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MORGAN STANLEY RESEARCH

Global Currency Research Team
For research analysts, please see contact list at the back of this material.

November 20, 2014

Currencies
Global

FX Pulse
USD Pause
USD an Asset Currency… While we maintain a tactical
view that USD could undergo a near-term correction due
to position reductions, evidence of USD’s transition to an
asset currency continues to build. The latest US TIC flow
data firmly supports this, with record inflows to long-term
US assets, accompanied by record selling of foreign
assets by US investors, providing a very bullish USD
picture overall. Although this is lagging data (latest is for
September), our leading flow indicators captured these
moves early and continue to indicate bullish USD
dynamics for the longer term.
…But Wait to Buy USD Again. Given the risk of a nearterm correction, we pause before looking to re-enter
bullish USD positions. A corrective rebound in EUR/USD
and among the EUR crosses more broadly has unfolded
over the past week – a result of heavy EUR positioning.
Our EUR short exposure has been reduced, with stops
triggering profit-taking. We see potential for a near-term
EUR/USD rebound above 1.2600, towards 1.2900,
providing attractive levels to re-establish bearish mediumto longer-term strategies.
In This Week’s Edition
We maintain our bearish view on AUD and target 0.84 for
year-end against the USD, anticipating a further 10%
decline in 2015. Our economists have downgraded their
macro forecasts for Australia, highlighting stalled
economic rebalancing and a deeper terms-of-trade shock.
This adds to our AUD bearishness. We expect a negligible
near-term impact on the AUD from the China-Australia
Free Trade Agreement.

Closed Trades
Short EUR/GBP
Short EUR/USD
Short EUR/INR
Active Trades
Long USD/SGD
Short AUD/USD
Limit Orders
Buy MXN/KRW
Sell NZD/CAD

Closed on 13-Nov-14 at 0.7940
Closed on 17-Nov-14 at 1.2550
Closed on 20-Nov-14 at 78.00
Entry
1.27
0.8850
Entry
81.60
0.8950

Stop
1.29
0.8800
Stop
80.60
0.9060

Target
1.32
0.8400
Target
86.00
0.8400

See page 15 for more details. Changes in stops/targets in bold italics.

MS Major Currency Forecasts
4Q14

1Q15

2Q15

3Q15

4Q15

EUR/USD
1.24
1.22
1.18
1.14
1.12
USD/JPY
108
109
110
112
114
GBP/USD
1.60
1.63
1.60
1.56
1.51
USD/CHF
0.99
1.04
1.08
1.14
1.17
USD/CAD
1.14
1.16
1.18
1.20
1.22
AUD/USD
0.84
0.82
0.80
0.78
0.76
NZD/USD
0.76
0.74
0.71
0.69
0.67
EUR/SEK
9.30
9.20
9.10
9.00
8.95
EUR/NOK
8.05
8.10
8.15
8.20
8.25
USD/ZAR
11.30
11.50
11.75
11.65
11.50
USD/TRY
2.30
2.35
2.40
2.40
2.37
USD/RUB
40.0
40.5
41.1
41.6
41.8
EUR/PLN
4.23
4.20
4.15
4.12
4.08
EUR/HUF
318
314
308
304
300
USD/CNY
6.14
6.12
6.13
6.14
6.09
USD/INR
62.0
62.5
62.5
62.3
62.2
USD/KRW
1065
1070
1075
1080
1085
USD/SGD
1.29
1.30
1.31
1.31
1.32
USD/BRL
2.47
2.55
2.60
2.75
2.80
USD/MXN
13.3
13.3
12.9
12.7
12.5
Note: Forecasts for end-of-period. G10 forecasts updated October 2, 2014

FX Market Overview

P2

AUD: Staying Negative

P6

Deflation Risks & Currency Conflict

P9

Technical Chart of the Week – EUR/CAD

P14

Strategic FX Portfolio Trade Recommendations

P15

G10 & EM Currency Summary

P18

Global Event Risk Calendar

P20

FX Volatility/Carry Grids, Tactical Indicators

P22

MS FX Positioning Tracker

P24

Macro Forecasts

P25

FX Forecasts

P27

We examine which currencies are likely to be exposed to
global deflation risks. While EUR and JPY are the most
recent and important examples, we see potential for a
broad range of currencies to be affected across both DM
and EM. Our bullish USD/SGD and MXN/KRW strategies
are consistent with this theme.

For important disclosures, refer to the
Disclosures Section, located at the end of
this report.

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

FX Market Overview
Evan Brown, Dara Blume
 There is room for USD to correct lower near-term before
resuming its structural uptrend.
 EUR positioning is very short and reactions to data surprises
have been asymmetric. EUR is rebounding more strongly on
positive surprises than it is declining on negative ones.
Disappointment on the policy front could lead to a further
rebound.
 USD/JPY has moved a long way quite fast. Political risks are
not in the price, so we would await a dip before reestablishing longs.
 Looking further out, TIC data confirm that the US is emerging
as an attractive investment destination, with record foreign
inflows and record US investor selling of foreign securities.
 We remain negative on AxJ, as JPY weakness provides not
only a competitiveness challenge but disinflationary risk to
countries with high private-sector debt and exposure to a
slowing China. We maintain shorts in KRW and SGD.
 Rate hikes and moderate reforms may support BRL and IDR
near term, but we maintain our medium-term caution on
these currencies given underlying structural weakness.

The Case for a USD Correction
While we maintain our long-term bearish EUR forecast, we
believe a short-term rally is likely, initially above 1.26 and then
targeting 1.29. There are a few factors behind this call. First,
our positioning tracker (page 24) signals extreme shorts in
EUR, a level which often precedes a rally (Exhibit 1). To the
extent that FX investors tend to reduce positions toward yearend, this could exacerbate the move. Market sentiment
toward Europe’s economy is so low that even modest positive
surprises can impact EUR. Indeed, the common currency
rebounded strongly after the somewhat better-than-expected
ZEW survey. Meanwhile, the price action following
disappointing European PMIs was quite limited, signaling that
a poor European economic outlook is well priced in. Across
the pond, USD and US rates received very little boost from
the surprisingly positive CPI data. The market’s reaction
function is increasingly asymmetric, signaling exhaustion in
the short EUR trade. Should next week’s IFO, GDP and/or
inflation data beat modest expectations, EUR could stage a
more prolonged correction.
Of course, it is not just data but ECB expectations that will
affect EUR’s trajectory. On Monday, ECB President Draghi

reiterated that government bonds could be included in a new
asset purchase program. It seems much of the market is
gearing up for December sovereign bond purchases, with our
European interest rate strategy team suggesting a fresh QE
program is fully priced in to European debt markets (see
What’s Next for the ECB, Oct. 30, 2014). We continue to
stress the political and legal obstacles to such a program,
which if delayed, could disappoint the market and lead to EUR
strength. Even if a sovereign bond program is announced
imminently, yields are already so low that we question just
how much EUR would weaken. QE has never been core to
our long-term bearish view, which relies on EUR’s transition
from an asset to funding currency. To the extent that market
participants are basing EUR short positions on expectations
for QE, there is room for disappointment.
ECB members have also suggested the possibility of buying
other assets. Mersch said the ECB could “theoretically” buy
shares, gold and ETFs. Also, ECB’s Praet stated ECB staff
have full freedom in preparing potential additional measures
and that there were no taboos. But as long as such a
program does not involve foreign assets, it won’t necessarily
weaken the EUR. Equity and ETF purchases could well be
asset-supportive and lead to foreign inflows that are not fully
hedged. In that case, the EUR reaction could be similar to
what we saw in December 2011, when Draghi’s LTROs were
seen as asset-stimulative and the currency rallied. Not all
balance sheet expansions are automatically EUR-negative.
These risks make us cautious on EUR shorts at current
levels.
Exhibit 1

EUR/USD Positioning Extremely Short

Source: Bloomberg, Morgan Stanley Research

2

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Finally, the potential for SNB intervention could lead to tactical
EUR strength. EUR/CHF remains just ticks above the 1.20
floor. If the SNB is forced to intervene in size to protect the
floor, the Bank would buy EUR, which would support the
currency against the rest of G10 at least initially. Over time,
the SNB can be expected to diversify into some other
currencies, including USD, GBP, CAD and JPY (see Exhibit
2). But while these diversification flows would likely develop
over the coming months, the first-order effects are positive for
the EUR in the near term.
Exhibit 2

High Share of SNB Reserves in EUR

some gradual USD strength reflected diverging fundamentals
and would help some larger economies in need of reflation
(see Video | Economics & FX Strategy: Feedback Loops, Oct.
29, 2014). While this week’s FOMC minutes held few
surprises, we thought the FOMC was quite balanced on the
risks from global growth and USD strength (See Fed Focus: A
Few Minutes on the Minutes, Nov 19, 2014).
In fact, participants mentioned several reasons why they were
not particularly concerned about global growth and a strong
USD, including the relatively small dependence on external
trade in the US, its low sensitivity of exports to changes in the
value of USD, and offsets from lower oil prices and long-term
interest rates. That ‘many’ participants felt this way and that
the FOMC chose to go into so much detail to play down such
risks was notable to us. Our US Economics team maintains
their out-of-consensus view for the first FOMC hike taking
place in 2016, as low inflation and USD strength ‘lengthen the
runway’ before rate hikes are necessary. For now, it does not
seem that US policymakers will stand in the way of more USD
appreciation as long as it reflects global economic
fundamentals. That said, the US Treasury Department has
called for more progress on structural reforms in Europe and
1
Japan, rather than simply relying on currency depreciation ,
so US tolerance of FX weakness is not unlimited.
Exhibit 3

Source: MacroBond

Record Foreign Asset Selling by US Investors
$, blns

The Long-Term Investment Destination

60.0

Despite our call for a tactical USD correction, our long-term
view that the US is emerging as the world’s most attractive
investment destination received further corroboration in the
TIC data released this week. In September, the US received
$164 billion in long-term assets, a historical record. Also
important, US investors sold the most foreign securities in
history, including $30 billion in foreign stocks and $40 billion in
bonds. The DXY rose 4% on the month. Clearly, the USD
can strengthen – not only from foreign investors directing
money to the US, but also from US investors bringing capital
back home. While the TIC data are quite lagged, we were
able to capture extreme US investor selling using our ETF
flow monitor throughout September (see Life in FloMo, Part II:
What It’s Telling Us, Sept. 12, 2014). Let us know if you don’t
already receive our daily updates.

40.0

One of the questions we get most from clients is how much
USD strength US policymakers are willing to tolerate. Our
view has long been that while it is a headwind to growth and
inflation, to some degree, US policymakers understood that

20.0
0.0
-20.0
-40.0

-60.0
-80.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Source: U.S. Treasury, Haver Analytics, Morgan Stanley Research

Political JPY
With USD/JPY having risen by almost 50% in just two years,
global policymakers are certainly watching Japan’s progress
on the structural reform front. USD/JPY received yet another
boost this week on Japan’s surprisingly negative 3Q GDP
1

See Report to Congress on International Economic and Exchange Rates

3

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

print, PM Abe’s decision to delay a second consumption tax
hike, and his call for a snap election. Our chief Japan
economist Robbie Feldman is optimistic that Abe’s strategy
will work (see Abe’s Art of War: Snap Election, and Beyond,
Nov. 18, 2014). Even if Abe’s LDP-New Komeito coalition
loses seats in the Diet, he should easily maintain his simple
majority and secure a new mandate for reform.
USD/JPY is quickly approaching our bull case of 120. But we
warn that the long USD/JPY trade has come a long way and
is not without risk. Japan’s reflationary effort and further
USD/JPY upside from these levels relies crucially on Abe’s
electoral success. There is a risk that Abe loses more seats
than he expected, which could undermine efforts for reform.
USD/JPY would correct lower near term if perceptions of
Abe’s ability to deliver are challenged. A lack of reform could
also draw criticism from the international community.
Uncertainty leading up to the election will likely grow, which
means there could be more two-way risk for USD/JPY near
term. Still, we would use dips as opportunities to buy
USD/JPY over the medium term. In the end, GPIF unhedged
outflows and an improving US economy should support the
pair over the coming year.

pressure on these currencies. Given rising ‘low-flation’ risks,
the acceleration in PPI deflation is particularly concerning, as
it adds to risks of further imported deflation for AxJ countries
(see The Global Macro Analyst: Will China Be the Next to
Export Deflation?, Nov 19, 2014).
AxJ currencies also have more scope for depreciation than
many other currencies. On a total-return basis, AxJ
currencies have outperformed all other regions (CEEMEA,
G10, and LatAm) against USD. Some of this is warranted,
particularly in India and Indonesia, where structural reforms
have boosted the potential for returns. However, for many
currencies, the outperformance simply creates strong riskreward for short positions in light of the latest developments in
Japan and concerns about China weakness. KRW and THB
look particularly vulnerable from this angle, and we maintain
our long MXN/KRW view.
Exhibit 4

AxJ Has Outperformed EM
50
45

CNY

JPY

40
35

The JPY depreciation is likely to weigh upon AxJ most
heavily, given the sizeable trade relations these economies
have with Japan. We have already highlighted the room for
spillover to the region, but with recent developments in Japan
causing even more JPY weakness, the impact could be larger
than originally anticipated (see FX Pulse: Japan’s One-Two
Punch: What’s the FX Fallout?, Nov. 7, 2014). This comes at
a time when many Asian economies are facing ‘low-flation,’
meaning that JPY depreciation could challenge not only trade
competitiveness, but it could also drive imported inflation
lower. Policymakers’ toolboxes are limited in the current
environment, not only in AxJ, but also globally, due to
concerns about leverage, limited scope for further rate cuts, or
both in some cases. Currency depreciation may be an
increasingly attractive tool for boosting inflation for many
policymakers – we highlight KRW, SGD, and THB as
particularly vulnerable (see pg 9).
It is not only Japan that poses a risk to the AxJ economies. In
China, data has also been soft, with deceleration in total
social financing, yet another weak inflation print, and our
China Economic Index showing downside in growth
momentum (China Economics: MS-CHEX Suggests Growth
Stabilized at Low Levels, Nov. 17, 2014). Again, trade
linkages with China are highest in AxJ (see Exhibit 4), adding

30
25
20
15
10
5
0

RON
SEK
CHF
HUF
PLN
CZK
NOK
TRY
GBP
ILS
CAD
CNY
COP
MXN
BRL
INR
EUR
RUB
PEN
ZAR
HKD
NZD
SGD
JPY
CLP
USD
MYR
IDR
AUD
PHP
THB
KRW
TWD

Spillover Risks in AxJ

Source: Haver Analytics, Morgan Stanley Research

Can Hikes Save Currencies?
The latest FOMC and BoE minutes supported our economists’
view that ‘lower for longer’ is likely to be the path for G10
policy rates (see Sunday Start: What Next in the Global
Economy, Nov. 9, 2014). For the few central banks that are
hiking rates, this could drive some currency support, at least
in the short term. Certainly, rate hikes are not a cure-all – the
latest hikes in Russia have done little to support the currency
given large exposure to oil and concerns about geopolitics.
However, when accompanied by structural reforms and used
to bring down inflation, hikes could offer support to the
currency, at least in the near term.
For example, the latest hike by Indonesia’s central bank was
a sign that policymakers are looking to stabilize the economy
and avoid inflationary spillover from the fuel-price hike (see

4

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Indonesia Economics: Symbolic Policy Rate Hike to Buy
Insurance, Nov. 18, 2014). The fuel price hike should add to
IDR support, as proactive policy boosts capital inflows, and
this prompts current-account improvement. The rate hike
increases the carry for IDR and makes it an attractive tactical
buy (see Asia FX & Rates Strategy: IDR: Buy the Fuel Price
Hike, Short Term, Nov. 18, 2014).
Even in Brazil, we think that further rate hikes could offer
moderate support to the currency. Our economists expect the
BCB to lift rates by a further 75bp before it begins its cutting
cycle, which we expect to start at the December meeting.
With the elections behind us, the question now is the extent to
which the government demonstrates commitment to reform.
Two near-term catalysts could improve market sentiment.
First, the appointment of the new finance minister, expected in
the near future, could boost expectations for further reforms.
Second, the potential for economic reforms to be rolled out
before year-end could also improve the new government’s
credibility. Further rate hikes, combined with some positive
reforms, could offer near-term support to BRL.

We note, however, that in the case of both IDR and BRL, rate
hikes and moderate reforms are unlikely to be enough to
change the longer term path of the currency. In both cases,
we expect medium-term weakness – for IDR this is due to the
reliance on commodity exports to boost the current account.
For BRL, it is due to our concerns that the reforms we see will
either not be enough or will be undone later in 2015 (see
Economics and Strategy Insights: USD/BRL Headed to 2.80,
Nov. 3, 2014).

5

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

AUD: Staying Negative
Vandit D. Shah, Jessica Liang
 Fundamental factors driving our bearish AUD/USD view very
much remain in place; we target 0.84 by year-end.
 Indeed, a recent holistic downgrade of domestic macro
forecasts by our Australia economists, highlighting a stalling
transition of the growth model and a deeper terms-of-trade
shock, adds to our AUD-bearishness.
 We evaluate the China-Australia Free Trade Agreement and
expect negligible near-term impact on AUD.
 The confluence of a continued decline in industrial
commodity prices, a slowing China, and the risk of higher US
front-end rates leaves us looking for another 10% decline in
AUD/USD in 2015.

This drop in Australian export prices since Q2 has pushed back
the baked-in move of the economy achieving a trade surplus
(due to known export volume increases) from 1Q15 to 2H16 (by
way of reference, we calculate this is equivalent to the decline in
iron ore prices from USD 100/t to USD 75/t). In terms of the
average monthly impact, this could remove AUD 1.4 billion a
month from the monthly trade balance, according to our
estimates – a further negative for the AUD.
Exhibit 2

Terms of Trade Point to Weaker REER
60

166

50

151

40
30

136

20

Bearish We Stand

121

10

Relative to consensus, we remain among the most bearish on
AUD/USD, targeting 0.84 by year-end 2014 and 0.76 by yearend 2015 (see FX Pulse: AUD: The Facts Are Changing (03
Oct 2014)). Recent developments, both on the domestic and
external fronts, only serve to deepen our conviction.

0

106

-10
-20
Mar-96

91
Mar-99

Mar-02

Mar-05

Citi AUD Terms of Trade

First, the real effective exchange rate for AUD is yet to fully
adjust to the softening terms of trade. Indeed, the continued
decline in export prices is expected to result in a deeper terms
of trade shock than previously expected by our economists
(see Australia Macro+: Asia Insight: Lost in Transition? (04
Nov 2014)). Predictable components of AUD flow (both
current and capital accounts) have turned, and alongside the
terms of trade decline, will continue to weigh on AUD. In fact,
the projected trade balance seems to have deteriorated
further given declines in export prices (Exhibit 1).
Exhibit 1

Projected Australian Quarterly Trade Balance
6

AUDbn

Q2 EX prices
June EX prices
Oct EX prices

4

2
0
-2
-4
-6

-8
Mar-09

Sep-10

Mar-12

Sep-13

Mar-15

Sep-16

Mar-08

Mar-11

Mar-14

AUD REER (rhs)

Source: Bloomberg, Morgan Stanley Research

The China Impact
Second, the recent commentary from Chinese policy-makers
continues to show their commitment to reform and achieving
economic rebalancing. As China reorients its growth model
away from exports and investment toward domestic
consumption, we expect economies that have seen significant
terms of trade boosts and REER appreciations due to
Chinese import demand to suffer (see The Global Macro
Analyst: Will China Be the Next to Export Deflation? (19 Nov
2014)). Australia is very much top of that list, in our view, and
a weakening of the FX is critical to help drive Australia’s own
rebalancing toward boosting non-commodity export
competitiveness. As such, this week’s reported widespread
decline of Chinese property prices, whereby new-home prices
dropped in 69 out of 70 cities in October from a month earlier,
harkens further caution for growth models built around
exporting commodities to China.
The HSBC China Flash PMI released this week showed a
further decline as well to 50.0 (50.2e, 50.4p), much in line with
our own China Domestic Financial Conditions index which
has now reached the tightest level since July 2012 (Exhibit 3).

Source: ABS, Bloomberg, Morgan Stanley Research estimates

6

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Importantly, the report noted “insufficient demand in the
economy” with the output sub-index falling below 50 for the
first time since May as well. As such, we wouldn’t be
surprised to see further weakness in industrial commodity
prices, resulting in a deeper terms of trade shock for Australia.
Exhibit 3

Tightening Financial Conditions in China Do Not
Bode Well for AUD
100 Index
90 Level

% YoY

-31
-21

80
70

-11

60

-1

50
9

Tighter

40

19

30
20

29

10
0
Nov-07

Easier

Dec-08

Jan-10

Feb-11

MS EMDFC - China

Mar-12

Apr-13

39
May-14

AUD/USD (Inverted, rhs)

Source: Bloomberg, Haver Analytics, Morgan Stanley Research

Exhibit 4

Decline in Commodity Prices Negative for AUD
180

1.1

170
1.0

160
150

0.9

140
0.8

130
120

0.7
110
100
Jan-09

0.6
Jan-10

Jan-11

Jan-12

Bloomberg Commodity Index

Jan-13

Jan-14

AUD/USD (rhs)

Source: Bloomberg, Morgan Stanley Research

ChAFTA would increase the screening threshold by the
Foreign Investment Review Board (FIRB) on FDI from China
in non-sensitive private sector entities from the current AUD
0.25 billion to AUD 1.08 billion. Since 2006, China’s FDI into
Australia has grown from AUD 0.25 billion to almost AUD 5
billion in 2013. China currently accounts for roughly 10% of
total FDI into Australia. We expect ChAFTA to further promote
the growth of Chinese investment into Australia in the medium
term, but near-term impact would be limited given the nature
of these flows.
Also, at AUD 85 billion, export of goods to China accounts for
30% of Australia’s total exports, of which 90% are resources
and energy exports. The largest immediate impact of ChAFTA
would be the removal of the 3% import tariff on coking coal,
and the removal of the 6% tariff on non-coking coal over the
next two years. Looking at 2013 numbers, Australia exported
AUD 9 billion of coal to China, of which AUD 6 billion were
coking coal and AUD 3 billion were non-coking coal.
Assuming no change in export volumes, the elimination of
tariffs would increase Australia’s export revenue by AUD 0.37
billion per year once the exemption is fully enforced (the other
major commodity exports in iron ore, petroleum oils and LNG
are already enjoying zero tariff). In agriculture and foods, dairy
exports will enjoy the removal of all tariffs, currently up to
20%, within 4-11 years. This would put Australia on an even
footing with New Zealand, which has been dominating China’s
dairy exports since its Free Trade Agreement came into effect
in 2008. Yet, actual enforcement of the above will take a
while, coal and dairy prices have come under pressure, and
with China’s overall import pie not growing as sharply as it
used to, it is difficult to see a significant positive impact for
AUD imminently.
While the ChAFTA will be beneficial to both Australia’s current
and capital accounts, the concentration in commodities
exports leaves AUD exposed to a potential secular decline in
commodity prices. Given that and the longer-term implications
of the ChAFTA, we expect negligible near-term impact on
AUD.

Negligible Near-term ChAFTA Impact on AUD
Additionally, on November 17, the China-Australia Free Trade
Agreement (ChAFTA) was signed after a long period of
negotiation. The agreement removes tariffs on 85% of
Australian goods exports upon enforcement and could be a
positive for the AUD trade balance and capital account in the
medium-term. However, digging further into the details, we
find negligible near-term impact.

Sell AUD/USD
In addition to all of the aforementioned external factors, the
domestic macro story appears to be deteriorating as well for
AUD. Our Australian economists see the transition of the
resource-boom-driven growth model to the East Coast
Recovery stalling and have accordingly downgraded their
domestic macro forecasts. Real GDP growth for 2015 is now
projected at 1.9% well below current consensus of 2.9%, with
the combination of a deeper-than-expected terms-of-trade

7

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

shock and the missed opportunity to springboard consumer
spirits off the housing recovery leaving the near-term growth
profile anemic (see Australia Macro+: Asia Insight: Lost in
Transition? 04 Nov 2014). More structural inflows into
Australia, including M&A flows, have also begun to turn
indicating the economy’s declining attractiveness from a
fundamental perspective (Exhibit 5).
Exhibit 5

Net Cross-Border M&A Flows Starting to Turn
40

35

Near-term risks to this view could arise from a broader market
correction due to general positioning adjustment going into
year-end. However, according to the MS FX Positioning
Tracker, short AUD positions are relatively light, suggesting
that corrective rebounds are likely to be limited. We also
recommend keeping a close eye on any policy outcomes from
the PBoC – indeed, any signs of Chinese authorities providing
more direct stimulus could provide a near-term boost to hard
commodity prices and brighten somewhat the outlook for
AUD.

Australia: Net M&A Inflows, 12m Sum (USD Bn)

30
25
20
15

10
5
0
-5
-10
Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Source: Bloomberg, Morgan Stanley Research

Our economists have also raised the probability of a cut from
the RBA to 45% as a potential step to boost growth and avoid
a recession, pushing RBA hikes out to 2016 (see Australia
Macro+: Asia Insight: Lost in Transition? 04 Nov 2014).
Indeed, if the AUD stays too high relative to levels implied by
economic fundamentals, the probability of a cut could
increase, we argue, making the AUD more vulnerable. With
the US economy very much on a strong rebounding path and
the Fed moving toward policy-rate normalization in contrast to
the dovish tilt that the RBA may need to take, we remain
confident in our structurally bearish view on AUD/USD.

8

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Deflation Risks & Currency Conflict
James Lord, Dara Blume, Meena Bassily, Felipe Hernandez,
Jessica Liang, Charles Rubenfeld



Recent REER performance, as currencies that have
been on an appreciating trend could be hindering
attempts to bring inflation back to target. This is where
the spillover from JPY and EUR weakness will likely
show up.

 FX plays a key role in the global trade of deflation. The JPY
and EUR are the most recent and important examples, and
we expect further weakness in both currencies.

 We present a framework for thinking about which currencies
could become vulnerable should global disinflationary forces
intensify. We stay long USD/SGD and MXN/KRW, and short
EUR/INR – while we expect THB and SEK to weaken.

Recent JPY weakness is the latest turn in the ongoing global
trade of deflation, which our Global Economics team
discussed in October (see The Global Macro Analyst: Trading
Deflation, October 22nd 2014). This follows the EUR
weakness in place since Q2 of this year, which has aided the
ECB’s efforts to bring inflation back to target.
From an exchange-rate perspective, this process exports
deflationary pressure to the rest of the world, at a time when
many other economies across EM and DM are already
undershooting their inflation targets. Falling oil prices and stillweak demand in large parts of the global economy are not
helping either.
Admittedly, falling oil prices are growth-supportive for some
economies, and therefore may not pose a big deflationary
threat. But currencies could still come under pressure if
markets and investors see a risk that a further fall in already
low headline inflation undermines expectations.
In this note we take a look at which other currencies risk
getting caught up in the struggle against “lowflation”,
particularly in light of the deflationary spillover that results
from EUR and JPY weakness, which we expect to continue.
Our simple framework considers several variables for thinking
about these trends:


Current inflation, as measured by the deviation of CPI
from the targeted rate.



The openness of the economy, as a proxy for whether
the FX can be a useful tool to import inflation.



Existing policy space through rate cuts. A mix of EM
and DM central banks have used FX as a policy lever as
space to use the interest-rate lever diminished.

Moreover, the currencies of economies that face “lowinflation”, and also suffer from high debt, could be more at
risk. This is because the negative macroeconomic
implications of failing to address deflation are higher for
countries with excessive debt, and thus these currencies
could face more pressure to weaken in order to prevent low
inflation expectations becoming entrenched.
The currencies that are most at risk from these trends are
EUR, SGD, HUF, CHF, KRW, SEK, ILS, PLN, GBP, and THB.
This is because these economies not only face existing low
inflation, but are also exposed to a deflationary spillover from
further EUR and JPY weakness, due to trade linkages
reflected in trade-weighted exchange rates.
Trade recommendations:
Our conclusions reinforce some of our existing trade
recommendations and views.
We stay long USD/SGD, with 1.32 our next target.
We stay long MXN/KRW, targeting 86.0
We stay short EUR/INR.
We expect to see THB weakness, as well as further
USD/HUF, USD/PLN, USD/SEK and USD/ILS upside over
time but are not positioned in related trades at the moment.
Exhibit 1

Inflation Falling and Below Target in Nearly Half of
Countries Covered
5
Deviation from Inflation Target

 Other currencies could get caught up in the struggle against
lowflation, particularly if they import the problem from EMU
and Japan.

Inflation falling but

TRY

4 above target

RUB

CLP

3

BRL

2

ZAR

1

IDR
INR

0

MYR
NOK
GBP
RON
CNY
NZD
EUR THB

-1
-2

-3

Inflation rising and
above target

Inflation falling
and below target

ILS
PLN

MXN
TWD
PEN
COP
CAD
AUD
JPY
USD
CZK
KRW

PHP

CHF
SEK
SGD

Inflation rising but
below target

HUF

-4
-6

-4

-2

0
2
1 Y Change in Inflation

4

6

Source: Haver Analyltics, Morgan Stanley Research

9

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Many economies still have high and above-target levels of
inflation. For these markets, the global disinflation trends are
a positive dynamic, particularly for net oil importers like
Turkey, India and South Africa. High inflation in these markets
is a macro vulnerability and convergence toward target should
be seen as an FX positive, provided central banks do not
ease prematurely.
More open economies, more FX risk: Currencies of more
open economies are potentially more exposed to global
disinflationary trends, particularly if they are already suffering
from low inflation. With JPY and EUR weakness exporting
deflation to trading partners, markets could start to push
currencies weaker where there are strong trading links with
these economies. Markets could anticipate that more
currencies of open, low-inflation economies enter the policy
debate, should global disinflationary trends persist.

CEE, Parts of AXJ & DM Undershooting CPI Target…
9.5

Current Headline Inflation (%)
Target (%)

7.5
5.5
3.5
1.5
-0.5

PLN
HUF
SEK
ILS
CHF
EUR
CZK
SGD
NZD
KRW
GBP
JPY
USD
THB
RON
CNY
TWD
NOK
CAD
AUD
MYR
PEN
COP
MXN
PHP
IDR
INR
CLP
ZAR
BRL
RUB
TRY

At a global level, inflation is falling and consensus inflation
expectations for 2015 remain subdued. Falling oil prices and
still-weak growth in parts of the world are helping to keep
inflation expectations at bay. This has different implications for
currency markets, depending on context and the starting point
for inflation rates.
A growing number of economies are starting to see inflation
undershoot inflation targets – with the largest margin in
Europe. The Eurozone, Central and Eastern Europe, Sweden,
Switzerland and Israel are on the frontline. The EUR, ILS,
CHF, SEK and CZK have already entered into the policy
debate and have weakened accordingly as central banks
have encouraged their currencies to weaken.

Exhibit 2

Source: Haver Analyltics, Morgan Stanley Research

Exhibit 3

…and Also Have Open Economies…
CZK

HUF

160

MYR

140
THB

120
100

80

TWD

KRW
ILS
EUR RONAverage

PLN

MXN
CAD
GBPNOK
ZAR
PHP
INR
CNY
IDR PEN
NZD
AUD

CHF
SEK

60
40

20

JPY
USD

COP

TRY

CLP
RUB

BRL

0
-4

-2

0
2
Deviation from Inflation Target

4

6

Source: Haver Analytics, Morgan Stanley Research

This is particularly the case for those markets where policy
space for reflating via lower interest rates is shrinking. This
has clearly been the case in SEK, CHF, EUR, CZK, JPY and
ILS, where central banks have to varying degrees guided
currencies lower through different tools. Two of these central
banks, the CNB and SNB, already have formalized FX
policies in place, and the Riksbank acknowledged measures
to influence the exchange rate can be useful when policy
2
rates are near 0 .

Exhibit 4

Of the currencies of other low-inflation and open economies
that are highlighted above, KRW and THB have shrinking
policy space, and central banks in these economies have a
track record of currency intervention. Singapore’s MAS of
course uses the slope of the SGD NEER as the main tool of
monetary policy.

4

2

SGD (Trade openness at 270)

180

Trade Openness

Which Currencies Are Most Exposed?

…With Shrinking Policy Space
14
12

Policy Rate
Max Since 2008

10

Min Since 2008

8
6

2

SEK
CHF
EUR
CZK
JPY
USD
ILS
GBP
CAD
NOK
TWD
KRW
THB
PLN
HUF
AUD
RON
CLP
MXN
MYR
NZD
PEN
COP
ZAR
CNY
PHP
IDR
INR
TRY
RUB
BRL

0

Source: Haver Analytics, Morgan Stanley Research

See the Riksbank’s October Monetary Policy Report

10

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Currencies could potentially be more at risk if the recent
performance of their real exchange rates is hindering inflation
dynamics. Many of the “low-flation” economies mentioned
have seen large REER depreciation of their currencies
already over the past year, but some, such as KRW and THB,
are still up on a y/y basis.

Sweden is in a similar situation. With limited policy options,
negative interest rates, which would weaken the currency, or
even direct intervention or a EUR/CHF-style floor may be the
Riksbank’s best options for further action, if deemed
necessary (see Economics & Strategy Insights: Sweden:
Running Out of Conventional Options, 23 Oct 2014).

While core inflation at 1.5% is running within the BoT’s target
range of 0.5-3.0%, the market could anticipate a dovish
stance from the Bank of Thailand – particularly if the switch to
headline inflation targeting is confirmed. See Thailand
Economics: Sequential Recovery in 3Q14; But Downside
Risks to Policymakers' 2014 GDP Forecasts Likely (17 Nov
2014). Historically, Thailand’s import prices and REER have
shown a close relationship, as stronger currency leads to a
slowdown in import price inflation. As both EUR and JPY are
going through structural devaluation, effectively exporting
disinflation to their export destinations, Thailand’s import
prices are likely to fall.

Exhibit 5

High leverage is also a concern in Korea, where already high
debt levels mean there are risks associated with rate cuts that
encourage more borrowing. However, as our chief Asia
economist Chetan Ahya highlights, there are clear dangers of
letting inflation expectations fall for highly leveraged
economies, that are facing broader regional growth risks (Asia
Pacific Economics: Disinflation Entrenched – A Challenge for
Debt Management (10 Nov 2014).
Many countries in the G10 space face a similar tradeoff
between low inflation and high leverage. Given high private
sector debt levels, further FX weakness may be the central
banks’ best, or only, option for boosting inflation. CHF and
SEK are two examples of this. In Switzerland, further
currency depreciation from the central bank could be
warranted. At the least, the SNB is likely to intervene to
maintain the 1.20 EUR/CHF floor; at most they could raise the
floor in order to jump-start inflation (see FX Pulse: Market
Impact of “Save Our Swiss Gold” (07 Nov 2014).

8%

1 Year Change in REER

6%
4%
2%
0%
-2%

-4%
-6%
-8%

JPY
COP
SEK
NOK
HUF
ILS
CZK
CAD
CLP
PLN
EUR
BRL
SGD
MXN
NZD
CHF
PEN
RON
MYR
TWD
HKD
THB
ZAR
AUD
KRW
IDR
TRY
GBP
PHP
CNY
USD
INR

-10%

Source: Morgan Stanley Research, BIS, Haver Analytics

Exhibit 6

Could Leverage Concerns Mean Greater Reliance on FX?
Credit by all sectors to non-financial private sector
(%GDP)

Weak THB: Noting the existing high leverage faced by
Thailand’s households and corporates, BoT may refrain from
embarking on aggressive rate cut, while allowing for THB
weakness as another channel to balance economic growth
and inflation. As such, we expect to see THB weaken to
adjust for the recent appreciation in Thailand’s NEER. The
main risk to our view is that BoJ easing could encourage FDI
inflow from Japan to Thailand, supporting THB.

KRW and THB REERs Rising Amid JPY Weakness

300
SEK

250
200

KRW

CNY

EUR

150

HUF

THB

GBP

CHF

CAD

JPY

AUD

NOK

USD

NZD

MYR
100
INR

MXN
BRL TRY
ZAR

50

PLN
ARS

CZK

IDR

0
0

10000

20000

30000

40000

50000

60000

GDP per Capita, PPP
Source: Morgan Stanley Research, Specific Country’s Central Bank.

For high-inflation economies such as India and Turkey, a the
y/y rise in their REERs is helpful to bring down inflation to
healthier levels, while growth is strong in the case of India,
which means the economy is likely to be able to tolerate a
stronger REER. In the US, strength in the REER is a
reflection of the start of the secular USD bull trend we have
long expected, and is unlikely to derail the US recovery (see
US Economics: USD Sensitivity, 19 Sep 2014).

11

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Disinflation Risks Dominate G10
Risks are skewed more towards deflation than inflation in G10
countries. For most G10 countries, the trade-weighted
exchange rate is largely measured against other G10
countries + China, creating a cycle of linkages that will make
escaping disinflationary pressures difficult. Perhaps the least
vulnerable would be those countries with the largest LatAm
exposure, USD and CAD. This is one of the factors behind
our long-held USD bullish call, and our more constructive
outlook on CAD crosses (see FX Pulse: CAD: With a Little
Help from its Friends, 13 Nov 2014).

In the low-yielders camp, the scope for further monetary
policy easing is a key variable in assessing the risks
surrounding policy makers’ biases on the exchange rate –
particularly as all these economies are relatively open and
sensitive to euro area demand. The CNB has already been
using the exchange rate as a monetary policy tool since
November 2013; while the BoI has progressively increased its
use of the exchange rate as a policy tool this year with the
policy rate close to the zero-bound at 0.25%. We look for
more short and medium term upside in USD/ILS.

20

There is more scope for policy easing in both Hungary and
Poland; however, this does not mean policy makers will not
show some preference for a weaker exchange rate. This is
particularly the case as recent downside surprises in inflation
have been in part attributed to external factors; which a
weaker exchange rate may help address. Still, the extent to
which PLN and HUF weaken versus the EUR will be heavily
dependent on ECB policy – which may be more aggressive
than local policy. In any case, within our base case scenario,
the downside we expect for EUR/USD will likely be
manifested in significant moves higher in USD/PLN and
USD/HUF for competitiveness to remain balanced.

10

LatAm Runs the Lowest Deflationary Risks

Exhibit 7

CEEMEA and European G10 Vulnerable to EUR
Weakness, AXJ to JPY
60

BIS TWI Weightings %

50
EUR

JPY

40
30

EUR
CAD
MXN
JPY
COP
PEN
NZD
CLP
SGD
HKD
MYR
BRL
USD
IDR
INR
AUD
PHP
KRW
TWD
ILS
THB
CNY
NOK
ZAR
RUB
TRY
SEK
GBP
HUF
PLN
RON
CZK
CHF

0

Source: Morgan Stanley Research, Haver Analytics

Looking forward, it will be important to monitor not only
countries where inflation is already low, but those where it is
at risk of falling in the G10. GBP and NZD are examples of
currencies that only recently seemed to be on track to reach
target inflation but have seen pricing pressures diminish,
weighing on the currency. NOK could see a similar shift,
given its large exposure to Europe and high degree of
openness. Lower inflation expectations combined with falling
oil prices would not bode well for NOK.
USD/CEE, USD/ILS Have Medium-Term Upside Potential
The CEEMEA region can be split into two camps: the lowyielders, where inflation is well below target, and with
potentially dovish policy – i.e., CZK, HUF, ILS and PLN; and
the high-yielders, where falling inflation from above-target
levels and lower oil prices may be a more welcome
development – i.e., TRY and ZAR. In addition,
competitiveness challenges that may result from a
depreciating EUR are high across the region, as proxied by
the EUR weighting in trade-weighted indices (see Exhibit 8).

Inflation is running above the target in all countries in Latin
America, and although inflation expectations are wellanchored in most of the region, central banks likely have less
scope for further currency-weakening interest rate cuts,
particularly when considering that sharp exchange rate
depreciation in the last two years is at least partially
responsible for the current high inflation prints. Global
disinflation thus seems at least initially less likely to result in
policy adjustments and potential currency weakness.
High inflation and inflation expectations in Brazil provide the
least flexibility in the region. The central bank actually started
hiking interest rates again this month from already elevated
levels. Nonetheless, BRL trades very soft, and we expect it to
remain weak due to broader macro imbalances.
In the rest of the region central banks have already cut
interest rates this year and last year in response to widening
negative output gaps. This has facilitated sharp exchangerate adjustments already. Central banks in Chile and Peru
could further cut interest rates if inflation begins to moderate,
particularly given their negative output gaps. However,
appetite for much weaker currencies could be limited given
evidence of pass-through in Chile and concerns about
financial dollarization in Peru. Increasing emphasis on fiscal
rather than monetary stimulus seems consistent with this, as

12

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

does active central bank intervention in Peru to moderate
currency weakness. In Mexico pressure to cut rates and
weaken the currency should also decline, as long as
expectations for stronger growth next year remain.
We believe COP could be most at risk of additional
weakening pressure from lower inflation. Inflation and inflation
expectations are in line with the target, and after the end of
the tightening cycle earlier this year, interest rates are close to
neutral and have room for cuts. Additionally, both the central
bank and the government maintain a strong weakening bias.

13

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Technical Chart of the Week – USD/CAD

Sheena Shah

10-year USDCAD Chart
1.35
(c) = A
1.3065
1.30
1.25
1.20
1.1668
1.15
1.10
1
(a)
1.05
1.00
0.95
(b)
2
B
0.90
0.85
100 04RSI
05 05 05 06 06 06 07 07 07 08 08 08 09 09 09 10 10 10 11 11 11 12 12 12 13 13 13 14 14

We remain bullish on
USDCAD and target 1.18,
initially into next year. The
long term bearish impulsive
wave began in 2002 a peak of
1.6151. USDCAD has already
retraced over 50% of this
wave at A. USDCAD is
currently in the C wave of its
correction. The substructure
of the C wave is giving a
bullish signal for USDCAD, in
line with our fundamental
views.

0

04

05

06

07

08

09

10

11

12

13

2-year USDCAD Chart
1.15

v= 3

1.10
iii

1.05

i

1
(1)

2

1.00
0.9634

4

iv
ii

1.0601
(61.8% retracement
of 3)

(2)

0.95 2
RSI
Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

15
Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

6-month USDCAD Chart
1.16
i’
1.15
1.1467
v =3
1.14
1.1385
1.13
1.1260 ii’
1
1.12
b
1.1122
1.11
1
4
iii
b
1.10
1
1.09
c= iv
i
a
1.08
1
c=a
1
1.07
ii
1
1.0621
1.06
2
1 1RSI76 151 226 301 376 451 526 601 676 751 826 901 976 105111261201127613511426
1

USDCAD has been part of a
strong upward trending move
since the 3 rd wave began
from a low of 0.9634.
rd
USDCAD is currently in a (3)
wave, suggesting there is
further upside. We would use
any pullback to enter long
positions. USDCAD has been
trading within a trend channel
since 2012 and is
approaching the top,
suggesting a break of 117.50
could mean further upside.

While we see some relative
support for the CAD against
the rest of the G10, we remain
bullish on USDCAD. The
technical picture suggests that
th
we are in a 5 wave of a
rd
larger 3 wave. Both are
bullish signals. We would
expect USDCAD to extend
beyond 1.1467 (the recent
high) initially. We would put a
stop just below the 4-wave
bottom at 1.11 as a move
below here could signal a
further setback.

15
1
03 Jun
26
Jun
18
Jul
14
10
Nov
14
00000014
000000000000000
00000000
000000000014
0000000000000000
00000000
000000000
0000000000000011
00000000Aug
00000000000014
000000000000002
00000000Sep
00000000000014
000000000000025
00000000Sep
00000000000014
0000000000000017
00000000Oct
0000000000014
00000000000000
00000000
000000000000
000000000000
x 10000

For a description of the Elliott Wave Theory see: Trading Technicals – The Elliott Wave Method, January 10, 2014.
Source: Bloomberg, Morgan Stanley Research

14

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Strategic FX Portfolio Trade Recommendations
Evan Brown, Vandit D. Shah

Limit Order: 0.8950, Target: 0.8400, Stop: 0.9060

Limit Order:
Sell NZD/CAD

Valuations Suggest NZD/CAD Downside

We have turned bullish CAD on the crosses, as there is increasing
evidence that Canada is finally taking advantage of the US’s expansion.
After underperforming for years, Canadian export and job growth is
accelerating. Canada is the only G10 country with inflation above the
central bank’s target midpoint. We think shorting NZD against CAD is an
effective way to express divergence in Asia and the US. Overleverage
and high real rates are headwinds to consumption for New Zealand’s
main trading partners. Valuation-wise, New Zealand’s REER has more
room to adjust to lower terms of trade. The main risk to this trade is a
further, sustained decline in oil prices, Canada’s key export.

Limit Order: 81.60, Target: 86.00, Stop: 80.60

30-Oct-14

Enter: 0.8850, Target: 0.8400, Stop: 0.8800

Hold:
Short
AUD/USD

Our Australia economists revised their 2015 growth forecasts sharply
lower to 1.9%Y last week, well below the 2.9%Y consensus (see
Adjusting for Lower Growth, November 5, 2014). The terms of trade
shock has been sharper than expected, and challenges remain to the
housing recovery. Meanwhile, with asset market volatility generally
higher than earlier this year, vol-adjusted carry for Australia has
diminished significantly, making ACGBs less attractive. A key risk to this
trade is policy easing in China. For more, see AUD: Staying Negative on
page 6.

19-Sep-14

Enter: 1.27, Target: 1.32, Stop: 1.29

Hold:
Long
USD/SGD

As a small, open economy, Singapore is vulnerable to global
disinflationary pressures. Singapore’s CPI fell again recently, continuing
its downward trend. What’s more, the SGD NEER is in the middle of the
band, suggesting that there’s considerable room for USD/SGD to move
higher. In our view, China’s growth will continue to slow over the
medium term, weighing on the performance of those that export most to
the country.

28-Oct-14

Enter: 1.2750, Stopped: 1.2550

14

Exports (% of GDP)

12
Imports (% of GDP)

10
8
6

4
2
0

Venezuela
Romania
Poland
Turkey
Colombia
Argentina
UK
Sweden
Norway
Israel
Brazil
Euro Area
India
Hungary
Czech
US
Canada
Russia
Mexico
Peru
Switzerland
S Africa
New Zealand
China
Chile
Australia
Indonesia
Philippines
Korea
Singapore
Malaysia
Thailand

Limit Order:
Buy
MXN/KRW

The BoJ’s aggressive easing actions last week have significant
implications for KRW, in our view. A weaker JPY hurts Korea’s
competitiveness on a relative basis. We like trading short KRW against
MXN on the back of monetary policy divergence and relative exposure
to Japan. Mexico benefits significantly from the US growth story, given
that a large proportion of its exports are to the US; in contrast, KRW is
exposed substantially more to the China slowdown risk. This trade also
provides small, positive carry. A risk to this trade is deterioration in risk
appetite, which would be negative for high-beta MXN.

Relative Trade Exposure to Japan

AUD Vulnerable to Weak Commodities
180

1.1

170
1.0

160
150

0.9

140
0.8

130
120

0.7
110
100
Jan-09

0.6
Jan-10

Jan-11

Jan-12

Bloomberg Commodity Index

Jan-13

Jan-14

AUD/USD (rhs)

Exports to China and HK (% of Total)

EMU Banks Starting to Lend Abroad
600
400

200

Close:
Short
EUR/USD

We booked profit on our short EURUSD trade and now await further
tactical correction before re-establishing shorts. For more on the
EUR’s correction, see the FX Overview on page 2.

120
EUR bn

115

Inflows into EMU

110
105

0

100
-200

95

-400

90

-600
-800

85
Outflows from EMU

MFI External Assets

80
EUR TWI (RHS)

15

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

7-Nov-14

Enter: 0.7840, Stopped: 0.7940

Close:
Short
EUR/GBP

The aggressive shift lower in UK monetary policy expectations stopped
us out of the short EURGBP position. While we like this trade over the
medium term, we will await better levels to re-establish shorts.

16-Oct-14

Enter: 79.00, Stopped: 78.00

Yield Spread Weighs on EUR/GBP

Change in C/A Balance Favors India
8%
6%

4Q Rolling Current Account (%GDP)

4%

2%
0%
-2%
-4%
-6%
-8%

TRY
ZAR
BRL
COP
IDR
CLP
MXN
INR
PLN
CZK
CNY
RUB
ILS
PHP
HUF
MYR
KRW

Close:
Short
EUR/INR

We booked profit on this position and will look to re-establish following a
short-term tactical correction in EUR. We like INR structurally given that
India’s current account deficit has narrowed convincingly over recent
quarters. INR provides significant positive carry, with falling inflation and
energy prices removing an important macro vulnerability for India.

2Q13

Latest

Source for all charts: Bloomberg, Haver Analytics, Macrobond, Reuters EcoWin, Morgan Stanley Research

16

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Strategic FX Portfolio
Trade Recommendation

Notional

Nominal
Weight

Entry Date

Entry Level

Current

Stop

Target

Carry
P&L

Spot P&L

Portfolio
Contribution

Closed Trades
Short EUR/GBP

$10.0mn

9.8%

7-Nov-14

0.7840

Closed on 13-Nov-14 at 0.7940

-$126.8k

$0.9k

-$125.9k

Short EUR/USD

$10.0mn

9.8%

28-Oct-14

1.2750

Closed on 17-Nov-14 at 1.2550

$156.9k

$0.8k

$157.7k

Short EUR/INR

$10.0mn

9.8%

16-Oct-14

79.00

Closed on 20-Nov-14 at 78.00

$125.6k

$80.2k

$205.8k

Long USD/SGD

$10.0mn

9.8%

19-Sep-14

1.27

1.30

1.29

1.32

$260.4k

$1.6k

$261.9k

Short AUD/USD

$10.0mn

9.8%

30-Oct-14

0.8850

0.8619

0.8800

0.8400

$261.0k

-$14.1k

$247.0k

Active Trades

Lim it Trades
Buy MXN/KRW

$10.0mn

81.60

81.76

80.60

86.00

Sell NZD/CAD

$10.0mn

0.8950

0.8889

0.9060

0.8400

Cash

$61.6mn

Portfolio Mark to Market

60.2%

$102.3mn

Source: Morgan Stanley Research
Notes: (1) Stops are based on the WMR fixing. (2) The portfolio represents hypothetical, not actual, investments. For more details regarding calculations, please see “Reading FX Tactical Trade
Performance” at the back of FX Pulse. Our FX Trade Performance Data Package (30 Oct 2014) contains complete performance statistics. (3) Reported returns are unleveraged. Reported returns do
not take into account transaction fees and other costs; past performance is no guarantee of future results. (4) In the case that trade allocations are increased, entry levels are a weighted average. *
Global Risk Demand Index – US Pat. No. 7,617,143. We updated our methodology for our portfolio in 2011 (FX Pulse: Watching Europe, October 13, 2011).

Performance on Recommended Discretionary Currency Portfolio and Market Benchmark
Simple return, index
135

GBP

130
125

INR

120
115

EUR

110

105

SGD

100
95
90
2005

MS FX Strategic Portfolio

AUD

Barclay Currency Fund Index

USD mn

2006

2007

2008

2009

2010

2011

2012

2013

2014

-30

-20

-10
Last Pulse

0

10

Now

Sim ulated Managed Account Monthly Gross Perform ance - %
Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Year return

2006

-1.11

1.70

4.36

-0.37

1.24

-0.44

0.52

-1.47

-0.85

-0.84

-0.58

-0.01

2.03%

2007

-0.75

-0.77

-1.08

0.94

0.36

-2.02

1.07

2.75

1.26

0.45

1.16

0.18

3.52%

2008

1.07

2.25

2.72

-1.41

-0.53

1.28

-0.17

-0.24

-0.86

3.12

0.62

0.87

8.96%

2009

0.74

-0.97

-0.15

-1.09

0.50

-0.87

0.30

0.22

2.00

0.77

1.27

0.55

3.27%

2010

-0.01

-0.27

1.71

1.13

1.39

-0.86

-2.36

0.95

0.67

-0.30

0.13

0.66

2.80%

2011

-1.20

0.29

-1.71

0.51

-1.11

-0.33

0.84

-1.02

0.50

-1.03

-0.18

0.44

-3.97%

2012

0.34

0.46

-0.42

0.52

1.78

-0.43

0.39

0.56

0.43

0.53

0.96

0.47

5.72%

2013

-0.23

-0.66

0.08

0.10

0.26

0.05

-0.71

-0.13

-0.62

0.23

1.17

-0.27

-0.75%

2014

1.09

-0.67

-0.54

-0.02

-0.20

-0.26

1.20

0.30

1.23

0.35

-0.21

2.26%

Source: Morgan Stanley Research; see notes above.

17

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Click here for interactive
currency pages:

G10 Currency Summary
Dara Blume, Sheena Shah

USD

USD Correction Risks

6.3%

While we maintain our bullish USD view over the medium term, we would highlight the risk of a position-driven near-term
corrective setback. Hence, we now recommend caution with USD long positions for the next few weeks. However, over the
medium term, we believe that USD should benefit from the growth in the US economy being stronger than the rest of the world.
In particular, we will be watching the durable goods orders and PCE, Yellen’s preferred measure of inflation.

Bullish

Watch: GDP, Durable Goods, PCE, Univ. of Michigan Confidence

EUR

Extreme Short Positioning

-5.4%

While we remain bearish on EURUSD over the medium term as we expect relative central bank policy, inflation differentials,
and growth divergence to all move in favor of USD, we see scope for a tactical correction higher in EURUSD. EUR positioning
has been at extreme levels recently, and as we approach year end investors may look to take profit on some of their positions.
However, we would sell rallies in EUR at 1.2900. CPI will be a key print for EUR this week.

JPY

Remaining Bearish

11.9%

USDJPY continues to push higher, following the performance of the Nikkei quite closely. As local risk appetite stays supported,
we would expect USDJPY to continue to head higher. The political situation has developed with the sales tax delayed and an
election called. Note that JPY positions still remain fairly light, while option volatility has been picking up suggesting that much
of the new JPY positioning may be via a the options market. We will be watching CPI release.

GBP

BoE Minutes Offer Only Limited Support

- 5.4%

While the UK’s inflation report sounded more dovish, the latest set of BoE minutes suggested that the committee itself is more
divided, with some members concerned that slack in the economy could erode quickly, driving inflation higher. Nonetheless,
we expect GBP to remain weak as there is scope for the market to push back the timing of the first hike further. With room for
a EUR correction, we could see a tactical bounce in EURGBP.

CHF

Gold Polls Supporting the No

5.0%

EURCHF remains close to the 1.20 floor as markets wait for the gold referendum. On Nov 30, the Swiss public will vote
on whether they want the SNB to hold 20% of its assets as gold, which would limit the monetary policy capabilities and
possibly induce a deflationary shock. The polls are suggesting that the vote will not pass, which if correct would support
EURCHF. We see the SNB as credible and believe it would defend the floor if necessary, preventing a move below 1.20.

CAD
3.1%

Neutral

Bearish

Bearish

Bearish

Watch: M3, Consumer Confidence, Unemployment, CPI

Watch: Unemployment, CPI, Retail Sales, Housing Starts

Watch: PSNB, GDP, Consumer Confidence

Watch: M3, Industrial Output, KOF

The Best of the Commodity Currencies
Neutral
Watch: CPI, Retail Sales, GDP, Industrial Product Price
We believe CAD could continue to make gains on the crosses, as its exposure to the US should boost its economic
position. Though oil prices continue to decline, keeping us bearish on CAD against USD, we believe that its relative
exposure to the relatively robust US economy should support it over other commodity currencies, which are more
vulnerable to a slowdown in AxJ.

AUD

Risks from Commodities and China

- 6.1%

We expect AUD to continue to sell off due to both a decline in commodity prices and signs of a slowdown in China. Iron
ore prices have fallen nearly 5% since the start of the month. The Australian REER has not yet adjusted to its lower
terms of trade as a result of softer commodity prices. At the same time, we are seeing signs of weaker demand in China,
as evidenced by the latest declines in lending and inflation.

NZD

Commodities and Low-Flation

- 6.0%

We expect further weakness in NZD over coming weeks. A combination of low inflation and commodity price declines will
contribute to weakness. The latest PPI inflation numbers fell, while the most recent milk auction showed a decline of
5.1% in whole milk prices. We will watch the upcoming inflation expectations reading to see if it declines towards the
RBNZ’s 2% target, as well as any signs of trade weakness.

SEK

Growth in Focus

6.8%

While Sweden has low inflation which has so far been bearish for the SEK via more accommodation from the central bank, the
growth picture is what we will be watching since this is an important part required for inflation to pick up. With the Riksbank
expected to remain dovish and given our medium term bullish USD view we remain bearish on SEK. The expected near-term
rebound in EUR may also provide some support for EURSEK. This week we will be watching the GDP print.
Watching Oil Sector Impact
Bearish
Watch: Consumer Confidence, Norges Bank FX Purchases

NOK

Bearish

Bearish

Bearish

Watch: CapEx

Watch: Inflation Expectations, Trade, M3

Watch: PPI, Economic Tendency Survey, Trade Balance, GDP

Oil prices continue to tumble, which should keep pressure on NOK. The most recent GDP print for 3Q showed oil sector
investment declining by 5%Y. This suggests that the decline in investment has already begun and has fed through to the
weaker GDP. Over the coming months we expect this to feed through to growth, possibly leading to lower inflation and
therefore we would be bearish on the NOK. We like long USDNOK positions and in the near term long EURNOK.
Charts show 1M performance against USD, as normally quoted and DXY for USD. Click on any currency for a reference webpage on Matrix.
9.5%

18

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

EM Currency Summary
Jessica Liang (AXJ), Meena Bassily (CEEMEA), Felipe Hernandez (LatAm)
CNY

Neutral

INR

Neutral

IDR

Bearish

0.1%

Despite domestic growth slowdown, our expectation is for PBoC to manage excess volatility in RMB. Looking
ahead, we anticipate a stable path for CNY.

1.0%

In the near term, we expect INR to be range-bound between 58 and 62. Longer-term prospects for INR will hinge
more on the success of reform efforts, in our view.

1.4%

5.7%

KRW Bearish
3.2%

MYR Bearish
0.7%

PHP

Neutral

THB

Neutral

CZK

Neutral

HUF

Bullish

ILS

Bearish

PLN

Neutral

RUB

Neutral

TRY

Bearish

ZAR

Bearish

BRL

Bearish

CLP

Neutral

COP

Neutral

1.7%

1.7%

0.8%

2.8%

1.2%

13.2%

- 1.0%

- 0.8%

3.6%

2.9%

5.6%

0.5%

MXN Bullish
0.7%

PEN

Neutral

BI rate hike following the fuel price cuts has increased the credibility of the reform process in Indonesia. However,
over the long term, we think policy-makers will maintain the currency at slightly undervalued REER levels in order
to encourage rebalancing away from commodities and into manufacturing investment.
In recent weeks, USD/KRW has retraced its gains, following USD/JPY lower. In the medium term we expect
China growth slowdown, weakness in USD/JPY and subdued domestic growth to continue to weigh on the
currency.
Prices of Malaysia’s three largest commodity exports have fallen significantly, compressing its trade balance,
while foreign ownership of bonds remains at an all-time high. We see MYR as susceptible to continued low
commodity prices and see the potential for portfolio investment outflows in the event of carry trade unwinds.
The Philippines’ strong fundamentals support the peso even as the central bank turns more neutral. Looking
ahead, as we get closer to the strong seasonal period of overseas worker inflows (November/December), the
chances of PHP outperformance within AxJ are increasing.
As the military junta is making progress in revitalizing the economy after disruptions in 1Q, we’ve seen a return of
portfolio inflows, helping THB recover some of the earlier losses. However, we remain cautious on THB, given its
weak current account cushion and uncertain political outlook.
There have been some clear improvements in data while CPI has shown signs of bottoming. Nonetheless yields
remain extremely low across the curve, with FX-implied carry versus the EUR still negative. This along with a floor
at 27 (until 2016) at least keeps CZK vol minimal.
HUF has traded well versus the EUR with the NBH staying on hold and the ECB becoming more dovish, while the
FX conversions next year are a reduced risk event with the details known to the market. Still, we think there is risk
of the NBH becoming more dovish which may limit EUR/HUF downside.
We expect USD/ILS to remain on an upward path as both growth and inflation data continue to disappoint and
policy options become increasingly limited for the BoI. In addition, geopolitical risks have weighed on growth, thus
the FX may become more sensitive to any further geopolitical risk.
Euro-area activity data continues to point to a weak recovery which is keeping some downside pressure on
EUR/PLN. However, we think the NBP will cut rates in the December MPC meeting which should further narrow
yield differentials and help lift EUR/PLN higher from the bottom of the recent range.
The decision to let RUB float freely has led to higher volatility despite tighter monetary policy, partly because of
the ongoing fall in oil prices and regional security issues. Central bank policy poses less of a risk to RUB now, but
we would need to see a rebound in oil for the currency to recover.
We think the CBT’s decision to keep rates on hold was a credible move and can help improve confidence in the
TRY. Nonetheless, we still think the political risks surrounding TRY are significant, and that any increase in oil
prices or UST yields can result in renewed pressure on TRY.
The SARB has reduced its hawkishness in this week’s MPC meeting, and with market expectation for hikes being
priced out of the market we think vulnerability in the ZAR has increased. We look for multi-year trend support
levels to hold, and continue to see political and union risks as significant going into 2015.
Additional interest rate hikes and policy adjustments once the new Finance Minister is appointed could support
BRL into year-end. However, we expect more BRL weakness in medium-term, as appetite for macro adjustment
is limited and political noise, electricity rationing, commodity prices and external demand are downside risks.
Improved valuations and a smaller current account deficit reflect a sharp adjustment already and limited
downside. However, we expect some more CLP depreciation, as low growth raises expectations for further
monetary easing, while demand from China and lower copper prices are still risks.
Without a rebound in oil prices we expect COP to continue weakening. Inflation is well anchored and downside
risks to growth from lower terms of trade and tighter fiscal balance imply higher probability for interest rate cuts.
Still-rich valuations and the official bias for weaker currency should facilitate an adjustment.
Recovering domestic demand and economic growth on the back of reforms and US activity support our
constructive view on the currency. However, in the short term, we prefer avoiding USD exposure and global risks,
and we favor positioning long MXN in relative value trades.
Active central bank intervention should continue to moderate volatility and currency adjustments in the short term,
but weak growth and monetary easing are still likely to push PEN weaker. Unattractive valuations and
deteriorating external accounts are also consistent with the need for a weaker currency.

Charts show 1M performance against USD, as normally quoted

19

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Click here for a full, searchable calendar

Global Event Risk Calendar
Charles Rubenfeld
Date

Day

21-Nov

Fri

23-Nov

Sun

24-Nov

Mon

25-Nov

26-Nov

27-Nov

28-Nov

Time
(Ldn)

Ccy

Event

13:30
08:00
08:00
09:30
16:00

CAD
CHF
EUR
GBP
USD

CPI (YoY)
M3 (YoY)
ECB's Draghi spks (Frankfurt)
PSNB ex Interventions
Kansas City Fed Manufacturing Activity

13:00

CHF

SNB's Jordan spks (Ulster)

22:30
09:00
14:30
14:00
23:50
15:30

AUD
EUR
EUR
ILS
JPY
USD

Consumer Confidence
IFO Expectations
ECB Announces Covered-Bond Purchases
BoI's Rates Decision
BoJ Minutes
Dallas Fed Manufacturing Activity

13:30
02:00
13:00
01:00
08:30
13:30
14:00
15:00
15:00

CAD
CNY
HUF
JPY
SEK
USD
USD
USD
USD

Retail Sales (MoM)
Conference Board Leading Economic Index
NBH Rates Decision
BoJ's Kuroda spks (Nagoya)
PPI (YoY)
GDP (QoQ)
S&P/CaseShiller Home Price Index
Consumer Confidence Index
Richmond Fed Manufacturing Index

01:45
09:30
21:45
08:00
08:30
13:30
13:30
13:30
13:30
14:45
14:55
15:00
15:00

CNY
GBP
NZD
SEK
SEK
USD
USD
USD
USD
USD
USD
USD
USD

Consumer Sentiment
GDP (QoQ)
Trade Balance
Economic Tendency Survey
Trade Balance
Initial Jobless Claims
Durable Goods Orders
Personal Income
PCE Core (YoY)
Chicago PMI
Univ. of Michigan Confidence
Pending Home Sales (MoM)
New Home Sales

06:45
09:00
10:00
13:00
N/A
23:30
23:50
23:50

CHF
EUR
EUR
EUR
INT
JPY
JPY
JPY

GDP (QoQ)
M3 (YoY)
Consumer Confidence
German CPI (YoY)
OPEC Meeting
CPI (YoY)
Retail Trade (YoY)
Industrial Production (MoM)

00:30
13:30
13:30
13:30
10:00
10:00
09:00
09:00
09:00
02:00
08:30

AUD
CAD
CAD
CAD
EUR
EUR
NOK
NOK
NOK
NZD
SEK

Private Sector Credit (MoM)
GDP (QoQ)
GDP (MoM)
Industrial Product Price (MoM)
Unemployment Rate
CPI Estimate (YoY)
Norges Bank Regional Survey
Unemployment Rate
Retail Sales (MoM)
M3 (YoY)
GDP (QoQ)

08:30

SEK

Retail Sales (MoM)

Ref.
Period

MS forecast

Oct
Oct
Oct
Nov

6.9B

Market

Previous

2%

2%
3.41%

7.7B
6

11.83B
4

113
98.3

Nov
0.25%

0.25%

0.25%

Nov

8

10.5

Sep

0.5%

-0.3%

2.10%

2.1%

2.1%

3.4%

3.3%

96

95.66%
16

Tue

Oct
3Q S
Sep
Nov
Nov

1.69%
3.5%
173.66
94.48%
20

Wed
Nov
3Q P
Oct
Nov
Oct
Oct
Oct
Oct
Nov
Nov F
Oct
Oct

-0.6%
0.4%

284k
-0.5%
0.4%

460k

63
90
0.75%
470k

110.9
0.7%
-1350.25m
104.3
1.4
290k
-1.1%
0.2%
1.5%
66.2
89.4
0.29%
467k

Thu
3Q
Oct
Nov F
Nov P

-10.7%

0.2%
2.5%
-11.1%
0.8%

Oct
Oct
Oct P

3.2%
2.3%
2.9%

Oct
3Q
Sep
Oct
Oct
Nov

0.5%
3.644%
-0.1%
-0.4%
11.5%
0.4%

Nov
Oct
Oct
3Q

2.7%
-0.1%
5.3%
0.7%

Oct

-0.63%

Fri

20

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

30-Nov

Sun

01-Dec

Mon

02-Dec

03-Dec

04-Dec

05-Dec

10-Dec
11-Dec
11-Dec
16-Dec
17-Dec
19-Dec

N/A

CHF

Switzerland "Save Our Swiss Gold" Vote

05:30
22:30
14:30
08:30
01:45
09:00
09:30
09:30
08:00
07:30
15:00

AUD
AUD
CAD
CHF
CNY
EUR
GBP
GBP
NOK
SEK
USD

Commodity Index (YoY)
Consumer Confidence
PMI Manufacturing
Manufacturing PMI
HSBC Manufacturing PMI
PMI Manufacturing
Mortgage Approvals
PMI Manufacturing
Manufacturing PMI
Manufacturing PMI
ISM Manufacturing

00:30
00:30
03:30
09:30
05:30
01:30
N/A
08:30
15:00
N/A

AUD
AUD
AUD
GBP
INR
JPY
NZD
SEK
USD
USD

Current Account Balance
Building Approvals (MoM)
RBA Rates Decision
PMI Construction
RBI Rates Decision
Labor Cash Earnings (YoY)
Global Dairy Trade Announces Milk Auction Results
Sweden CA Balance
Construction Spending (MoM)
Total Vehicle Sales

00:30
N/A
15:00
22:30
06:45
01:45
09:00
10:00
10:00
09:30
N/A
13:15
15:00

AUD
BRL
CAD
CAD
CHF
CNY
EUR
EUR
EUR
GBP
PLN
USD
USD

GDP (QoQ)
COPOM Rates Decision
BoC Rates Decision
BoC's Poloz spks (Toronto)
GDP (QoQ)
PMI Composite
PMI Services
Retail Sales (MoM)
Eurozone GDP (QoQ)
PMI Services
NBP Rates Decision
ADP Employment Change
ISM Non-Manufacturing Composite

00:30
00:30
15:00
12:45
13:30
12:00
07:30
13:30

AUD
AUD
CAD
EUR
EUR
GBP
SEK
USD

Retail Sales (MoM)
Trade Balance
Ivey PMI
ECB Rates Decision
ECB Press Conference
BoE Rates Decision
PMI Services
Initial Jobless Claims

CAD
CAD
CAD
JPY
MXN
NOK
SEK
USD
USD
USD
USD

Trade Balance
Unemployment Rate
Employment Change
Leading Index CI
Banxico Rates Decision
Industrial Production (MoM)
Industrial Production (MoM)
Unemployment Rate
Trade Balance
Change in Nonfarm Payrolls
Factory Orders

NZD
CHF
NOK
SEK
USD
JPY

RBNZ Rates Decision
SNB Rates Decision
Norges Bank Rates Decision
Riksbank Interest Rate Decision
FOMC Rates Decision
BoJ Rates Decision

Nov
Nov
Nov
Nov F
Nov F
Oct
Nov
Nov
Nov
Nov

50.8

-16.9%
113
55.3
55.3
50
50.6
61.267
53.2
50.7
52.1
59

Tue
3Q
Oct

Oct

-13.742B
-11%
2.5%
61.4
8%
0.7%

3Q
Oct
Nov

48.7%
-0.4%
16.35m

2.5%

2.5%

Nov

Wed
3Q

0.5%
11.25%
1%

11.50%
1.00%
3Q
Nov
Nov F
Oct
3Q P
Nov

52.4

1.75%
Nov
Nov

0.2%
51.7
52.3
-1.3%
0.2%
56.2
2%
229.6k
57.1

Thu
Oct
Oct
Nov

1.2%
-2261m
51.2
0.05%

0.05%
0.50%

0.5%

Nov
284k

0.5%
57.7
290k

Fri
13:30
13:30
13:30
05:00
15:00
09:00
08:30
13:30
13:30
13:30
15:00
Upcoming Risk Events
20:00
08:30
09:00
08:30
19:00
N/A

Oct
Nov
Nov
Oct P
3.00%
Oct
Oct
Nov
Oct
Nov
Oct
Dec
Dec
Dec
Dec
Dec
Dec

3.5%
0.00%
0.0%
0.25%
0.1%

0.71B
6.5%
43.1k
105.6
3%
4.4%
-1.09%
5.8%
-43B
214k
-0.6%
3.5%
0.00%
1.50%
0.0%
0.25%
0.1%

N/A Denotes timing approximate or not confirmed / All times and dates are GMT and correct as of the date of publication / For a full list of economic events see the calendar on the Morgan Stanley
Matrix Platform / Source: Morgan Stanley Research, Bloomberg

21

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Cross-Currency Carry and Vol Heat Map
Vandit D. Shah

Note: Access is available to the carry metrics on an interactive basis on the Morgan Stanley Matrix Platform. Contact your Morgan Stanley sales
representative if you do not have access. For a user’s guide to this heatmap, see FX Pulse, April 24, 2014, page 22.

22

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Click here for interactive charts

G10 FX Tactical Indicators
Charles Rubenfeld
Exhibit 1

Exhibit 2

Historical Currency Performance

FXVIX (FX Volatility Index)

3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-9%

11.2
10.2
9.2
8.2
7.2
6.2

DXY NZD CHF CAD EUR AUD SEK GBP NOK JPY
Monthly

Weekly

5.2
Mar-13May-13 Jul-13 Sep-13Nov-13Jan-14Mar-14May-14 Jul-14 Sep-14Nov-14

Source: Bloomberg, Morgan Stanley Research

Source: Bloomberg, Morgan Stanley Research

Exhibit 3

Exhibit 4

Relative Momentum Indicator

MS GRDI – Standardized

10

3
2

5

1
0

0

-1
-2

-5

-3

-10

-4

CHF

EUR

NZD

NOK

USD

Current

CAD

SEK

AUD

GBP

JPY

Last week

-5
Nov-13

Jan-14

Mar-14

May-14

Source: Bloomberg, Morgan Stanley Research

Global Risk Demand Index – US Pat. No. 7,617,143
Source: Bloomberg, Morgan Stanley Research

Exhibit 5

Exhibit 6

DXY (Dollar Index)

IMM Positions Summary ($bn)

88

NZD

87

MXN

86

Jul-14

Sep-14

GBP

85
CAD

84

CHF

83

AUD

82

81

JPY

80

EUR

79
78
Jan-14

-28 -26 -24 -22 -20 -18 -16 -14 -12 -10

Mar-14

May-14

Jul-14

Sep-14

-8

-6

-4

-2

Nov-14
Note: Aggregate USD positioning in nominal terms, see appendix for details.
Source: Bloomberg, Morgan Stanley Research

Source: Bloomberg, Morgan Stanley Research

23

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Click here for a full positioning history

Morgan Stanley FX Positioning Tracker
Dara Blume, Charles Rubenfeld
Overall Score

Component Scores

This
Week

Last
Week





USD

4

4

EUR

-7

-7

JPY

0

0

GBP

-2

-2

CHF

-7

-7

CAD

-3

-3

AUD

-2

-2

NZD

-5

-5

NOK

-2

-2

SEK

-9

-9

Short

Neutral

-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2

Long
3 4 5 6 7 8


9 10

MS
Flow

Beta

ETF

Sentiment

10

-6

8

7

6

USD

-10

-8

-9

-10

-4

EUR

8

-2

10

-6

1

-9

JPY

7

-4

-3

6

-10

-8

GBP

-5

-10

-10

-4

CHF

1

-1

-10

-4

CAD

10

-4

-9

-1

-7

AUD

1

-8

-10

-6

-2









TFX

0




Toshin

-2





IMM

0



Since Monday, November 17, positioning
in currencies is unchanged. The biggest
long is in USD; the largest shorts are in
EUR and CHF.



EUR short positioning remains in extreme
territory; historically, such positioning has
resulted in a near-term countertrend rally.



JPY positioning remains neutral; however,
we note that two of the sub-indicators, our
Beta and ETF accounts moved slightly
towards long intraweek.



We will provide a full updated report and
refresh positioning scores for all of our
underlying sub-indicators on Monday.

NZD

6

-10

NOK

-9

-10

SEK

For Methodology see Appendix

Morgan Stanley High-Frequency Misalignment Monitor
19-Nov-14

1Yr
USD

EUR

JPY

GBP

CHF

AUD

CAD

NZD

NOK

SEK

-0.3%

-7.0%
-6.6%

0.2%
0.6%
7.2%

-1.3%
-1.0%
5.7%
-1.5%

-2.3%
-2.0%
4.6%
-2.6%
-1.0%

-0.6%
-0.3%
6.4%
-0.9%
0.7%
1.7%

-1.9%
-1.5%
5.1%
-2.1%
-0.6%
0.5%
-1.2%

1.1%
1.4%
8.0%
0.8%
2.3%
3.4%
1.7%
2.9%

-2.8%
-2.5%
4.2%
-3.0%
-1.5%
-0.5%
-2.2%
-0.9%
-3.9%

EUR
JPY
GBP
CHF
AUD
CAD
NZD
NOK

> +/- 1 sd
> +/- 2 sd
> +/- 3 sd



The one-year model, which generates the
most reliable trading signals, suggests
that JPY could see an upward correction,
with SEK also showing strong signals that
it could have a rebound. AUD could also
rebound somewhat, while NOK and CAD
are somewhat overvalued.



Misalignments over a two-year look-back
window again show CHF, SEK and JPY
as due for an upward rally, while NOK is
overvalued.



The model estimated over a three-year
look-back window again suggests USD
overvaluation, and also shows
overvaluation in AUD, CAD and NOK.



Our suite of high-frequency misalignment
models implies that SEK, NZD, and JPY
can tactically correct higher against most
currencies, with JPY seeing the largest
correction. This contrasts with our
fundamentally bearish view on each of
these currencies. On the other hand,
CAD and AUD look due for a downward
correction, in line with our structural
bearish view on both currencies.

2Yr
USD

EUR

JPY

GBP

CHF

AUD

CAD

NZD

NOK

SEK

-1.7%

-5.6%
-3.8%

-0.1%
1.6%
5.4%

-3.8%
-2.1%
1.7%
-3.7%

-2.7%
-0.9%
2.9%
-2.6%
1.2%

0.4%
2.2%
6.0%
0.5%
4.3%
3.1%

-3.2%
-1.5%
2.3%
-3.1%
0.6%
-0.5%
-3.6%

1.7%
3.4%
7.2%
1.8%
5.5%
4.3%
1.2%
4.9%

-3.7%
-1.9%
1.9%
-3.6%
0.2%
-1.0%
-4.1%
-0.5%
-5.3%

EUR
JPY
GBP
CHF
AUD
CAD
NZD
NOK

> +/- 1 sd
> +/- 2 sd
> +/- 3 sd

3Yr
USD

EUR

JPY

GBP

CHF

AUD

CAD

NZD

NOK

SEK

-3.0%

-5.3%
-2.4%

-3.4%
-0.4%
2.0%

-3.5%
-0.6%
1.8%
-0.1%

-0.4%
2.5%
4.9%
3.0%
3.1%

-1.0%
2.0%
4.3%
2.4%
2.5%
-0.6%

-2.8%
0.2%
2.6%
0.6%
0.7%
-2.4%
-1.8%

-0.5%
2.5%
4.9%
2.9%
3.1%
0.0%
0.5%
2.3%

-4.3%
-1.3%
1.1%
-0.9%
-0.7%
-3.8%
-3.3%
-1.5%
-3.8%

EUR
JPY
GBP
CHF
AUD
CAD
NZD
NOK

> +/- 1 sd
> +/- 2 sd
> +/- 3 sd

For Methodology, see Appendix

Note: Misalignment measured as the overvaluation of the column currency versus the row currency

24

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Central Bank Watch
Next rate

Market

MS

decision

expects (bp)

expects (bp)

US

17 Dec

2

0

Euro Area

04 Dec

-2

Japan

19 Dec

0

UK

04 Dec

Canada

04 Dec

Switzerland
Sweden

Current

Morgan Stanley Forecasts
4Q14

1Q15

2Q15

3Q15

0.125

0.125

0.125

0.125

0.125

0

0.05

0.05

0.05

0.05

0.05

0

0.1

0.1

0.1

0.1

0.1

0

0

0.5

0.5

0.75

0.75

1

0

0

1

1

1

1

1.25

12 Dec

-5

0

0

0

0

0

0

16 Dec

0

0

0

0

0

0

0

Australia

01 Dec

-1

0

2.5

2.5

2.5

2.5

2.5

New Zealand

10 Dec

1

0

3.5

3.5

3.5

3.75

4

Russia

11 Dec

-

0

9.5

9.5

9.5

9.5

9

Poland

03 Dec

-13

-25

2

1.75

1.75

1.75

1.75

Czech Rep

17 Dec

-3

0

0.05

0.05

0.05

0.05

0.05

Hungary

25 Nov

-1

0

2.1

2.1

2.1

2.1

2.1

Romania

07 Jan

-

-25

2.75

2.75

2.5

2.5

2.5

Turkey

24 Dec

-

0

8.25

8.25

8.25

8.5

9

Israel

24 Nov

-1

0

0.25

0.25

0.25

0.75

1.25

South Africa

29 Jan

21

0

5.75

5.75

6

6

6.25

Nigeria

25 Nov

-

0

12

12

12

11.5

11

Ghana

09 Jan

-

0

21

-

-

-

-

China

-

-

0

6

6

6

6

6

India

02 Dec

-

0

8

8

8

7.75

7.75

Hong Kong

17 Nov

-

0

0.5

0.5

0.5

0.5

0.5

S. Korea

11 Dec

0

0

2

2

2

2

2.25

Taiwan

25 Dec

5

12.5

1.875

2

2.13

2.25

2.38

Indonesia

11 Dec

-

0

7.75

7.75

7.75

7.75

7.75

Malaysia

28 Jan

-

0

3.25

3.5

3.5

3.5

3.5

Thailand

17 Dec

-8

0

2

2

2

2

2

Brazil

21 Jan

38

25

11.25

11.5

12

12

11.5

Mexico

05 Dec

1

0

3

3

3

3

3

Chile

11 Dec

-5

-25

3

2.75

2.75

2.75

2.75

Peru

11 Dec

-

0

3.5

3.5

3.5

3.5

3.75

Colombia

28 Nov

-2

0

4.5

4.75

4.75

4.75

4.75

Source: National Central Banks, Morgan Stanley Research forecasts as of November 12th; Note: Japan policy rate takes a mid-range value. Market expects for G10 as of Nov 12. EM | What’s In the Price.

G4 Policy Rates

BRICs Policy Rates
US

7

Japan

UK

Euro Area

6

China
Brazil
Russia
India

30

25

5

20

4
15

3
10

2

5

1

0
2002

2004

2006

2008

Source: Morgan Stanley Research, Haver Analytics

2010

2012

2014

0
2002

2004

2006

2008

2010

2012

2014

Source: Morgan Stanley Research, Haver Analytics

25

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

FX Bull/Bear Projections
EURUSD
EUR/USD
1.50
1.45
1.40
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1.00
Jun-12

USDJPY
USD/JPY
130

MS Forecast

MS Forecast

MS Forecast

120

1.80

110

1.70

100

1.60

90

1.50

80

Jun-13

Jun-14

Jun-15

70
Jun-12

Jun-13

EURCHF
EUR/CHF
1.40

GBPUSD
GBP/USD
1.90

Jun-14

Jun-15

MS Forecast

1.23

MS Forecast

1.20

1.00
0.95

Jun-14

Jun-15

1.03

0.90

0.98

0.85

0.93

0.80

0.88

0.75

0.83
Jun-12

Jun-13

USDSGD
USD/SGD
1.40

Jun-14

Jun-15

MS Forecast

1.30

MS Forecast

1200

35

1150

34

1100

33

Jun-14

Jun-15

30

29
Jun-13

Jun-14

Jun-15

28
Jun-12

Jun-13

EURCZK
EUR/CZK
29

MS Forecast

4.35

Jun-14

Jun-15

USDZAR
USD/ZAR
13.5

MS Forecast

MS Forecast

4.25

28

4.15

27

12.5
11.5

10.5

4.05

26

9.5

3.95

25

3.85
Jun-13

Jun-14

Jun-15

24
Jun-12

8.5
Jun-13

USDBRL

Jun-14

Jun-15

7.5
Jun-12

Jun-15

USD/CLP
640
620
600
580
560
540
520
500
480
460
Jun-12

USDMXN
USD/MXN
14.00

USD/BRL
2.90
MS Forecast

2.70

MS Forecast

13.50

13.00

2.30
12.50

2.10

12.00

1.90
Jun-13

Jun-14

Jun-15

11.50
Jun-12

Jun-13

Jun-14

Jun-13

Jun-14

Jun-15

USDCLP

2.50

1.70
Jun-12

MS Forecast

31

EURPLN
EUR/PLN

Jun-15

32

950
900
Jun-12

Jun-14

USDTHB

1000

1.20

3.75
Jun-12

Jun-13

USD/THB
36

1050

1.25

Jun-13

0.70
Jun-12

USDKRW
USD/KRW
1250

1.35

1.15
Jun-12

MS Forecast

1.05

1.08

1.25

Jun-15

AUDUSD

1.13

1.30

Jun-14

AUD/USD
1.10

1.18

Jun-13

Jun-13

USDCAD
USD/CAD

1.35

1.15
Jun-12

1.40
Jun-12

MS Forecast

Jun-13

Jun-14

Jun-15

Source for all charts: Morgan Stanley Research, Bloomberg; shaded area is the range of market forecasts.

26

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Click here for custom cross forecasts

Morgan Stanley Global Currency Forecasts
 We updated our G10 and EM forecasts on October 2, 2014. We updated our BRL forecast on November 3rd, 2014

EUR/USD
USD/JPY
GBP/USD
USD/CHF
USD/SEK
USD/NOK
USD/CAD
AUD/USD
NZD/USD
EUR/JPY
EUR/GBP
EUR/CHF
EUR/SEK
EUR/NOK
USD/CNY
USD/HKD
USD/IDR
USD/INR
USD/KRW
USD/MYR
USD/PHP
USD/SGD
USD/TWD
USD/THB
USD/BRL
USD/MXN
USD/ARS
USD/VEF
USD/CLP
USD/COP
USD/PEN
USD/ZAR
USD/TRY
USD/ILS
USD/RUB
RUB basket
EUR/PLN
EUR/CZK
EUR/HUF
EUR/RON
MS Dollar Index
MS AXJ Index

Current

2014
4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

Consensus

Forward

1.26
118
1.57
0.96
7.39
6.75
1.13
0.86
0.79
148
0.80
1.20
9.28
8.48
6.13
7.76
12175
62.0
1115
3.37
45.1
1.30
31.0
32.8
2.57
13.59
8.52
6.29
601
2161
2.93
10.95
2.22
3.84
46.3
51.67
4.21
27.67
304
4.44
88.07
104.31

1.24
108
1.60
0.99
7.50
6.49
1.14
0.84
0.76
134
0.78
1.23
9.30
8.05
6.14
7.80
12600
62.0
1065
3.33
45.0
1.29
30.6
33.0
2.47
13.30
10.00
12.00
605
2070
2.96
11.30
2.30
3.70
40.0
44.3
4.23
27.60
318
4.42
86.73
105.03

1.22
109
1.63
1.04
7.54
6.64
1.16
0.82
0.74
133
0.75
1.27
9.20
8.10
6.12
7.80
12800
62.5
1070
3.37
45.5
1.30
30.8
33.3
2.55
13.30
10.63
12.00
615
2130
3.00
11.50
2.35
3.75
40.5
44.5
4.20
27.60
314
4.35
87.52
104.46

1.18
110
1.60
1.08
7.71
6.91
1.18
0.80
0.71
130
0.74
1.28
9.10
8.15
6.13
7.80
13000
62.5
1075
3.40
46.0
1.31
31.0
33.6
2.60
12.90
11.25
14.00
610
2150
3.00
11.75
2.40
3.80
41.1
44.4
4.15
27.50
308
4.33
89.40
103.93

1.14
112
1.56
1.14
7.89
7.19
1.20
0.78
0.69
128
0.73
1.30
9.00
8.20
6.14
7.80
13100
62.3
1080
3.43
46.3
1.31
31.1
34.0
2.75
12.70
11.88
14.00
600
2170
3.02
11.65
2.40
3.85
41.6
44.22
4.12
27.50
304
4.33
91.68
103.66

1.12
114
1.51
1.17
7.99
7.37
1.22
0.76
0.67
128
0.74
1.31
8.95
8.25
6.09
7.80
13000
62.2
1085
3.45
46.5
1.32
31.2
34.0
2.80
12.50
12.50
14.00
595
2180
3.03
11.50
2.37
3.85
41.8
44.06
4.08
27.25
300
4.30
93.59
103.67

1.15
116
1.50
1.16
7.83
7.22
1.23
0.77
0.66
133
0.77
1.33
9.00
8.30
6.10
7.80
12800
62.0
1083
3.43
46.3
1.32
31.0
33.8
2.95
12.50
12.50
14.00
590
2170
3.02
11.40
2.35
3.80
42.0
44.84
4.05
27.25
298
4.30
93.43
103.97

1.17
117
1.49
1.15
7.74
7.18
1.24
0.78
0.65
137
0.79
1.34
9.05
8.40
6.09
7.80
12700
62.0
1080
3.40
46.3
1.31
30.8
33.8
2.95
12.40
12.50
14.00
585
2160
3.01
11.35
2.33
3.80
42.0
45.21
4.02
27.15
295
4.30
93.35
104.33

1.20
118
1.49
1.13
7.58
6.67
1.25
0.80
0.65
142
0.81
1.36
9.10
8.00
6.09
7.80
12700
61.8
1080
3.40
46.3
1.31
30.8
33.8
0.00
12.40
12.50
14.00
585
2150
3.00
11.30
2.30
3.78
42.0
45.78
4.00
27.10
295
4.30
92.88
104.37

-0.8
-4.8
0.0
2.3
1.1
-2.2
0.9
-3.4
-2.6
-4.3
-0.6
1.7
0.9
-2.3
0.7
0.5
3.4
0.7
-1.4
0.9
0.0
0.0
0.3
0.9
-0.8
-1.0
8.1
0.0
2.1
1.0
2.4
1.3
2.2
-0.8
-4.8
-5.1
0.7
0.0
2.3
0.0

-1.3
-8.4
1.8
3.8
1.5
-4.0
0.6
-2.2
-3.0
-9.6
-3.0
2.4
0.2
-5.2
-0.1
0.6
3.3
-0.4
-4.3
-1.3
-0.3
-0.8
-1.2
0.2
-5.0
-2.3
15.8
90.7
0.2
-4.6
0.7
2.6
2.6
-3.7
-14.6
-15.2
0.2
-0.3
4.3
-0.6

2015

2016

4Q14 % change to:

Source: Morgan Stanley Research

27

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Appendix
The Strategic FX Portfolio Trade Recommendations page presents the portfolio of tactical trade ideas of the FX Strategy team and the
performance of this portfolio over time.
Strategic FX Portfolio Trade Recommendations (Note: The portfolios represent hypothetical not actual investments.)
 On 10 June, 2010, we implemented changes to our portfolio to make it more robust and to better reflect our confidence levels and
relative risk. A detailed explanation of this change can be found in “Portfolio Methodology Update” (10 June 2010).
 In summary, the trades and the weightings are primarily reviewed weekly on Thursdays and published in the Pulse. However, if we
think there has been a material change to the risk-reward, we will make intraweek changes. We monitor trades daily. We will continue
to publish the portfolio as a list of trades where our strongest conviction ideas will be given the largest weightings. We will, however,
also adjust the weights of trades in order to manage our risk exposure.
 A table showing the trade, trade weight, trade entry date, risk allocation and levels for (average) entry, current, stop and target will be
shown in the Strategic FX Portfolio Trade Recommendations section of the FX Pulse.
 If we increase the weighting allocated to a trade, the entry level published in the table will be changed to reflect a proportionally
weighted rate of the initial entry level and the entry level on the date the weight was increased.
Performance Statistics
 We rebalance our portfolio daily at the NY close to keep the weight of each trade consistent with the published weight.
 We will primarily enter and exit trades using the bid or offer rate of the WMR fixing. If we make an intraday change to our portfolio, we
will cite the closest Bloomberg half hourly fix in our published note and enter/exit at this rate.
 Stops or targets will be triggered if the stated level is met at the WMR fix.
 Returns shown include the cost of carry using the 1W interbank deposit rate if this is quoted liquidly but do not include any other
expenses, slippage or fees and no interest on cash holdings are included. Reported returns are not levered.
 We have re-estimated our returns from 22 June 2006 to 10 June 2010, when we re-launched the portfolio, to take into account our
more robust calculation technique.
 We provide a monthly breakdown of our historical portfolio performance back to Jan 2005 in the Strategic FX Portfolio section of the
Pulse.
The FX Tactical Indicators table highlights the most recently updated indicators we, as a research team, use as inputs to generate both
longer and more tactical forecasts. Matrix charting codes are given in brackets. Change the G10 currency in italics as required.
•Historical Currency Performance: Price changes in currency over the past week and past month. (EURUSD)
•FXVIX (Volatility Index): An index of 3 month implied volatility calculated using 30 G10 and EM crosses (MSFXVIX)
•Relative Momentum Indicator: Measures the momentum of a currency relative to all other currencies; not indicative of historical
performance. (MSRMUS)
•MS GRDI*: An index to assess risk sentiment. It looks at ten different asset classes to gauge risk demand. The GRDI index seen in the
graph is a standardized reading of the index based on the 365-day rolling average. (GRDIIDX)
•G10 Surprise Index: Measures the performance of actual economic data in G10 countries relative to expectations. G10 Average Index
is a simple index; G10 GDP weighted average is based on GDP weights. (MSSIUSD)
•IMM Commitment of Traders Report: The “Aggregate USD Index” is the cumulative aggregate positioning of currencies we track on
the IMM against the USD. We combine IMM positioning on the AUD, CAD, CHF, EUR, GBP, JPY, and MXN to calculate an aggregate
USD index to measure overall net positioning. (MSPIUS)
FX Positioning Tracker Methodology (MSPIUS) See the primer
•MS Flow - Our internal flow data track all spot and forward trades transacted by Morgan Stanley FX globally.
•IMM - We use the US Commodity Futures Trading Commission’s IMM report to track positioning of non-commercial traders.
•Toshin - The Toshin accounts are Japanese foreign currency investment trusts that seek yield abroad. They typically cater to retail investors and
offer a higher return by investing in foreign assets on a currency un-hedged basis.
•TFX - The Tokyo Financial Exchange (TFX) measures Japanese currency trading on margin accounts, and comprises an estimated 10% of the
retail margin market.
•Beta - As an alternative proxy for positioning, our Beta-Tracker measures one-month rolling betas of currency managers’ and global macro
hedge funds’ daily returns on major currency indices.
•Sentiment - The Daily Sentiment Index gathers opinions on all active US futures, eurozone interest rates, and eurozone equities futures markets.

Morgan Stanley FX High Frequency Misalignment Monitor Methodology: See the full report (MSSTMEUR)
Historic data for all these models can be found on the Morgan Stanley Matrix Platform. See New FX Strategy Interactive Features
(January 17, 2014). Click on the Matrix logo throughout this document or here for a G10 currency reference page:

* US Pat. No. 7,617,143.

28

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

Global FX Strategy Team
Head of Global FX Strategy (London)

Hans Redeker, Managing Director

hans.redeker@morganstanley.com

(44 20) 7425 2430

Co-Head of US FX Strategy (New York)
Co-Head of US FX Strategy (New York)
Currency Strategist (New York)
Currency Strategist (New York)

Evan Brown, CFA, Vice President
Calvin Tse, Vice President
Dara Blume, Associate
Charles Rubenfeld, Analyst

evan.brown@morganstanley.com
calvin.tse@morganstanley.com
dara.blume@morganstanley.com
charles.rubenfeld@morganstanley.com

(212) 761 2786
(212) 296 5423
(212) 296 5786
(212) 296 5911

Head of European FX Strategy (London)
Currency Strategist (London)
Currency Strategist (London)

Ian Stannard, Executive Director
Sheena Shah, Analyst
Vandit D. Shah, Analyst

ian.stannard@morganstanley.com
sheena.shah@morganstanley.com
vandit.shah@morganstanley.com

(44 20) 7677 2985
(44 20) 7677 6457
(44 20) 7425 3978

AXJ FX & Rates Strategy (Hong Kong)
AXJ FX Strategy (Hong Kong)
Rates/FX Strategist (Hong Kong)
AXJ Strategy (Hong Kong)

Geoffrey Kendrick, Executive Director
Jessica Liang, Vice President
Kewei Yang, Executive Director
Kritika Kashyap, Associate

geoffrey.kendrick@morganstanley.com
jessica.liang@morganstanley.com
kewei.yang@morganstanley.com
kritika.kashyap@morganstanley.com

(852) 2239 7399
(852) 3963 3021
(852) 3963 0562
(852) 2239 7179

LatAm Macro Strategy (New York)
LatAm Local Rates Strategy (New York)

Felipe Hernandez, Vice President
Robert Habib, Associate

felipe.hernandez1@morganstanley.com
robert.habib@morganstanley.com

(212) 296 4996
(212) 761 1875

Global EM Macro Strategy (London)
CEEMEA Macro Strategy (London)

James Lord, Executive Director
Meena Bassily, Associate

james.lord@morganstanley.com
meena.bassily@morganstanley.com

(44 20) 7677 3254
(44 20) 7677 0031

Morgan Stanley entities: London – Morgan Stanley & Co. International plc; New York – Morgan Stanley & Co. LLC; Hong Kong – Morgan Stanley Asia Limited.

29

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

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30

MORGAN STANLEY RESEARCH
November 20, 2014
FX Pulse

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31

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