lloyds tsb jun 28 fx strategy weekly

8/9/2019 Lloyds TSB JUN 28 FX Strategy Weekly

1/15

FX Strategy Weekly

Friday, 25th June 2010

Kenneth BrouxSenior Market Economist

0207 158 1750

[email protected]

Market Strategy

Lloyds TSB Corporate Markets Economic Research, 10 Gresham Street, London, EC2V 7AE, Switchboard: 0207 626 1500.

1

Market Outlook

Tactical view:

= EUR/CHF hits 1.35 target; JPY back in demand; USD safe haven status falters

The resilience of GBP and stale USD performance vs G10 currencies in a broader contextof risk aversion is a new development and will bear close watching over the week aheadas we square up to heightened event risk from the US and the euro zone. Investorscepticism has been underlined by the 40% collapse in the Baltic Dry and a dreadfulsequence of US housing data for May, drawing support for the JPY and CHF. A seconddisappointing US employment report in as many months threatens to further derailconfidence and could add to the view that the Fed will eventually have to resume assetpurchases. The ECB one-year tender expires on Thursday. The quarterly IMF Cofer statisticscovering changes in Q1 FX reserve composition are due on Wednesday.

Recap A solid weekly performance saw GBP rally against all G10 currencies bar the JPY as the

correlation with risk turned lower. Bolstered by hawkish MPC minutes and the endorsementof the UK Budget by the credit ratings agencies lifted GBP/NOK to the top of the rankingswith a 2.7% gain, followed by GBP/CAD (2.6%) and GBP/EUR (1.6%). Chinas decision tode-peg the yuan from the USD resulted in USD/CNY hitting an all-time low at 6.7860, butthe impact on the broader G10 was muted with JPY gains primarily attributed to the flightfrom risk. The CHF continues to attract solid demand since the June 17 SNB meeting, andprogressed to below 1.35 vs the EUR. USD/CHF slipped below 1.10.

News that MPC member Sentance voted for a rate hike at the June meeting came as ashock and was the highlight of a week primarily dominated by the emergency Budget.Though the majority MPC view still points to low interest rates for longer, Mr Sentances

dissent indicates that the policy debate could be become more fragmented if the recoveryis sustained in the second half of the year. The regime of fiscal austerity imposed by theChancellor leaves many question marks over the direction of the economy. The Budgetforesees GDP growth of 1.2% this year and 2.3% in 2011, with CPI inflation on target. Anadditional 40bln of fiscal t ightening means net borrowing is projected to fall from 155blnof GDP this year to 37bln by 2015.

A stellar performance for UK rates saw 5y swaps return to the lower end of the tradingrange and 10y yields slide to the lowest level since last October, cracking technical supportat 3.44% and 3.40%. Key support runs at 3.35%. 3-mth Libor was unchanged at 0.73%for a 3rd week running, causing the 3mth Libor/5y swaps curve to flatten to 176bp, a two-week low. The 3mth Libor/Ois spread ended the week marginally tighter at 23.5bp. The2y/10y swaps curve flattened 6bp to 197bp. Failure to break 206bp leaves the curvevulnerable to a corrective flattening to 192bp. Following this weeks lull, gilt sales will

resume next week with the auction of 800mln, 0.75%, 2047 IL paper.

Contents Page

Market Outlook, EUR/GBP update .................................................................................. 2

Quantitative Market Analysis................ .............................................................................. 4

FX & commodity futures positioning ............................................................... 5

FX options: Risk reversal skews ...................................................................... 6

FX options: Implied volatility ............................................................................ 7

Economic data surprises ................................................................................. 8

Interest rate spreads vs. FX............................................................................. 9

S&P500 vs. FX ................................................................................................ 10

Commodities vs. FX ........................................................................................ 11

Market Review ............................................................................................................. ..... 12

Disclaimer ........................................................................................................ ................. 15

Close

Weekly

Change

FX %

GBP/EUR 1.2156 1.60%

GBP/USD 1.4985 1.09%

GBP/JPY 133.86 -0.45%

GBP/CHF 1.6398 -0.21%

GBP/AUD 1.7268 1.57%

GBP/NZD 2.1106 0.62%

GBP/CAD 1.5550 2.64%

GBP/NOK 9.6862 2.70%

GBP/SEK 11.60 1.30%

EUR/USD 1.2328 -0. 48%

USD/JPY 89.33 -1.52%

AUD/USD 0.8678 -0. 48%

NZD/USD 0.7100 0.44%

USD/CAD 1.0377 1.56%

USD/SEK 7.7440 0.21%

USD/NOK 6.4643 1.62%

USD/CHF 1.0943 -1. 28%

Swaps % bp

2yr 1.439 -7.9

5yr 2.472 -14.3

10yr 3.418 -13.3

Equities %

FTSE100 5046.47 -3.89%


2/15

G10 FX - EUR/GBP, further downside targeted

Market StrategyJune 2010Kenneth Broux - Senior Market Economist

contact: +44 207 158 1750

The descent of EUR/GBP since March continued virtually

uninterrupted this week as the pair progresses below 0.83 to a0.8181 low and the reciprocal GBP/EUR rate motors through 1.22to a 1.2223 high. A bullish technical set-up (see chart p2) isaccompanied by the still volatile backdrop in EU peripheral bondsbased on deeper rooted funding and liquidity concerns, andargues for EUR/GBP to extend to 0.80 in the short-term (1.25 forGBP/EUR). Our bullish stance is partially based on the view thatEUR/USD underperformance vs GBP/USD is set to continue.Though we are uncomfortable with the rally in GBP/USD up to1.5012 because of the broader context of risk aversion, the dualfillip from the emergency Budget and a more hawkish MPC tonecould tempt participants to cut back on the share of short GBP/USD positions vis-a-vis EUR/USD.

A stalling of risk appetite in June and the 40% collapse in theBaltic Dry since May have not stopped EUR/GBP from breakingback below 0.83, with a public endorsement by the ratingsagencies of the June 22 Budget bolstering GBP sentiment. Thoughthe correlation of GBP/USD with equities and commodities haseased from earlier May peaks, GBP/USD is still better placed tobenefit from any relief bounce in risk compared to EUR/USD,though the prospect for a summer rally in stocks looks increasinglybleak as doubts over the economic recovery return and makeway for speculation of renewed asset purchases by the Fed.Controversially, it is not unthinkable that the prospect of newcentral bank measures to bolster liquidity could support risk asobserved between Mar-09 and Jan-10, albeit on a smaller scale.

Separately, perceptions of a structural shift in EUR sentiment mayresult in a reduction of EUR portfolio holdings by a number ofmarket participants including real money funds and reservemanagers. The account of EUR in global currency reserves hasshot up from 17% to 27% over the last 10 years. We await the IMFCofer statistics for Q1 due on June 30 to understand if any changesin the composition of global fx reserves is taking place. Becauseof the EU debt crisis and niggling uncertainty over capitaladequacy and counterparty risk, we think exposure to EURassets is likely to be scaled back, reversing the bullish trend ofthe past decade.

Additionally, GBP may derive support from a shift in the MPCspolicy bias if confidence grows that the recovery is developingstronger momentum in the second half of 2010. A first vote for arate hike in June hike since July 2008 (by MPC member Sentance),though not representative of the overall neutral bias of the restof the committee, means a more fragmented view could buoyGBP demand should the BoE decide to re-calibrate its inflationoutlook in the August QIR.

Finally, the combined impact of tighter fiscal policy, rising realinterest rates and a stronger exchange rate is undesirable andmay not enhance the prospects of a more balanced economic

recovery. The BoE has not held back in the past from defendingthe virtues of a weaker exchange rate in the context of the needfor economic rebalancing and though currencies fall outside theBoE policy remit, it is not unthinkable that the MPC could againturn more vocal should participants bid up GBP.

CDS spreads: UK trades below France

EU and UK lending to non-financials: weak

EUR/GBP vs 10y Greece/Germany

0

20

40

60

80

100

120

1

-Apr

8

-Apr

15

-Apr

22

-Apr

29

-Apr

6-

May

13-

May

20-

27-

3

-Jun

10

-Jun

17

-Jun

24

-Jun

France UK German5y CDS

0.78

0.79

0.80

0.81

0.82

0.83

0.84

0.85

0.86

0.87

0.88

27-Apr

5-May

13-May

21-May

31-May

8-Jun

16-Jun

24-Jun

300

400

500

600

700

800

900

1000

EUR/GBP, LHS 10y GREECE/GERMANY, RHS

%y/y

2005 2006 2007 2008 2009 2010-5

0

5

10

15

20

EU

UK


3/15

This document, its contents and any related communication (altogether, the Communication) does not constitute or form part of any offer to sell or an invitation to subscribe for, holdor purchase any securities or any other investment. This Communication shall not form the basis of or be relied on in connection with any contract or commitment whatsoever. ThisCommunication is not intended to form, and should not form, the basis of any investment decision. This Communication is not and should not be treated as investment research, aresearch recommendation, an opinion or advice. Recipients should conduct their own independent enquiries and obtain their own professional legal, regulatory, tax or accountingadvice as appropriate. Any transaction which a recipient of this Communication may subsequently enter into may on ly be on the basis of such enquiries and advice, and thatrecipients own knowledge and experience. This Communication has been prepared by, and is subject to the copyright of, Lloyds. This Communication may not, in whole or in part, bereproduced, transmitted, stored in a retrieval system or translated in any other language in any form, by any means without the prior written consent of Lloyds. This Communicationis provided for information purposes only, and is confidential and may not be referred to, disclosed, reproduced or redistributed, in whole or in part, to any other person. ThisCommunication is based on current public information.Whilst Lloyds has exercised reasonable care in preparing this Communication, no representation or warranty, express or implied, is made as to the accuracy, reliability orcompleteness of the facts and date contained herein by Lloyds, its group companies and its or their directors, officers, employees, associates and agents (altogether, LloydsPersons). The information contained in this Communication has not been independently verified by Lloyds. The information and any opinions in this Communication are subject tochange at any time and Lloyds is under no obligation to inform any person of any such change. This Communication may refer to future events which may or may not be within thecontrol of Lloyds Persons, and no representation or warranty, express or implied, is made as to whether or not such an event will occur. To the fullest extent permitted by applicablelaw, regulation and rule of regulatory body, Lloyds Persons accept no responsibility for and shall have no liability for any loss in relation to this Communication, however arising(including in relation to any projections, analyses, assumptions and/or opinions contained herein nor for any loss of profit or damages or any liability to a third party). Lloyds TSBCorporate Markets is a trading name of Lloyds. Lloyds TSB Bank plcs registered office is at 25 Gresham Street, London EC2V 7HN and it is registered in England and Wales under no.

2065. Lloyds is Authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange.

EUR/GBP: 0.8165 before 0.80. Setting up for a pullback to 0.78?

Daily QEURGBP= 21/09/06 - 20/07/10 (GMT)

0.98070.0%

0.903223.6%

0.855338.2%

0.816550.0%

0.777861.8%

0.6523100.0%

Price

GBP

.1234

0.66

0.67

0.68

0.69

0.7

0.71

0.72

0.73

0.74

0.75

0.76

0.77

0.78

0.79

0.8

0.81

0.82

0.83

0.84

0.85

0.86

0.87

0.88

0.89

0.9

0.91

0.92

0.93

0.94

0.95

0.96

0.97

0.98

O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J

Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010


4/15

Quantitative Market Analysis

Short EUR and GBP positions cut back

Macro data gaining influence as USD stalls?

4

Table 1: 1-month rolling correlations

Contrarian Indicators

Risk Reversal Skews (based on options prices, see page 7)

and IMM data (highlighting speculative positioning, see page

6) are used to analyse foreign exchange to understand how

stretched currencies may have become.

Speculative short GBP and EUR positions were scaled back

dramatically over the past week, explaining the resilience

and occasional bullish price action in EUR/USD and GBP/

USD. The spreads between GBP and EUR short contracts

narrowed to -8,500 from -14,100 (bigger drop in EUR shorts)

but could not prevent EUR/GBP from sinking below 0.82.

Total GBP short contracts now stand at -66,500, the lowest

since April 20. This rally for GBP/USD up to 1.5012 indicates

that short positions were further reduced over the last week,

probably to around or below 50,000. Total EUR short positions

fell to -75,000 from over -111,000. This is the lowest since April

13 and has helped EUR/USD to build a base in the 1.2250

area. The swings in EUR and GBP positions totally overwhelm

the changes in the other currencies.

Following the decline in speculative short CHF positions last

week, this time markets partially reversed their positions,

snapping up CHF short contracts and raising the total numberof short positions to 23,500. This is counter-intuitive to the price

trend observed in EUR/CHF. The cross slipped below 1.35

late on Friday as CHF outpaced gains vs the USD. USD/CHF

broke below 1.10 and has lost more than six big figures this

month alone. Positioning in the commodity and high yield

currencies underwent few changes as commitment to risk

remained light. AUD positions were virtually unchanged from

last week at 13,000 contracts (+200). Long CAD posit ioning

rose to 47,700 (+4,200), a three-week high. This tallies with

the very flat positioning in S&P futures. The pullback below

1,100 to 1,070 underlines the move toward underweight risk

and backs up the accumulation of short S&P futures.

The US DXY returned a surprisingly flat performance over

the last week, failing to capitalise on the faltering in risk

assets. The DXY has been remarkably stable, struggling to

push through 86.0 but equally finding support around 85.50.

The stale price action could be about to change next week

when the July employment report is published. Failure to

move back up to trendline resistance in the 86.77 area may

however be temporary though price action in EUR/USD and

GBP/USD, two of the index components, infers that

participants are no longer automatically resorting to the USD

as a choice for safety.

Risk reversals moved in an orderly fashion for most of the G10

currencies, bringing change from the sharp swing in CHF

reversals last week. GBP/USD reversals flattened out at -2.21,

whilst EUR/USD reversals eased back to -1.20. The implied

1mth/1y vol curves steepened a touch for EUR/GBP (1.32) and

EUR/USD (1.39) as short dated vol continued to ease off (except

EUR/USD). EUR/GBP 1mth vol dropped below 10.0. EUR/USDvol ticked up along the curve, led by the 1y to 14.59.

FX correlations

Market correlations are shown on pages 10-12. 1-month rolling

correlations are plotted for G-10 FX against interest rate

spreads, S&P 500 and commodities (represented through the

CRB index).

G10 correlations with 2y interest rate differentials returned to

statistically significant levels for AUD/JPY and remain quite

relevant for USD/CAD. Conversely, 10y spreads have become

irrelevant. A major change and discussed above with regardto the USD is that the correlation of major currencies with the

S&P has continued to ease back and halved last week for

GBP/USD to just 0.25. The correlation with EUR/JPY remains

mildly significant but overall correlations are well off recent

highs. The correlation with the CRB index is still a powerful

driver especially for GBP/USD and AUD/JPY. The CRB index

has been remarkably stable, oscillating between 259 and

267.

There are signs that macro data are starting to gain greater

traction, marking a change from recent months. The

weakness of US macro data in particular has not gone

unnoticed and has been a drag on USD performance,

despite fading appetite for risk assets. US non-farm

payrolls will be a litmus test next week to determine

whether the influence of macro data is waxing.

AUDUSD USDCAD EURUSD GBPUSD USDJPY AUDJPY EURJPY

2 YR SPD 0.79 0.73 0.37 0.25 0.50 0.82 0.19

10 YR SPD 0.38 0.30 0.47 -0.07 0.16 0.74 0.47

S&P500 0.67 -0.65 0.67 0.49 0.07 0.74 0.79

Gold 0.54 -0.56 0.08 0.64 -0.23 0.48 -0.10

Oil 0 .9 3 -0 .8 7 0.51 0.86 -0.15 0.92 0.42

elative Yield Curve 0.87 0.48 -0.23 0.30 0.42 0.75 -0.69

CRB 0 .9 5 -0 .7 8 0.68 0.86 -0.31 0.88 0.48


5/15

FX & Commodity Futures Positioning

Data from the major US futures & options exchanges are released each Friday evening and report positions up to

the close of business on the previous Tuesday. Traders are classified as either commercial or non-commercial. The

positioning of the non-commercial traders can be used as a proxy for the speculative side of the market. Extreme

net long or net short positions are taken as an indication of the markets vulnerability to a sharp reversal. For a

squeeze to occur, however, a separate catalyst such as a piece of fundamental news or a breach of a key technical

level is usually required.

5

EUR/USD

-140,000-120,000

-100,000-80,000

-60,000-40,000

-20,0000

20,00040,000

60,000

06-1003-1012-0909-09

contracts

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

$

Net-Long Non-Commercial Positions (CME) Spot Rate

GBP/USD

-100,000

-80,000

-60,000

-40,000

-20,000

0

06-1003-1012-0909-09

contracts

1.30

1.40

1.50

1.60

1.70

1.80

$


USD/CHF

-30,000

-20,000

-10,000

0

10,000

20,000

06-1003-1012-0909-09

contracts

1.00

1.05

1.10

1.15

1.20

SFr


USD/JPY

-80,000

-40,000

0

40,000

80,000

06-1003-1012-0909-09

contracts

85

90

95

100

JPY


USD/CAD

-80,000

-70,000

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

06-1003-1012-0909-09

contracts

0.90

0.95

1.00

1.05

1.10

1.15

1.20

C$


AUD/USD

0

20,000

40,000

60,000

80,000

100,000

06-1003-1012-0909-09

contracts

0.75

0.80

0.85

0.90

0.95

$


GOLD

0

50,000

100,000

150,000

200,000

250,000

300,000

06-1003-1012-0909-09

contracts

800

900

1000

1100

1200

1300

$


SILVER

0

10,000

20,000

30,000

40,000

50,000

60,000

06-1003-1012-0909-09

contracts

12

13

14

15

16

17

18

19

20

$


OIL (NYMEX WTI)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

06-1003-1012-0909-09

contracts

50

55

60

65

70

75

80

85

90

$


10-YR TREASURY NOTES

-300,000

-250,000

-200,000

-150,000

-100,000

-50,000

0

06-1003-1012-0909-09

contracts

112

114

116

118

120

122

124


3-month Eurodollar Future

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

06-1003-1012-0909-09

contracts

99.1

99.2

99.3

99.4

99.5

99.6

99.7

99.8


EUR/GBP (derived)

-40,000

0

40,000

80,000

120,000

160,000

06-1003-1012-0909-09

contracts

0.82

0.84

0.86

0.88

0.90

0.92

0.94


EUR/CHF (derive d)

-150,000

-100,000

-50,000

0

50,000

06-1003-1012-0909-09

contracts

1.40

1.42

1.44

1.46

1.48

1.50

1.52

1.54

SFr


USD POSITIONING

-40

-20

0

20

40

06-07 12-07 06-08 12-08 06-09 12-09 06-10

$ bn

70

75

80

85

90

SUM (INDIVUAL CURRENCY PAIRS) - LHS

DXY - spot (RHS)

S&P 500 Futur e

-80,000

-60,000

-40,000

-20,000

0

20,000

06-1003-1012-0909-09

contracts

800

900

1000

1100

1200

1300



6/15

FX Options: Risk Reversal Skews

The risk reversal skew is the difference in volatility between similar out-of-the-money call and out-of-the-money put

options. A positive risk reversal means that the implied volatility (used for pricing) of the call is greater than that of

the put. In this section, the skew is based on 1-month 25 delta call and put options. The skew has been analysed over

a one-year period, with the positioning ranked and charted (in red) underneath the skew. If the skew and positioning

are towards an extreme (we use above 75% or below 25% for the percentile rank), the risk of a contra-trend move

in the underlying spot rate is high.

6

0%

20%

40%

60%

80%

100%

percentilerank

EURUSD

-4.0

-3.0

-2.0

-1.0

0.0

1.0

25Aug09

25Oct09

25Dec09

25Feb10

25Apr10

25Jun10

25

deltaskew

GBPUSD

-4.0

-3.0

-2.0

-1.0

0.0

25Aug09

25Oct09

25Dec09

25Feb10

25Apr10

25Jun10

25

deltaskew

AUDUSD

-8.0

-6.0

-4.0

-2.0

0.0

25Aug09

25Oct09

25Dec09

25Feb10

25Apr10

25Jun10

25

deltaskew

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank

USDSEK

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

25Aug09

25Oct09

25Dec09

25Feb10

25Apr10

25Jun10

25deltaskew

USDNOK

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

25Aug09

25Oct09

25Dec09

25Feb10

25Apr10

25Jun10

25deltaskew

USDJPY

-4

-4

-3

-3

-2

-2

-1

-1

0

25Aug09

25Oct09

25Dec09

25Feb10

25Apr10

25Jun10

25deltaskew

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank

NZDUSD

-8.00

-6.00

-4.00

-2.00

0.00

25Aug09

25Oct09

25Dec09

25Feb10

25Apr10

25Jun10

25delta

skew

USDCAD

-1.00

0.00

1.00

2.00

3.00

4.00

25Aug09

25Oct09

25Dec09

25Feb10

25Apr10

25Jun10

25delta

skew

USDCHF

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

25Aug09

25Oct09

25Dec09

25Feb10

25Apr10

25Jun10

25delta

skew

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank

0%

20%

40%

60%

80%

100%

percentilerank


7/15

FX Options: Implied volatility

Implied volati lity is an input that is required when an option has to be priced. A higher implied volatili ty would result

in a higher option price, if other factors were unchanged. Implied volatility is traded in the markets and is therefore

also dependent upon supply and demand for options. In periods of uncertainty or illiquidity, implied volatility will climb

higher. One-month and one-year implied volatility is shown in the charts below.

7

EURUSD

9

11

13

15

17

19

21

25

Jun

09

25

Sep

09

25

Dec

09

25

M

ar10

25

Jun

10

%

1-month 1 -y r

GBPUSD

9

11

13

15

17

19

21

25

Jun

09

25

Sep

09

25

Dec

09

25

M

ar10

25

Jun

10

%

1-month 1 -y r

AUDUSD

8

10

12

14

16

18

20

22

24

26

28

25

Jun

09

25

Sep

09

25

Dec

09

25

M

ar10

25

Jun

10

%

1-month 1 -y r

NZDUSD

11

13

15

17

19

21

23

25

27

29

25

Jun

09

25

Sep

09

25

Dec

09

25

M

ar10

25

Jun

10

%

1-month 1 -y r

USDCAD

9

11

13

15

17

19

21

25

Jun

09

25

Sep

09

25

Dec

09

25

M

ar10

25

Jun

10

%

1-month 1 -y r

USDCHF

9

10

11

12

13

14

15

16

25

Jun

09

25

Sep

09

25

Dec

09

25

M

ar10

25

Jun

10

%

1-month 1 -y r

USDSEK

10

12

14

16

18

20

22

24

26

25

Jun

09

25

Sep

09

25

Dec

09

25

M

ar10

25

Jun

10

%

1-month 1 -y r

USDNOK

11

12

13

14

15

16

17

18

19

20

25

Jun

09

25

Sep

09

25

Dec

09

25

M

ar10

25

Jun

10

%

1-month 1 -y r

USDJPY

9

10

11

12

13

14

1516

17

18

19

25

Jun

09

25

Sep

09

25

Dec

09

25

M

ar10

25

Jun

10

%

1-month 1 -y r


8/15


9/15


10/15

S&P500 vs. FX

The charts below show the S&P500 plotted against historical FX spot rates. A one-month rolling correlation (between

the spot rate and equity index) is shown to identify time periods when the two series are moving in tandem.

10

EURUSD

600

700

800

900

1000

1100

1200

1300

24

Jun

10

13

Apr10

29

Jan

10

18

Nov

09

07

Sep

09

25

Jun

09

S&P500

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

SpotRate

S&P500

Spot Rate (LHS)

USDJPY

600

700

800

900

1000

11001200

1300

24

Jun

10

13

Apr10

29

Jan

10

18

Nov

09

07

Sep

09

25

Jun

09

S

&P500inverted

85

8789

91

93

95

97

99

SpotRate

S&P500

Spot Rate (LHS)

1

GBPUSD

600

700

800

900

1000

1100

1200

1300

24

Jun

10

13

Apr10

29

Jan

10

18

Nov

09

07

Sep

09

25

Jun

09

S&P500

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

SpotRate

S&P500

Spot Rate (LHS)

USDCAD

600

700

800

900

1000

1100

1200

1300

24

Jun

10

13

Apr10

29

Jan

10

18

Nov

09

07

Sep

09

25

Jun

09

S&P500inverted

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18

SpotRate

S&P500

Spot Rate ( RHS)

USDSEK

600

700

800

900

1000

1100

1200

1300

24

Jun

10

13

Apr10

29

Jan

10

18

Nov

09

07

Sep

09

25

Jun

09

S&

P500inverted

5.5

6.0

6.5

7.0

7.5

8.0

8.5

SpotRate

S&P500

Spot Rate (LHS)

USDCHF

600

700

800

900

1000

1100

1200

1300

24

Jun

10

13

Apr10

29

Jan

10

18

Nov

09

07

Sep

09

25

Jun

09

S&P500inverted

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

SpotRate

S&P500

Spot Rate (LHS)

AUDUSD

600

700

800

900

1000

1100

1200

1300

24

Jun

10

13

Apr10

29

Jan

10

18

Nov

09

07

Sep

09

25

Jun

09

S&P500

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

SpotRate

S&P500

Spot Rate (LHS)

NZDUSD

600

700

800

900

1000

1100

1200

1300

24

Jun

10

13

Apr10

29

Jan

10

18

Nov

09

07

Sep

09

25

Jun

09

S&P500

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

SpotRate

S&P500

Spot Rate (LHS)

Correlation-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation-1

0

1

USDNOK

600

700

800

900

1000

1100

1200

1300

24

Jun

10

13

Apr10

29

Jan

10

18

Nov

09

07

Sep

09

25

Jun

09

S&P500inverted

5.0

5.5

6.0

6.5

7.0

7.5

SpotRate

S&P500

Spot Rate (LHS)

Correlation

-1

0

1


11/15

Commodities vs. FX

The charts below show oil prices plotted against historical FX spot rates. A one-month rolling correlation (between

the spot rate and the commodity series) is shown to identify time periods when the two series are moving in tandem.

*All charts are sourced to Lloyds TSB Corporate Markets Research, Bloomberg, Datastream and Citigroup.

11

EURUSD

20

30

40

50

60

70

80

90

100

25

Jun

10

14

Apr10

01

Feb

10

19

Nov

09

08

Sep

09

26

Jun

09

OIL

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

SpotRate

Oil (RHS)

Spot Rate (LHS)

USDJPY

20

30

40

50

60

70

80

90

100

25

Jun

10

14

Apr10

01

Feb

10

19

Nov

09

08

Sep

09

26

Jun

09

OIL

85

87

89

91

93

95

97

99

SpotRate

Oil (RHS)

Spot Rate (LHS)

GBPUSD

20

30

40

50

60

70

80

90

100

25

Jun

10

14

Apr10

01

Feb

10

19

Nov

09

08

Sep

09

26

Jun

09

OIL

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

SpotRate

Oil (RHS)

Spot Rate (LHS)

USDCAD

20

30

40

50

60

70

80

90

100

25

Jun

10

14

Apr10

01

Feb

10

19

Nov

09

08

Sep

09

26

Jun

09

OIL

1.001.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18

SpotRate

Oil (RHS)

Spot Rate (RHS)

USDSEK

20

30

40

50

60

70

80

90

100

25

Jun

10

14

Apr10

01

Feb

10

19

Nov

09

08

Sep

09

26

Jun

09

OIL

6.5

6.7

6.9

7.1

7.37.5

7.7

7.9

8.1

8.3

SpotR

ate

Oil (RHS)

Spot Rate (LHS)

USDCHF

20

30

40

50

60

70

80

90

100

25

Jun

10

14

Apr10

01

Feb

10

19

Nov

09

08

Sep

09

26

Jun

09

OIL

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

SpotRate

Oil (RHS)

Spot Rate (LHS)

AUDUSD

20

30

40

50

60

70

80

90

100

25

Jun

10

14

Apr10

01

Feb

10

19

Nov

09

08

Sep

09

26

Jun

09

OIL

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

SpotRate

Oil (RHS)

Spot Rate (LHS)

NZDUSD

20

30

40

50

60

70

80

90

100

25

Jun10

14

Apr10

01

Feb

10

19

N

ov

09

08

Sep

09

26

Jun09

OIL

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

SpotRate

Oil (RHS)

Spot Rate (LHS)

Correlation-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation

-1

0

1

Correlation

-1

0

1

Correlation-1

0

1

Correlation-1

0

1

USDNOK

20

30

40

50

60

70

80

90

100

25

Jun

10

14

Apr10

01

Feb

10

19

Nov

09

08

Sep

09

26

Jun

09

OIL

5.0

5.5

6.0

6.5

7.0

7.5

SpotRate

Oil (RHS)

Spot Rate (LHS)

Correlation

-1

0

1


12/15

Market Review

Short-term G-10 FX Charts

12

GBP/USD

1.42

1.43

1.44

1.45

1.46

1.47

1.48

1.49

1.50

2 5 /0 5/1 0 0 1/0 6 /1 0 0 8 /0 6/1 0 1 5/0 6/ 10 2 2/0 6/1 0

EUR/USD

1.19

1.20

1.20

1.21

1.21

1.22

1.22

1.23

1.23

1.24

1.24

2 5/ 05 /1 0 0 1 /0 6/1 0 0 8/0 6/1 0 1 5/0 6/ 10 2 2/0 6/1 0

EUR/GBP

0.82

0.83

0.83

0.84

0.84

0.85

0.85

0.86

0.86

2 5/0 5 /1 0 0 1 /0 6/1 0 0 8/0 6/1 0 1 5/0 6/ 10 2 2/0 6/1 0

USD/JPY

88

89

90

91

92

93

2 5 /0 5/1 0 0 1/0 6 /1 0 0 8 /0 6/1 0 1 5/0 6 /1 0 2 2/0 6/1 0

AUD/USD

0.80

0.81

0.82

0.83

0.84

0.85

0.86

0.87

0.88

0.89

2 5/0 5 /1 0 0 1 /0 6/1 0 0 8 /0 6/1 0 1 5/0 6 /1 0 2 2/0 6/ 10

NZD/USD

0.66

0.67

0.68

0.69

0.70

0.71

0.72

2 5/0 5 /1 0 0 1/0 6/1 0 0 8/0 6/1 0 1 5/0 6/ 10 2 2/0 6/1 0

USD/NOK

6.28

6.33

6.38

6.43

6.48

6.53

6.58

6.63

6.68

6.73

2 5 /0 5/1 0 0 1 /0 6/1 0 0 8/0 6/1 0 1 5/0 6 /1 0 2 2/0 6 /1 0

USD/SEK

7.60

7.65

7.70

7.75

7.80

7.85

7.90

7.95

8.00

8.05

8.10

2 5/0 5 /1 0 0 1/0 6 /1 0 0 8/0 6 /1 0 1 5/0 6 /1 0 2 2/0 6/1 0

USD/CHF

1.09

1.10

1.11

1.12

1.13

1.14

1.15

1.16

1.17

2 5 /0 5/1 0 0 1 /0 6/1 0 0 8 /0 6/1 0 1 5/0 6 /1 0 2 2/0 6 /1 0

USD/CAD

1.01

1.02

1.03

1.04

1.05

1.06

1.07

1.08

1.09

2 5/0 5 /1 0 0 1/0 6 /1 0 0 8/0 6/1 0 1 5/0 6/1 0 2 2/0 6/1 0


13/15

Medium-term G-10 FX Charts

13

GBP/USD

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10

EUR/USD

1.18

1.23

1.28

1.33

1.38

1.43

1.48

1.53

Jun-09 Aug-09 Oct -09 Dec-09 Feb-10 Apr-10 Jun-10

EUR/GBP

0.82

0.84

0.86

0.88

0.90

0.92

0.94

0.96

Jun-09 Aug-09 Oct -09 Dec-09 Feb-10 Apr-10 Jun-10

USD/JPY

85

87

89

91

93

95

97

99

101

J un -0 9 Au g -0 9 Oc t- 09 D ec -0 9 Fe b- 10 Ap r- 10 J un -1 0

AUD/USD

0.75

0.77

0.79

0.81

0.83

0.85

0.87

0.89

0.91

0.93

0.95

J un -0 9 Au g- 09 Oc t- 09 D ec -0 9 Fe b- 10 Ap r- 10 J un -1 0

NZD/USD

0.60

0.62

0.64

0.66

0.68

0.70

0.72

0.74

0.76

0.78


USD/NOK

5.45

5.65

5.85

6.05

6.25

6.45

6.65

6.85


USD/SEK

6.50

6.70

6.90

7.10

7.30

7.50

7.70

7.90

8.10


USD/CHF

0.98

1.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

1.18


USD/CAD

0.95

1.00

1.05

1.10

1.15

1.20



14/15

FX Snapshot

Currency performance vs. USD

Currency performance vs. GBP

Currency performance vs. EUR

14

Weekly Currency Performance vs. USD

0.85

0.93

2.36

2.50

2.52

2.67

2.78

3.17

3.58

0 1 2 3 4

CAD

JPY

NOK

NZD

GBP

AUD

EUR

SEK

CHF

%

Monthly Currency Performance vs. USD

-0.23

0.49

0.59

0.70

1.09

1.91

2.19

3.10

-0.77

-1 0 1 2 3 4

NOK

AUD

EUR

CAD

SEK

NZD

JPY

CHF

GBP

%

12month Currency Performance vs. USD

-11.27

-9.18

-2.61

0.48

2.07

5.82

8.23

8.96

9.80

-15 -10 -5 0 5 10 15

EUR

GBP

CHF

NOK

SEK

JPY

AUD

CAD

NZD

%

Weekly Currency Performance vs. GBP

-2.52

-1.65

-1.58

-0.08

0.01

0.13

0.27

0.69

1.17

-3 -2 -1 0 1 2

USD

CAD

JPY

NOK

NZD

AUD

EUR

SEK

CHF

%

Monthly Currency Performance vs. GBP

-3.88

-3.34

-3.10

-2.53

-2.50

-2.43

-1.99

-1.13

-0.84

-5 -4 -3 -2 -1 0

NOK

AUD

USD

EUR

CAD

SEK

NZD

JPY

CHF

%

12 month Currency Performance vs. GBP

-2.29

6.83

9.18

9.60

11.01

14.47

16.08

17.31

17.33

-5 0 5 10 15 20

EUR

CHF

USD

NOK

SEK

JPY

AUD

NZD

CAD

%

Weekly Currency Performance vs. EUR

-2.78

-1.91

-1.84

-0.34

-0.27

-0.26

-0.12

0.47

0.91

-3 -2 -1 0 1 2

USD

CAD

JPY

NOK

GBP

NZD

AUD

SEK

CHF

%

Monthly Currency Performance vs. EUR

-1.25

-0.74

-0.49

0.09

0.21

0.61

1.43

1.73

2.53

-2 -1 0 1 2 3

NOK

AUD

USD

CAD

SEK

NZD

JPY

CHF

GBP

%

12 month Currency Performanc e vs. EUR

2.29

8.96

11.27

11.71

13.09

16.43

18.00

19.21

19.21

0 5 10 15 20 25

GBP

CHF

USD

NOK

SEK

JPY

AUD

NZD

CAD

%


15/15

IMPORTANT NOTICE

This document, its contents and any related communication (altogether, the Communication) does not constitute or formpart of any offer to sell or an invitation to subscribe for, hold or purchase any securities or any other investment. ThisCommunication shall not form the basis of or be relied on in connection with any contract or commitment whatsoever.

This Communication is not intended to form, and should not form, the basis of any investment decision. This Communicationis not and should not be treated as investment research, a research recommendation, an opinion or advice. Recipientsshould conduct their own independent enquiries and obtain their own professional legal, regulatory, tax or accountingadvice as appropriate. Any transaction which a recipient of this Communication may subsequently enter into may only be

on the basis of such enquiries and advice, and that recipients own knowledge and experience.

This Communication has been prepared by, and is subject to the copyright of, Lloyds TSB Bank plc (Lloyds TSB). ThisCommunication may not, in whole or in part, be reproduced, transmitted, stored in a retrieval system or translated in anyother language in any form, by any means without the prior written consent of Lloyds. This Communication is provided forinformation purposes only, and is confidential and may not be referred to, disclosed, reproduced or redistributed, inwhole or in part, to any other person. This Communication is based on current public information.

Whilst Lloyds TSB has exercised reasonable care in preparing this Communication, no representation or warranty,express or implied, is made as to the accuracy, reliability or completeness of the facts and date contained herein by LloydsTSB, its group companies and its or their directors, officers, employees, associates and agents (altogether, Lloyds TSBPersons). The information contained in this Communication has not been independently verified by Lloyds TSB. Theinformation and any opinions in this Communication are subject to change at any time and Lloyds is under no obligationto inform any person of any such change. This Communication may refer to future events which may or may not be within

the control of Lloyds TSB Persons, and no representation or warranty, express or implied, is made as to whether or notsuch an event will occur. To the fullest extent permitted by applicable law, regulation and rule of regulatory body, LloydsTSB Persons accept no responsibility for and shall have no liability for any loss in relation to this Communication, howeverarising (including in relation to any projections, analyses, assumptions and/or opinions contained herein nor for any lossof profit or damages or any liability to a third party).

Lloyds TSB Corporate Markets is a trading name of Lloyds TSB Bank plc and Lloyds TSB Scotland plc. Lloyds TSB Bank plcsregistered office is at 25 Gresham Street, London EC2V 7HN and it is registered in England and Wales under no. 2065.Lloyds TSB Scotland plcs registered office is at Henry Duncan House, 120 George Street, Edinburgh EH2 4LH. Lloyds TSBBank plc and Lloyds TSB Scotland plc are authorised and regulated by the Financial Services Authority.

DISCLAIMER

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