Foreign Exchange Analytics Chartbook. Tactical Perspectives

Transcription

1 Foreign Exchange Analytics Chartbook Tactical Perspectives Corporates & Markets Corporate Sales April 2016

2 Contents 1. EUR/ Foreign Exchange Analytics 3 2. EUR/GBP Foreign Exchange Analytics GBP/ Foreign Exchange Analytics /JPY Foreign Exchange Analytics 36 Caveat: This presentation provides an independent, unbiased and model-based analysis of FX rates - the analysis is intended be a fact-based observation on some of the hisrical patterns of FX rate movements and potential implications from a corporate perspective. It is not intended provide any forecasts regarding future market movements as past performance of financial instruments is not indicative of future results. Readers are encouraged look at this document in conjunction with publications from the Commerzbank Research team for our detailed "house view" and outlook on the currency pairs included here. Note: Analysis throughout chartbook compiled as of 05 April 2016 Reversion signals Narrow ing band signals Min-max position v 1y hisry Min-max position v 10y hisry When the current level moves far w hen Current position in the min(0%) and Current position in the min(0%) and When the current standard deviation measured in standard deviations from the max(100%) range during the max(100%) range during the is low relative hisry moving average previous year previous 10 years Spot none none Above 75%: expensive v 1y hisry Below 25%: cheap v 10y hisry EUR Forw ard none none Above 75%: expensive v 1y hisry Above 75%: expensive v 10y hisry Implied Volatility none none none none Risk Reversal none none none none Spot Confirmation: out of 2SD consistently none Above 75%: expensive v 1y hisry none EURGBP Forw ard none none none Above 75%: expensive v 10y hisry Implied Volatility 2.0SD:potential reversion lower none Above 75%: expensive v 1y hisry none Risk Reversal Confirmation: out of 2SD consistently none Above 75%: expensive v 1y hisry Above 75%: expensive v 10y hisry Spot none Potential breakout Below 25%: cheap v 1y hisry Below 25%: cheap v 10y hisry GBP Forw ard none none Above 75%: expensive v 1y hisry Above 75%: expensive v 10y hisry Implied Volatility Confirmation: out of 2SD consistently none Above 75%: expensive v 1y hisry none Risk Reversal Confirmation: out of 2SD consistently none Below 25%: cheap v 1y hisry Below 25%: cheap v 10y hisry Spot Confirmation: out of 2SD consistently Potential breakout Below 25%: cheap v 1y hisry none JPY Forw ard none none Below 25%: cheap v 1y hisry Above 75%: expensive v 10y hisry Implied Volatility none none none none Risk Reversal none none Below 25%: cheap v 1y hisry none Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

3 Foreign Exchange Analytics EUR Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

4 EUR mean reversion snapshot Indicar Current level in hisric max (100%) - min (0%) range EUR Spot vs 1y of hisry (78%) 12m Fwd Points vs 10y of hisry (78%) Spot vs 10y of hisry (16%) Spot v 1y hisry Spot v 10y hisry 78% - trading in higher ranges 16% - trading in lower ranges Implied Volatility v 1y hisry 39% - trading in lower ranges 12m Fwd Points vs 1y of hisry (88%) 1y Implied Vol vs 1y of hisry (39%) Implied Volatility v 10y hisry Risk Reversal v 1y hisry 32% - trading in lower ranges 72% - trading in higher ranges Risk Reversal v 10y hisry 59% - trading in neutral ranges 1y RR vs 10y of hisry (59%) 1y Implied Vol vs 10y of hisry (32%) Forward points v 1y hisry Forward points v 10y hisry 88% - trading in higher ranges 78% - trading in higher ranges 05-Apr-16 1y RR vs 1y of hisry (72%) 03-Mar-16 High level indicates potential overbought position Source: Bloomberg. Note: Implied vol relates ATM implied volatility. Risk reversal is option volatility for a 25 delta EUR call minus a 25 delta EUR put. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

5 Spot Rate Long term spot value perspective EUR hisrical evolution and frequency distribution EUR EUR 10 year hisry (Cumulative frequency, %) EUR The chart below illustrates the p and botm 10%, as well as the average, for the trading range for the last 10 years. The chart below depicts the cumulative frequency distribution over a 10 year period, i.e. % of times spot has been below respective levels on the x-axis Lower quartile Upper quartile 1.50 Top 10% = Av erage = Botm 10% = 1.13 Current level 11.3% (1.14) Level 3m ago 1.8% (1.08) 35.2% 62.5% 82.2% 93.2% 96.2% 100.0% % 6.5% 12.2% 15.6% 0.90 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr Spot Rate Compared interest rates, FX rates are usually (i) on longer cycles, (ii) more trending, and (iii) exhibit mean reversion over longer periods of time. Depicts trends and relative value for spot rate Depicts current level of spot relative cumulative distribution, which gives insight in how frequently the rate trades in high/low/neutral space Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

6 EUR Long term - future implied risk perspective Market implied probability distribution of EUR FX rate Projected EUR FX rate at various confidence levels EUR 1.90 Hisrical Projected 5% 95% % 90% 25% 75% 1.50 Max= 1.48 Hisrical spot & Forward EUR Call EUR Put Av g= 1.28 Min= 1.05 Line Apr Apr Apr Apr Apr Apr Apr Apr Apr-18 A A Aug-16 We have estimated the potential future level of the EUR FX rate based on current forward prices and ATM option implied volatilities (incorporating skew). Over the last 5 years the EUR FX rate has moved in a range of The implied distribution shows that 5% - 95% confidence level range over the next 1 year is The graph depicts that FX markets tend move on a 1 rather than 5 year horizon, as demonstrated by the fact that the confidence interval levels over a 5 year period are substantially outside the hisrical trading range, whereas the 1 year confidence levels are more in line with past spot rates. The Call and Put lines show the breakeven move in spot for these ATMS options. That is, the move required for the option payoff equal the option premium. Source: Bloomberg data, Commerzbank estimates. Premium in EUR. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

7 % of times 5th Percentile = -9.1% Avg Down = -4.6% Avg = -0.2% Avg Up = 3.4% 95th Percentile = 7.2% % of times 5th Percentile = -17.4% Avg Down = -9.5% Avg = -1.1% Avg Up = 7.9% 95th Percentile = 15.5% Short term - hisrical risk perspective Large movements have not been uncommon over 3 12 month horizon EUR Hisgram of % changes over a 3m period EUR EUR Hisgram of % changes over a 12m period EUR 10 year hisry Option market implied move distribution 3m ATMS EUR Premium 10 year hisry Option market implied move distribution 12m ATMS EUR Premium Put = 1.95% Call = 2.22% Put = 3.47% Call = 4.77% 27.7% 0.2% 0.8% 1.1% 3.4% 8.3% -21.0% -18.0% -18.0% -15.0% -15.0% -12.0% -12.0% -9.0% -9.0% -6.0% 18.2% 12.9% -6.0% -3.0% -3.0% 0.0% 0.0% 3.0% 19.1% 3.0% 6.0% 6.5% 6.0% 9.0% 1.6% 0.2% 9.0% 12.0% 12.0% 15.0% % move 1.3% -25.0% -21.0% 13.9% 8.3% 10.5%10.0% 12.6% 16.5% 8.6% 7.6% 4.6% 5.7% 0.3% 0.0% -21.0% -17.0% -17.0% -13.0% -13.0% -9.0% -9.0% -5.0% -5.0% -1.0% -1.0% 3.0% 3.0% 7.0% 7.0% 11.0% 11.0% 15.0% 15.0% 19.0% 19.0% 23.0% 23.0% 27.0% spot after %move The charts above depict the hisgrams of the % changes in the EUR rate over a 3-month and 1-year horizon, calculated using 10-years of daily market data. Option premium depicts a level of movement required for the option be in-the-money the buyer. In the above 3m case, a 2.22% premium means that a EUR call buyer hedging an underlying short EUR position against EUR strength, if the average spot move higher takes place, the EUR call buyer would make a profit of 1.19% (3.41%-2.22%). If on the other hand, the average spot move lower takes place, the EUR call buyer is able participate in the underlying position move by 2.42% (4.64%-2.22%). Source: Bloomberg data, Commerzbank estimates. Premium in %EUR. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

8 Short term future implied risk perspective Market implied probability distribution of EUR FX rate Distribution of option implied EUR FX rate in 3m EUR Option implied probability of 3 month %-moves from spot EUR Option Implied Probabilities Distribution for spot in 3m 3m ago 1y ago Current Option Implied Probabliity Distribution of 3m % moves from current spot 3m ago 1y ago Current 100% 80% 60% 40% 20% Option Implied probability of spot being above given rates 3m ago 1y ago Current 0% Top chart: shows the implied distribution of spot after a 3 month period, calculated for different points in time. Botm chart: shows the probability of the spot rate being at or above given rates after a 3 month period, calculated for different points in time % -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% Equivalent resulting spot rate if implied % moves applied current rate more likely -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% less likely Difference (current - 3m ago) Top chart: current and hisric relative probability of 3 month %-moves in spot. Top chart: Wider distributions show higher implied volatility. Botm chart: red line shows how the implied probability of %-moves in spot has changed compared 3m ago. Positive difference means the move is more likely and negative difference means the move is less likely. Source: Bloomberg data, Commerzbank estimates. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

9 EUR Spot Short term value and trend analysis Spot Rate Standard deviations away from the 1y moving average EUR Spot vs 1y moving average EUR 1.70 SD from MA % Change 1 month 3.36% 3 month 5.92% 6 month 1.75% 12 month 4.23% +/- 1 std dev +/- 2 std dev Narrowing Bands Moving Average Down Indicar Up Indicar Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 EUR Spot According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal might be in waiting. Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

10 EUR Spot Long term value and trend analysis Spot Rate Standard deviations away from the 5y moving average EUR Spot vs 5y moving average SD from MA EUR % Change 1 month 3.36% 3 month 5.92% 6 month 1.75% 12 month 4.23% /- 1 std dev +/- 2 std dev Narrowing Bands Moving Average Down Indicar Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 Up Indicar EUR Spot According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal might be in waiting. Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

11 EUR 1y Implied Volatility Short term value and trend analysis 1y Implied Volatility Standard deviations away from the 1y moving average EUR 1y Implied Volatility vs 1y moving average EUR SD from MA % Change 1 month -9.64% 3 month 1.02% 6 month 3.49% 12 month -0.39% +/- 1 std dev +/- 2 std dev Narrowing Bands Moving Average Down Indicar Up Indicar Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 EUR 1y Implied Volatility According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal might be in waiting Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

12 EUR 1y Risk Reversal Short term value and trend analysis 1y 25D Risk Reversal Standard deviations away from the 1y moving average EUR 1y Risk Reversal vs 1y moving average EUR SD from MA 0.93 % Change 1 month % 3 month % 6 month % 12 month % Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 +/- 1 std dev +/- 2 std dev Narrowing Bands Moving Average Down Indicar Up Indicar EUR 1y Risk Reversal According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal in levels might be in waiting. Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates; 25D risk reversal (RR) in yellow above is defined as the implied volatility for EUR Call Options minus implied volatility for EUR Put Options. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

13 EUR 3m Implied Volatility ST value and trend analysis EUR implied probability distribution of FX rate EUR short term value and trend analysis EUR 3m 25D risk reversal ST value and trend analysis EUR cumulative frequency EUR % changes over a 1 year period FX analytics summary EUR Concluding remarks EUR 10 year hisry 10 year hisry 16.5% 82.2% 93.2% 96.2% 100.0% 13.9% Current level 12.6% 11.3% (1.14) 10.5%10.0% 62.5% 8.3% 8.6% 7.6% 5.7% 35.2% 4.6% 6.5% 12.2% 15.6% 1.3% 0.3% 0.0% 0.0% % -21.0% -21.0% -17.0% -17.0% -13.0% -13.0% -9.0% -9.0% -5.0% -5.0% -1.0% -1.0% 3.0% 3.0% 7.0% 7.0% 11.0% 11.0% 15.0% 15.0% 19.0% 19.0% 23.0% 23.0% 27.0% y moving average EUR Spot y moving average EUR 1y Risk Reversal Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr y moving average EUR 1y Implied Volatility Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr Apr-21 Apr-18 AA Aug-16 Aug-16 Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

14 Foreign Exchange Analytics EURGBP Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

15 EURGBP mean reversion snapshot Indicar Current level in hisric max (100%) - min (0%) range EUR GBP Spot vs 1y of hisry (100%) 12m Fwd Points vs 10y of hisry (79%) Spot vs 10y of hisry (46%) Spot v 1y hisry Spot v 10y hisry 100% - trading at highs 46% - trading in neutral ranges Implied Volatility v 1y hisry 92% - trading near highs 12m Fwd Points vs 1y of hisry (74%) 1y Implied Vol vs 1y of hisry (92%) Implied Volatility v 10y hisry Risk Reversal v 1y hisry 52% - trading in neutral ranges 98% - trading at highs Risk Reversal v 10y hisry 96% - trading near highs 1y RR vs 10y of hisry (96%) 1y Implied Vol vs 10y of hisry (52%) Forward points v 1y hisry Forward points v 10y hisry 74% - trading in higher ranges 79% - trading in higher ranges 05-Apr-16 1y RR vs 1y of hisry (98%) 03-Mar-16 High level indicates potential overbought position Source: Bloomberg. Note: Implied vol relates ATM implied volatility. Risk reversal is option volatility for a 25 delta EUR call minus a 25 delta EUR put. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

16 Spot Rate Long term spot value perspective EURGBP hisrical evolution and frequency distribution EUR GBP EURGBP 10 year hisry (Cumulative frequency, %) EUR GBP The chart below illustrates the p and botm 10%, as well as the average, for the trading range for the last 10 years. The chart below depicts the cumulative frequency distribution over a 10 year period, i.e. % of times spot has been below respective levels on the x-axis Lower quartile Upper quartile 0.93 Top 10% = Av erage = Botm 10% = Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr % 13.7% Level 3m ago 25.2% (0.74) 23.2% 29.6% Current level 47.5% (0.80) 45.6% 62.8% 84.2% 97.5% 99.6% 100.0% Spot Rate Compared interest rates, FX rates are usually (i) on longer cycles, (ii) more trending, and (iii) exhibit mean reversion over longer periods of time. Depicts trends and relative value for spot rate Depicts current level of spot relative cumulative distribution, which gives insight in how frequently the rate trades in high/low/neutral space Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

17 EURGBP Long term - future implied risk perspective Market implied probability distribution of EURGBP FX rate Projected EURGBP FX rate at various confidence levels EUR GBP Hisrical Projected 5% 95% 10% 90% Max= % 75% Hisrical spot & Forward EUR Call EUR Put Line Av g= 0.81 Min= Apr Apr Apr Apr Apr Apr Apr Apr Apr-18 A A Aug-16 We have estimated the potential future level of the EURGBP FX rate based on current forward prices and ATM option implied volatilities (incorporating skew). Over the last 5 years the EURGBP FX rate has moved in a range of The implied distribution shows that 5% - 95% confidence level range over the next 1 year is The graph depicts that FX markets tend move on a 1 rather than 5 year horizon, as demonstrated by the fact that the confidence interval levels over a 5 year period are substantially outside the hisrical trading range, whereas the 1 year confidence levels are more in line with past spot rates. The Call and Put lines show the breakeven move in spot for these ATMS options. That is, the move required for the option payoff equal the option premium. Source: Bloomberg data, Commerzbank estimates. Premium in EUR. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

18 % of times % of times 5th Percentile = -5.1% Avg Down = -2.4% Avg = 0.4% Avg Up = 4.0% 95th Percentile = 7.4% 5th Percentile = -10.8% Avg Down = -5.7% Avg = 1.3% Avg Up = 9.2% 95th Percentile = 17.7% Short term - hisrical risk perspective Large movements have not been uncommon over 3 12 month horizon EURGBP Hisgram of % changes over a 3m period EUR GBP EURGBP Hisgram of % changes over a 12m period EUR GBP 10 year hisry Option market implied move distribution 3m ATMS EUR Premium 10 year hisry Option market implied move distribution 12m ATMS EUR Premium Put = 2.62% Call = 2.87% Put = 4.27% Call = 5.27% 38.9% 1.5% 4.0% -11.0% -8.0% -8.0% -5.0% 21.0% -5.0% -2.0% -2.0% 1.0% 17.4% 10.9% 4.3% 0.8% 0.3% 0.6% 0.3% 0.1% 1.0% 4.0% 4.0% 7.0% 7.0% 10.0% 10.0% 13.0% 13.0% 16.0% 16.0% 19.0% 19.0% 22.0% 22.0% 25.0% % move 2.0% -16.0% -12.0% 11.5%20.5% 19.2% 11.5%12.5% 7.2% 6.0% 7.4% 1.2% 0.4% 0.4% 0.1% -12.0% -8.0% -8.0% -4.0% -4.0% 0.0% 0.0% 4.0% 4.0% 8.0% 8.0% 12.0% 12.0% 16.0% 16.0% 20.0% 20.0% 24.0% 24.0% 28.0% 28.0% 32.0% 32.0% 36.0% spot after %move The charts above depict the hisgrams of the % changes in the EURGBP rate over a 3-month and 1-year horizon, calculated using 10-years of daily market data. Option premium depicts a level of movement required for the option be in-the-money the buyer. In the above 3m case, a 2.87% premium means that a EUR call buyer hedging an underlying short EUR position against EUR strength, if the average spot move higher takes place, the EUR call buyer would make a profit of 1.10% (3.97%-2.87%). If on the other hand, the average spot move lower takes place, the EUR call buyer is able participate in the underlying position move by -0.50% (2.36%-2.87%). Source: Bloomberg data, Commerzbank estimates. Premium in %EUR. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

19 Short term future implied risk perspective Market implied probability distribution of EURGBP FX rate Distribution of option implied EURGBP FX rate in 3m EUR GBPOption implied probability of 3 month %-moves from spot EUR GBP Option Implied Probabilities Distribution for spot in 3m 3m ago 1y ago Current Option Implied Probabliity Distribution of 3m % moves from current spot 3m ago 1y ago Current 100% 80% 60% 40% 20% Option Implied probability of spot being above given rates 0% m ago 1y ago Current Top chart: shows the implied distribution of spot after a 3 month period, calculated for different points in time. Botm chart: shows the probability of the spot rate being at or above given rates after a 3 month period, calculated for different points in time % -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% Equivalent resulting spot rate if implied % moves applied current rate more likely -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% less likely Difference (current - 3m ago) Top chart: current and hisric relative probability of 3 month %-moves in spot. Top chart: Wider distributions show higher implied volatility. Botm chart: red line shows how the implied probability of %-moves in spot has changed compared 3m ago. Positive difference means the move is more likely and negative difference means the move is less likely. Source: Bloomberg data, Commerzbank estimates. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

20 EURGBP Spot Confirmation Out of 2SD consistently Short term value and trend analysis Spot Rate Standard deviations away from the 1y moving average EURGBP Spot vs 1y moving average EUR GBP SD from MA 2.67 % Change 1 month 4.21% 3 month 9.78% 6 month 9.00% 12 month 9.37% /- 1 std dev +/- 2 std dev Narrowing Bands Moving Average Down Indicar Up Indicar Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 EURGBP Spot According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal might be in waiting. Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

21 EURGBP Spot Long term value and trend analysis Spot Rate Standard deviations away from the 5y moving average EURGBP Spot vs 5y moving average SD from MA EUR % Change 1 month 4.21% 3 month 9.78% 6 month 9.00% 12 month 9.37% +/- 1 std dev +/- 2 std dev Narrowing Bands GBP 0.65 Moving Average Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 Down Indicar Up Indicar EURGBP Spot According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal might be in waiting. Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

22 EURGBP 1y Implied Volatility Signal Break above 2SD band indicates potential reversal lower ward the MA Short term value and trend analysis 1y Implied Volatility Standard deviations away from the 1y moving average EURGBP 1y Implied Volatility vs 1y moving average EUR GBP SD from MA 2.03 % Change 1 month 1.55% 3 month 15.43% 6 month 34.28% 12 month 21.30% /- 1 std dev +/- 2 std dev Narrowing Bands Moving Average Down Indicar Up Indicar Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 EURGBP 1y Implied Volatility According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal might be in waiting Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

23 EURGBP 1y Risk Reversal Confirmation Out of 2SD consistently Short term value and trend analysis 1y 25D Risk Reversal Standard deviations away from the 1y moving average EURGBP 1y Risk Reversal vs 1y moving average 4.00 SD from MA 2.47 EUR GBP % Change 1 month 33.48% 3 month % 6 month % 12 month % +/- 1 std dev +/- 2 std dev Narrowing Bands Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 Moving Average Down Indicar Up Indicar EURGBP 1y Risk Reversal According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal in levels might be in waiting. Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates; 25D risk reversal (RR) in yellow above is defined as the implied volatility for EUR Call Options minus implied volatility for EUR Put Options. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

24 EURGBP 3m Implied Volatility ST value and trend analysis EURGBP implied probability distribution of FX rate EURGBP short term value and trend analysis EURGBP 3m 25D risk reversal ST value and trend analysis EURGBP cumulative frequency EURGBP % changes over a 1 year period FX analytics summary EURGBP Concluding remarks EUR GBP 10 year hisry 10 year hisry 20.5% Current level 19.2% 47.5% (0.80) 97.5% 99.6% 100.0% 84.2% 11.5% 11.5% 12.5% 62.8% 7.2% 45.6% 6.0% 7.4% 23.2% 29.6% 2.0% 13.7% 1.2% 0.4% 0.4% 0.1% 0.0% % -12.0% -12.0% -8.0% -8.0% -4.0% -4.0% 0.0% 0.0% 4.0% 4.0% 8.0% 8.0% 12.0% 12.0% 16.0% 16.0% 20.0% 20.0% 24.0% 24.0% 28.0% 28.0% 32.0% 32.0% 36.0% y moving average EURGBP Spot 0.60 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr y moving average EURGBP 1y Risk Reversal Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr y moving average EURGBP 1y Implied Volatility 2.00 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr Apr-21 Apr-18 AA Aug-16 Aug-16 Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

25 Foreign Exchange Analytics GBP Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

26 GBP mean reversion snapshot Indicar Current level in hisric max (100%) - min (0%) range GBP Spot vs 1y of hisry (15%) 12m Fwd Points vs 10y of hisry (86%) Spot vs 10y of hisry (6%) Spot v 1y hisry Spot v 10y hisry 15% - trading in lower ranges 6% - trading near lows Implied Volatility v 1y hisry 98% - trading at highs 12m Fwd Points vs 1y of hisry (89%) 1y Implied Vol vs 1y of hisry (98%) Implied Volatility v 10y hisry Risk Reversal v 1y hisry 49% - trading in neutral ranges 1% - trading at lows Risk Reversal v 10y hisry 3% - trading at lows 1y RR vs 10y of hisry (3%) 1y Implied Vol vs 10y of hisry (49%) Forward points v 1y hisry Forward points v 10y hisry 89% - trading in higher ranges 86% - trading in higher ranges 05-Apr-16 1y RR vs 1y of hisry (1%) 03-Mar-16 High level indicates potential overbought position Source: Bloomberg. Note: Implied vol relates ATM implied volatility. Risk reversal is option volatility for a 25 delta GBP call minus a 25 delta GBP put. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

27 Spot Rate Long term spot value perspective GBP hisrical evolution and frequency distribution GBP GBP 10 year hisry (Cumulative frequency, %) GBP The chart below illustrates the p and botm 10%, as well as the average, for the trading range for the last 10 years. The chart below depicts the cumulative frequency distribution over a 10 year period, i.e. % of times spot has been below respective levels on the x-axis Top 10% = Lower quartile Upper quartile Av erage = Botm 10% = Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 Level 3m ago 6.2% (1.47) Current level 1.1% (1.42) 0.0% 5.0% 22.0% 57.3% 73.8% 76.0% 79.4% 84.7% 97.7% 100.0% Spot Rate Compared interest rates, FX rates are usually (i) on longer cycles, (ii) more trending, and (iii) exhibit mean reversion over longer periods of time. Depicts trends and relative value for spot rate Depicts current level of spot relative cumulative distribution, which gives insight in how frequently the rate trades in high/low/neutral space Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

28 GBP Long term - future implied risk perspective Market implied probability distribution of GBP FX rate Projected GBP FX rate at various confidence levels GBP 2.30 Hisrical Projected 5% 95% % 90% 25% 75% Max= 1.72 Hisrical spot & Forward GBP Call GBP Put 1.50 Av g= 1.58 Line 1.30 Min= Apr Apr Apr Apr Apr Apr Apr Apr Apr-18 A A Aug-16 We have estimated the potential future level of the GBP FX rate based on current forward prices and ATM option implied volatilities (incorporating skew). Over the last 5 years the GBP FX rate has moved in a range of The implied distribution shows that 5% - 95% confidence level range over the next 1 year is The graph depicts that FX markets tend move on a 1 rather than 5 year horizon, as demonstrated by the fact that the confidence interval levels over a 5 year period are substantially outside the hisrical trading range, whereas the 1 year confidence levels are more in line with past spot rates. The Call and Put lines show the breakeven move in spot for these ATMS options. That is, the move required for the option payoff equal the option premium. Source: Bloomberg data, Commerzbank estimates. Premium in GBP. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

29 % of times 5th Percentile = -7.7% Avg Down = -4.1% Avg = -0.5% Avg Up = 2.9% 95th Percentile = 5.6% % of times 5th Percentile = -24.3% Avg Down = -7.5% Avg = -2.1% Avg Up = 6.0% 95th Percentile = 10.7% Short term - hisrical risk perspective Large movements have not been uncommon over 3 12 month horizon GBP Hisgram of % changes over a 3m period GBP GBP Hisgram of % changes over a 12m period GBP 10 year hisry Option market implied move distribution 3m ATMS GBP Premium 10 year hisry Option market implied move distribution 12m ATMS GBP Premium Put = 3.09% Call = 3.12% Put = 4.89% Call = 5.19% 0.7% 1.2% 1.0% 0.7% 2.8% -22.0% -19.0% -19.0% -16.0% -16.0% -13.0% -13.0% -10.0% -10.0% -7.0% 12.6% -7.0% -4.0% 20.4% -4.0% -1.0% 32.9% -1.0% 2.0% 20.4% 2.0% 5.0% 4.6% 1.1% 0.9% 0.4% 0.2% 5.0% 8.0% 8.0% 11.0% 11.0% 14.0% 14.0% 17.0% 17.0% 20.0% % move 1.2% 4.0% 1.2% 2.2% 1.7% -32.0% -28.0% -28.0% -24.0% -24.0% -20.0% -20.0% -16.0% -16.0% -12.0% 7.6% -12.0% -8.0% 17.1% -8.0% -4.0% 24.9% -4.0% 0.0% 14.3% 12.1% 11.3% 0.0% 4.0% 4.0% 8.0% 8.0% 12.0% 2.3% 0.2% 12.0% 16.0% 16.0% 20.0% spot after %move The charts above depict the hisgrams of the % changes in the GBP rate over a 3-month and 1-year horizon, calculated using 10-years of daily market data. Option premium depicts a level of movement required for the option be in-the-money the buyer. In the above 3m case, a 3.12% premium means that a GBP call buyer hedging an underlying short GBP position against GBP strength, if the average spot move higher takes place, the GBP call buyer would make a profit of -0.23% (2.89%-3.12%). If on the other hand, the average spot move lower takes place, the GBP call buyer is able participate in the underlying position move by 0.98% (4.10%-3.12%). Source: Bloomberg data, Commerzbank estimates. Premium in %GBP. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

30 Short term future implied risk perspective Market implied probability distribution of GBP FX rate Distribution of option implied GBP FX rate in 3m GBP Option implied probability of 3 month %-moves from spot GBP Option Implied Probabilities Distribution for spot in 3m 3m ago 1y ago Current Option Implied Probabliity Distribution of 3m % moves from current spot 3m ago 1y ago Current 100% 80% 60% 40% 20% Option Implied probability of spot being above given rates 3m ago 1y ago Current 0% Top chart: shows the implied distribution of spot after a 3 month period, calculated for different points in time. Botm chart: shows the probability of the spot rate being at or above given rates after a 3 month period, calculated for different points in time % -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% Equivalent resulting spot rate if implied % moves applied current rate more likely -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% less likely Difference (current - 3m ago) Top chart: current and hisric relative probability of 3 month %-moves in spot. Top chart: Wider distributions show higher implied volatility. Botm chart: red line shows how the implied probability of %-moves in spot has changed compared 3m ago. Positive difference means the move is more likely and negative difference means the move is less likely. Source: Bloomberg data, Commerzbank estimates. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

31 GBP Spot Signal Narrow bands indicate a potential break out of the ranges Short term value and trend analysis Spot Rate Standard deviations away from the 1y moving average GBP Spot vs 1y moving average GBP SD from MA % Change 1 month -0.78% 3 month -3.40% 6 month -6.54% 12 month -5.22% +/- 1 std dev +/- 2 std dev Narrowing Bands Moving Average Down Indicar Up Indicar Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 GBP Spot According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal might be in waiting. Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

32 GBP Spot Confirmation Narrow bands previously indicated a break out of the ranges which has now materialised Signal Broken out of 2SD Caution recommended Long term value and trend analysis Spot Rate Standard deviations away from the 5y moving average GBP Spot vs 5y moving average SD from MA GBP % Change 1 month -0.78% 3 month -3.40% 6 month -6.54% 12 month -5.22% +/- 1 std dev +/- 2 std dev Narrowing Bands 1.50 Moving Average Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 Down Indicar Up Indicar GBP Spot According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal might be in waiting. Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

33 GBP 1y Implied Volatility Confirmation Out of 2SD consistently Short term value and trend analysis 1y Implied Volatility Standard deviations away from the 1y moving average GBP 1y Implied Volatility vs 1y moving average SD from MA 2.42 GBP % Change 1 month 4.42% 3 month 26.49% 6 month 61.99% 12 month 26.11% /- 1 std dev +/- 2 std dev Narrowing Bands Moving Average Down Indicar Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 Up Indicar GBP 1y Implied Volatility According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal might be in waiting Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

34 GBP 1y Risk Reversal Confirmation Out of 2SD consistently Short term value and trend analysis 1y 25D Risk Reversal Standard deviations away from the 1y moving average GBP 1y Risk Reversal vs 1y moving average GBP 0.80 SD from MA % Change 1 month 20.30% 3 month 74.29% 6 month % 12 month 48.70% +/- 1 std dev +/- 2 std dev Narrowing Bands Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr-16 Moving Average Down Indicar Up Indicar GBP 1y Risk Reversal According the value approach FX analytics it could be said that a deviation of more than two standard deviation from the moving average is o far away, and that a reversal in levels might be in waiting. Further, taking a trend approach FX analytics, a breaking of the two standard deviation band from below (above) may be taken as an indication as the start of an up (down) trend over the next few weeks/months Hisrically, volatility has been mean reverting, therefore narrowing standard deviation bands have often hisrically indicated a break in the rate out of the band ranges Source: Bloomberg data, Commerzbank estimates; 25D risk reversal (RR) in yellow above is defined as the implied volatility for GBP Call Options minus implied volatility for GBP Put Options. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

35 GBP 3m Implied Volatility ST value and trend analysis GBP implied probability distribution of FX rate GBP short term value and trend analysis GBP 3m 25D risk reversal ST value and trend analysis GBP cumulative frequency GBP % changes over a 1 year period FX analytics summary GBP Concluding remarks GBP 10 year hisry 10 year hisry Current level 1.1% (1.42) 0.0% 5.0% 22.0% 57.3% 73.8% 76.0% 79.4% 84.7% 97.7% 100.0% % 4.0% 1.2% 2.2% 1.7% -32.0% -28.0% -28.0% -24.0% -24.0% -20.0% -20.0% -16.0% -16.0% -12.0% 7.6% -12.0% -8.0% 17.1% -8.0% -4.0% 24.9% -4.0% 0.0% 14.3% 12.1% 11.3% 0.0% 4.0% 4.0% 8.0% 8.0% 12.0% 2.3% 0.2% 12.0% 16.0% 16.0% 20.0% y moving average GBP Spot y moving average GBP 1y Risk Reversal Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr y moving average GBP 1y Implied Volatility Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr Apr-21 Apr-18 AA Aug-16 Aug-16 Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

36 Foreign Exchange Analytics JPY Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

37 JPY mean reversion snapshot Indicar Current level in hisric max (100%) - min (0%) range JPY Spot vs 1y of hisry (0%) 12m Fwd Points vs 10y of hisry (77%) Spot vs 10y of hisry (69%) Spot v 1y hisry Spot v 10y hisry 0% - trading at lows 69% - trading in higher ranges Implied Volatility v 1y hisry 62% - trading in higher ranges 12m Fwd Points vs 1y of hisry (24%) 1y Implied Vol vs 1y of hisry (62%) Implied Volatility v 10y hisry Risk Reversal v 1y hisry 32% - trading in lower ranges 20% - trading in lower ranges Risk Reversal v 10y hisry 71% - trading in higher ranges 1y RR vs 10y of hisry (71%) 1y Implied Vol vs 10y of hisry (32%) Forward points v 1y hisry Forward points v 10y hisry 24% - trading in lower ranges 77% - trading in higher ranges 05-Apr-16 1y RR vs 1y of hisry (20%) 03-Mar-16 High level indicates potential overbought position Source: Bloomberg. Note: Implied vol relates ATM implied volatility. Risk reversal is option volatility for a 25 delta call minus a 25 delta put. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

38 Spot Rate Long term spot value perspective JPY hisrical evolution and frequency distribution JPY JPY 10 year hisry (Cumulative frequency, %) JPY The chart below illustrates the p and botm 10%, as well as the average, for the trading range for the last 10 years. The chart below depicts the cumulative frequency distribution over a 10 year period, i.e. % of times spot has been below respective levels on the x-axis Lower quartile Upper quartile Top 10% = Level 3m ago 87.4% (119) Av erage = 100 Current level 68.6% (110) 91.8% 100.0% Botm 10% = % 15.3% 24.6% 34.7% 45.0% 59.4% 67.6% 74.4% Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr Spot Rate Compared interest rates, FX rates are usually (i) on longer cycles, (ii) more trending, and (iii) exhibit mean reversion over longer periods of time. Depicts trends and relative value for spot rate Depicts current level of spot relative cumulative distribution, which gives insight in how frequently the rate trades in high/low/neutral space Source: Bloomberg data, Commerzbank estimates Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

39 JPY Long term - future implied risk perspective Market implied probability distribution of JPY FX rate Projected JPY FX rate at various confidence levels JPY Hisrical Projected 5% 95% 10% 90% 25% 75% Max= 126 Hisrical spot & Forward Call Put Line Av g= Min= Apr Apr Apr Apr Apr Apr Apr Apr Apr-18 A A Aug-16 We have estimated the potential future level of the JPY FX rate based on current forward prices and ATM option implied volatilities (incorporating skew). Over the last 5 years the JPY FX rate has moved in a range of The implied distribution shows that 5% - 95% confidence level range over the next 1 year is The graph depicts that FX markets tend move on a 1 rather than 5 year horizon, as demonstrated by the fact that the confidence interval levels over a 5 year period are substantially outside the hisrical trading range, whereas the 1 year confidence levels are more in line with past spot rates. The Call and Put lines show the breakeven move in spot for these ATMS options. That is, the move required for the option payoff equal the option premium. Source: Bloomberg data, Commerzbank estimates. Premium in. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April

40 % of times 5th Percentile = -7.6% Avg Down = -3.9% Avg = 0.2% Avg Up = 4.3% 95th Percentile = 10.3% % of times 5th Percentile = -14.2% Avg Down = -8.1% Avg = 1.0% Avg Up = 12.3% 95th Percentile = 23.4% Short term - hisrical risk perspective Large movements have not been uncommon over 3 12 month horizon JPY Hisgram of % changes over a 3m period JPY JPY Hisgram of % changes over a 12m period JPY 10 year hisry Option market implied move distribution 3m ATMS Premium 10 year hisry Option market implied move distribution 12m ATMS Premium Put = 2.37% Call = 2.10% Put = 4.95% Call = 3.55% 0.7% 1.5% 2.0% -17.0% -14.0% -14.0% -11.0% -11.0% -8.0% 12.3% 16.3% -8.0% -5.0% -5.0% -2.0% 26.4% 21.2% -2.0% 1.0% 1.0% 4.0% 9.7% 4.0% 7.0% 4.3% 3.3% 1.9% 0.4% 7.0% 10.0% 10.0% 13.0% 13.0% 16.0% 16.0% 19.0% % move 0.5% 2.6% -23.0% -19.0% -19.0% -15.0% 17.5% 12.2% 14.1%11.3% 9.2% 6.7% 4.6% 6.8% 4.6% 6.6% 3.1% 0.2% -15.0% -11.0% -11.0% -7.0% -7.0% -3.0% -3.0% 1.0% 1.0% 5.0% 5.0% 9.0% 9.0% 13.0% 13.0% 17.0% 17.0% 21.0% 21.0% 25.0% 25.0% 29.0% 29.0% 33.0% spot after %move The charts above depict the hisgrams of the % changes in the JPY rate over a 3-month and 1-year horizon, calculated using 10-years of daily market data. Option premium depicts a level of movement required for the option be in-the-money the buyer. In the above 3m case, a 2.10% premium means that a call buyer hedging an underlying short position against strength, if the average spot move higher takes place, the call buyer would make a profit of 2.18% (4.28%-2.10%). If on the other hand, the average spot move lower takes place, the call buyer is able participate in the underlying position move by 1.77% (3.86%-2.10%). Source: Bloomberg data, Commerzbank estimates. Premium in %. Corporates & Markets Corporate Sales April 2016 Note refer Caveat on page two of this presentation. Analysis date: 6 April