short EUR (5CH5) ETFS 5x Short USD Long EUR (5CH6) ETFS 5x Long USD Short GBP (USP5) ETFS 5x Short USD Long GBP (PUS5) Basket ETFS Bullish GBP vs G10 Currency Basket Securities (LGBB) ETFS Bearish GBP vs G10 Currency Basket Securities (SGBB) ETFS Bullish USD vs G10 Currency Basket Securities (LUSB) ETFS Bearish USD vs G10 Currency Basket Securities (SUSB) ETFS Bullish EUR vs G10 Currency Basket Securities (LEUB) ETFS Bearish EUR vs G10 Currency Basket Securities (SEUB) The complete ETF Securities product list can be found here.

Important Information

This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”). The products discussed in this document are issued by ETFS Foreign Exchange Limited (“FXL”). FXL is regulated by the Jersey Financial Services Commission. This communication is only targeted at professional investors. In Switzerland, this communication is only targeted at Regulated Qualified Investors. The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value. This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective, officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit. Short and/or leveraged exchange-traded products are only intended for investors who understand the risks involved in investing in a product with short and/or leveraged exposure and who intend to invest on a short term basis. Potential losses from short and leveraged exchange-traded products may be magnified in comparison to products that provide an unleveraged exposure. Please refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks. Securities issued by FXL are direct, limited recourse obligations of FXL alone and are not obligations of or guaranteed by any of Morgan Stanley & Co International plc, Morgan Stanley & Co. Incorporated, any of their affiliates or anyone else or any of their affiliates. Each of Morgan Stanley & Co International plc and Morgan Stanley & Co. Incorporated disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might have in respect of this document or its contents otherwise arising in connection herewith. The Morgan Stanley Indices are the exclusive property of Morgan Stanley & Co. Incorporated (”Morgan Stanley”). Morgan Stanley and the Morgan Stanley index names are service mark(s) of Morgan Stanley or its affiliates and have been licensed for use for certain purposes by ETF Securities Limited in respect of the securities issued by FXL. The securities issued by FXL are not sponsored, endorsed, or promoted by Morgan Stanley, and Morgan Stanley bears no liability with respect to any such financial securities. The prospectus of FXL contains a more detailed description of the limited relationship Morgan Stanley has with FXL and any related financial securities. No purchaser, seller or holder of securities issued by FXL, or any other person or entity, should use or refer to any Morgan Stanley trade name, trademark or service mark to sponsor, endorse, market or promote this product without first contacting Morgan Stanley to determine whether Morgan Stanley’s permission is required. Under no circumstances may any person or entity claim any affiliation with Morgan Stanley without the prior written permission of Morgan Stanley.

Commodity Currencies Come Under Pressure

Commodity Currencies Come Under Pressure

Trade Idea – Foreign Exchange Commodity Currencies Come Under Pressure

Pausing for a minute to reflect on something else apart from the Greek drama there are some interesting opportunities outside the EUR. Please find below some comments on the Commodity currencies (AUD, CAD, NOK and NZD) which are likely to face headwinds in coming months. Pressure is likely to come from a temporary downside correction in oil prices and further easing of monetary conditions by central banks. We believe in the longer term, there is upside to the CAD and NOK unlike AUD and NZD where we believe rates will remain depressed (see: Outlook Q3-15: What Happens When Fundamentals Reassert Over Sentiment).

Oil Prices to Push CAD & NOK Lower

Commodity Currencies Look Set to Fall

Commodity currencies (AUD, CAD, NOK and NZD) are likely to face headwinds in coming months. Pressure is likely to come from a temporary downside correction in oil prices and further easing of monetary conditions by central banks. We believe in the longer term, there is upside to the CAD and NOK unlike AUD and NZD where we believe rates will remain depressed (see: Outlook Q3-15: What Happens When Fundamentals Reassert Over Sentiment).

CAD & NOK – Oil Price Influence

Last year’s decline in oil prices has yet to dent global oil production. OPEC has kept production stubbornly high in effort to maintain market share, while US shale producers have managed to exploit efficiency gains in order to maintain output levels. The market has taken confidence from the first sign of strength in oil demand and still anticipates production cuts, which in the last few months, have kept oil prices well supported in the US$65-60 range.

Oil Prices to Push CAD & NOK Lower

We believe the rebound in oil prices in the early part of the year was slightly premature and could partially undermine rebalancing in the global oil market. As such we forecast global oil production remaining strong into next year, which is when the impact of announced capital expenditure cuts is likely to stem oil production from conventional sources. This should see oil prices fall further in the short term only to rally in the early part of next year.

In the last few days the Greek debt crisis and negotiations surrounding Iran’s nuclear program has prompted a retraction in oil prices. Investors are expressing concern over the potential impact on oil demand from an increasingly likely “Grexit” scenario and the introduction of Iranian crude onto global markets. Despite the yesterday’s price drop, we still see risks skewed to the downside for crude prices, creating a good opportunity to go tactically short both the CAD and NOK. Lower oil prices are likely to exacerbate growth concerns in both Canada and Norway and could prompt further currency depreciation, particularly against the US Dollar.

The AUD and NZD have both recently depreciated as both nations have witnessed the price of their primary commodity exports decline. In Australia, weak sentiment towards Chinese growth prospects and oversupply has caused the price of coal and iron ore to crumble. Similarly, in New Zealand excess global production and subdued demand has seen dairy prices collapse.

In response, the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) have cut benchmark interest rates in an attempt to buoy growth and stabilise falling inflation. Furthermore, in most recent media statements, both institutions have highlighted the importance of further currency devaluation in supporting economic objectives. Thus, we believe that further interest rate cuts could be in store, which makes the medium term outlook for both the AUD and NZD bearish. Given this outlook, we believe investors would likely benefit from acquiring short exposure to both AUD and NZD.

Commodity Export Prices Have Plunged

Investors wishing to express the investment views outlined above may consider using the following ETF Securities ETPs:

Currency ETPs
EUR Base

ETFS Long AUD Short EUR (EUAU)
ETFS Short AUD Long EUR (AUEU)
ETFS Long CAD Short EUR (ECAD)
ETFS Short CAD Long EUR (CADE)
ETFS Long NOK Short EUR (EUNO)
ETFS Short NOK Long EUR (NOEU)
ETFS Long NZD Short EUR (EUNZ)
ETFS Short NZD Long EUR (NZEU)

GBP Base

ETFS Long AUD Short GBP (GBAU)
ETFS Short AUD Long GBP (AUGB)
ETFS Long CAD Short GBP (GBCA)
ETFS Short CAD Long GBP (CAGB)
ETFS Long NOK Short GBP (GBNO)
ETFS Short NOK Long GBP (NOGB)
ETFS Long NZD Short GBP (GBNZ)
ETFS Short NZD Long GBP (NZGB)

USD Base

ETFS Long AUD Short USD (LAUD)
ETFS Short AUD Long USD (SAUD)
ETFS Long CAD Short USD (LCAD)
ETFS Short CAD Long USD (SCAD)
ETFS Long NOK Short USD (LNOK)
ETFS Short NOK Long USD (SNOK)
ETFS Long NZD Short USD (LNZD)
ETFS Short NZD Long USD (SNZD)

3x

ETFS 3x Long AUD Short EUR (EAU3)
ETFS 3x Short AUD Long EUR (AUE3)
ETFS 3x Long CAD Short EUR (ECA3)
ETFS 3x Short CAD Long EUR (CAE3)
ETFS3x Long AUD Short GBP (AUP3)
ETFS 3x Short AUD Long GBP (SAP3)
ETFS 3x Long AUD Short USD (LAU3)
ETFS 3x Short AUD Long USD (SAU3)

5x

ETFS 5x Long AUD Short EUR (EAU5)
ETFS 5x Short AUD Long EUR (AUE5)
ETFS 5x Long CAD Short EUR (ECA5)
ETFS 5x Short CAD Long EUR (CAE5)

Currency Baskets

ETFS Bullish USD vs Commodity Currency Basket Securities (SCOM)
ETFS Bearish USD vs Commodity Currency Basket Securities (LCOM)

The complete ETF Securities product list can be found here.

Important Information

This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”). The products discussed in this document are issued by ETFS Foreign Exchange Limited (“FXL”). FXL is regulated by the Jersey Financial Services Commission.

This communication is only targeted at qualified or professional investors.

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