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MAY LOSE VALUE

Citibank Wealth Management

Dec 10, 2018

with data as of Dec 7, 2018

Weekly FX Strategy FX Analysis Data Forecasts

Weekly FX Insight Please note and carefully read the

Important Disclosure on the last part
0
Please note and carefully read the Important Disclosure on the last part

Weekly FX Strategy: GBP

GBP news Strategy for GBP holders - Diversify into USD
• The ECJ’s opinion piece expressed that the EU can’t block
• If UK parliament votes against the agreement in a wide
the UK from rejoining if it pulls back article 50 in time.
margin, a leadership contest is likely and may trigger 2nd
• The passing by the UK Parliament of the so-called Grieve
referendum, even a no deal outcome may occur.
Amendment, which implies that if UK MPs vote against the
Withdrawal Act on December 11, the government would need • Given high political risk and Brexit, a high level of uncertainty
to return to Parliament within 21 days with a motion on how is still being priced in UK financial markets, which may
to proceed.
undermine GBP.
GBP outlook
• Political uncertainty may cause significant downside risks. It seems likely Strategy Reference Level Target Level
that the draft UK-EU withdrawal agreement will be voted down by the
Bearish on GBP USD 1.3175 1.2659
“Meaningful Vote” in the House of Commons. Therefore, the probability of
a market friendly transition arrangement are falling fast. The UK is facing Bearish on GBP HKD 10.30 9.89
completely unchartered waters on economic and political spectrum.
What’s cheap can certainly get cheaper.

0-3M forecast: 1.26 6-12M forecast: 1.30 LT forecast: 1.48 Strategy for USD holders - Buy GBP upon retracement
GBP/USD – Daily Chart • We expect that the first Meaningful Vote is likely to fail and
we see only a 35% chance that the Withdrawal Bill passes
first time, which is higher than market surveys and the
average view from client survey.
1.3175(Nov top)
• Even if PM May’s deal is voted down by Parliament, the ECJ
1.2659(Dec low) surprise raised the chance of no Brexit in March and lowers
1.2589(Nov 2017 low) the risk of “no deal”. This will likely support the GBP.
1.2351 (Apr 2017 low)
Strategy Reference Level Target Level
Bullish on GBP USD 1.2659 1.3175
Source: Bloomberg L.P., as of Dec 7, 2018 Bullish on GBP HKD 9.89 10.30
• 1.2589-1.2659 is the pivot level for GBP/USD. The pair may
range trade between 1.2659-1.3175 in short term. A break
below may send the pair lower to 1.2351. The brackets are the exchange rates in terms of Hong Kong
dollar, with HKD $7.8160 exchange rate for reference 1
Please note and carefully read the Important Disclosure on the last part

Weekly FX Strategy: AUD

AUD news Strategy for AUD holders - Diversify into USD
• AUD was undermined as Australia’s GDP growth slowed down • Despite a US-China trade war truce, global market volatility
from 3.1% yoy to 2.8% yoy in Q3, worse than expected. may increase amid Brexit deadlock and US-China trade
• US 2s5s and 3s5s yield curves were inverted last week, triggering negotiations.
concern over US economic outlook and market volatility.
• Given Australia’s economic growth slowdown and protracted
• USD downtrend slowed down as the US announced mixed job housing market correction, we pushed back our RBA rate
data. NFP only grew 155K in Nov while average hourly earnings hike until the second half of 2020, which may undermine
growth reached 3.1%.
AUD.
AUD outlook
• Tighter credit conditions are spreading beyond housing to businesses Strategy Reference Level Target Level
amid continued housing market correction in Australia. Meanwhile,
although the labor market remains strong, wage growth is tepid and Bearish on AUD USD 0.7394 0.7021
the RBA may keep interest rates unchanged. if the Chinese
Bearish on AUD HKD 5.78 5.49
authorities ease monetary conditions via weakening of the RMB, AUD
may move with it. Stretched net short speculative positioning in
AUD/USD, AUD may find support at lows. Strategy for USD holders - Buy CAD upon retracement
0-3M forecast: 0.71 6-12M Forecast: 0.70 LT Forecast: 0.77
• We expect the Fed to hiker rates again in Dec but rate hikes
of next year may become more uncertain. The Fed may hike
AUD/USD – Daily Chart rates twice only next year, which may undermine USD and
underpin AUD.
• Australia’s budget will be released on Dec 17. The
government may increase government spending and cut
0.7412(May top)
personal income tax ahead of the general election in May
0.7394(Dec top)
0.7021(Oct low)
2019, which may support AUD.

Strategy Reference Level Target Level

Bullish on AUD USD 0.7021 0.7394
Bullish on AUD HKD 5.49 5.78
Source: Bloomberg L.P., as of Dec 7, 2018
• Since Nov, AUD/USD has seen higher highs while the RSI
lower lows, forming a head and shoulders pattern. The pair
may see resistance at 0.7394-0.7412, with support at 0.7021 The brackets are the exchange rates in terms of Hong Kong
and increasing downside risk. dollar, with HKD $7.8160 exchange rate for reference 2
Please note and carefully read the Important Disclosure on the last part

GBP/JPY

145.95 (Nov 15 top)

139.90 (Aug low)

EUR/AUD

1.6102(fibo 0.764)

1.5689(fibo 0.382)

Source: Bloomberg L.P., as of Dec 7, 2018 3

Please note and carefully read the Important Disclosure on the last part

The brackets are the exchange rates in terms of Hong Kong

Dollar Index dollar, with HKD $7.8160 exchange rate for reference
USD outlook: 0-3M forecast: 97.62 6-12M forecast: 94.18 LT forecast: 84.85
• More medium term, our view is that the fiscal support to growth 0-3M forecast: 97.62
eventually fades in the US and tighter monetary policy starts to
bite. Moreover, In 2Q19 we expect the Fed to raise rates for the
last time. In Q3 we expect the ECB to begin raising rates. Fading
USD yield advantage may undermine USD.
6-12M forecast: 94.18
• Developments in other major countries and regions will matter.
Europe will have to deal with stress in Italy in the near term and
the Brexit situation over the medium term. This may be a drag
on the EUR, which may underpin USD.
• USD around 1% stronger vs. G10 over 0-3m and around 2%
weaker over 6-12m.
• Dollar index 0-3 month forecast: 97.62; 6-12 month forecast:
94.18; Long term forecast: 84.85.
Source: Bloomberg L.P., as of Dec 7, 2018

USD/CNH
RMB outlook: 0-3M forecast: 7.00 6-12M forecast: 6.95 LT forecast: 6.50
• DXY strengthening, the US-China trade war further escalating
and capital outflow owing to the growth slowdown and divergent 6.9805(Nov top)
monetary policy with other countries are key risks. We believe
PBoC won’t tolerate the currency to be driven either by the 6.8048(fibo 0.764)
market force or by a strong dollar to have a one-way large
depreciation.
Strategy Reference Level Target Level
Bearish on CNH USD 6.8048 6.9805
Bearish on CNH HKD 1.1486 1.1197

Bullish on CNH USD 6.9805 6.8048

Bullish on CNH HKD 1.1197 1.1486 Source: Bloomberg L.P., as of Dec 7, 2018 4
Please note and carefully read the Important Disclosure on the last part

The brackets are the exchange rates in terms of Hong Kong

EUR/USD dollar, with HKD $7.8160 exchange rate for reference
EUR outlook: 0-3M forecast: 1.13 6-12M forecast: 1.18 LT forecast: 1.30
• Periphery spreads widened as Italian efforts to run higher budget
deficits in defiance of EU advisory rumble on. This undermines EA
banks and hurts EUR. We see no immediate respite on this front with
spreads possibly remaining elevated, or rising further. US fiscal
stimulus and Chinese monetary reflation have limited impacts on EA 1.1709(fibo 0.618)
data momentum. Long term, EUR may be supported as the ECB
tapers QE to zero and normal positive bond supply in EA sovereigns
resumesStrategy
in 2019. Reference Level Target Level 1.1187(Nov low)
Bearish on EUR USD 1.1709 1.1187
Bearish on EUR HKD 9.15 8.74

Bullish on EUR USD 1.1187 1.1709

Bullish on EUR HKD 8.74 9.15
Source: Bloomberg L.P., as of Dec 7, 2018

USD/JPY
JPY outlook: 0-3M forecast: 115 6-12M forecast: 113 LT forecast: 100
• For much of this year, USD/JPY has been driven by rising US
114.73 (Nov 2017 top)
real yields. yields still seem in a rising trend over 0-3m, which
may pressure JPY. Real yields may finally retreat as Fed policy
ends up restrictive just when the fiscal stimulus from tax reform
110.84(fibo 0.382)
begins to fade, which may support JPY.

Strategy Reference Level Target Level

Bearish on JPY USD 110.84 114.73
Bearish on JPY HKD 7.06 6.82

Bullish on JPY USD 114.73 110.84

Bullish on JPY HKD 6.82 7.06 Source: Bloomberg L.P., as of Dec 7, 2018 5
Please note and carefully read the Important Disclosure on the last part

The brackets are the exchange rates in terms of Hong Kong

NZD/USD dollar, with HKD $7.8160 exchange rate for reference
NZD outlook: 0-3M forecast: 0.68 6-12M forecast: 0.66 LT forecast: 0.67
• The November RBNZ meeting seemed more upbeat than the past few
months with risks now ‘balanced’ amid firmer quarterly inflation data
coupled with strong labor market data. NZD looks slightly cheap to dairy
prices in the short term, so a short term move higher is plausible. Cooling
housing sector and business confidence downtrend signs may undermine 0.6970(Dec top)
NZD in the long term. Meanwhile, trade war risks continue to rumble on
and with ADXY continuing to fall, this also leaves NZD looking vulnerable.
Strategy Reference Level Target Level 0.6664(fibo 0.764)
Bearish on NZD USD 0.6970 0.6664
Bearish on NZD HKD 5.45 5.21

Bullish on NZD USD 0.6664 0.6970

Bullish on NZD HKD 5.21 5.45 Source: Bloomberg L.P., as of Dec 7, 2018

USD/CAD
CAD outlook: 0-3M forecast: 1.33 6-12M forecast: 1.30 LT forecast: 1.20
• The BoC estimates the neutral rate to be in the range of 2.5%-
3.5%. We continue to expect three more rate hikes in 2019,
which would take the policy rate to 2.5% and underpin the CAD. 1.3540 (Jun 2017 top)
However, recent oil weakness may restrain CAD.
1.3132(fibo 0.382)

Strategy Reference Level Target Level

Bearish on CAD USD 1.3132 1.3540
Bearish on CAD HKD 5.95 5.77

Bullish on CAD USD 1.3540 1.3132

Bullish on CAD HKD 5.77 5.95 Source: Bloomberg L.P., as of Dec 7, 2018 6
Please note and carefully read the Important Disclosure on the last part

The brackets are the exchange rates in terms of Hong Kong

USD/CHF dollar, with HKD $7.8160 exchange rate for reference
CHF outlook: 0-3M forecast: 1.00 6-12M forecast: 0.98 LT forecast: 0.92
• Swiss inflation appears to be waning again. A SNB Governing
1.0171 (Mar 2017 top)
Board Member also affirmed our view that the SNB is also in no
rush to tighten policy as inflationary pressures remained low.
• With the currency still “highly valued, the SNB may want to see
CHF weaken in the medium term.
• In the short term, rising periphery spreads may contribute to
CHF appreciation. Thus, there may come a time where the SNB
intervenes 0.9789(Jun low)

Technical Analysis:
• Since the RSI has risen to overbought territory, USD/CHF short-
term upside may be limited and the pair may range trade
between 0.9953-1.0171. Source: Bloomberg L.P., as of Dec 7, 2018

EM Currencies
EM Currencies outlook:
• Over the past month, EM FX stayed flat versus the dollar.
• We see EM FX roughly 1% stronger vs the USD. This forecast is
based on a stronger EUR forecast in 12m, higher equities, and
broadly flat oil prices that we predicts.
• We expect Asian currencies to strengthen by 1.1% in 6-12m.
• We see LatAm FX appreciate 2.1% in 6-12m.

Source: Bloomberg L.P., as of Dec 7, 2018 7

Please note and carefully read the Important Disclosure on the last part

Appendix 1: Last week performance, Citi interest rate and FX Forecasts

Citi FX Outlook Forecast Citi FX interest rate Forecast

0-3 month 6-12 month Long-term 12/7/2018 4Q ‘18 1Q ’19 2Q ’19
Dollar Index 97.62 94.18 84.85 2.25 2.50 2.75 3.00
EUR/USD 1.13 1.18 1.30 0.00 0.00 0.00 0.00
GBP/USD 1.26 1.30 1.48 0.75 0.75 0.75 0.75
USD/JPY 115 113 100 -0.10 -0.10 -0.10 -0.10
USD/CHF 1.00 0.98 0.92 -0.75 -0.75 -0.75 -0.75
AUD/USD 0.71 0.70 0.77 1.50 1.50 1.50 1.50
NZD/USD 0.68 0.66 0.67 1.75 1.75 1.75 1.75
USD/CAD 1.33 1.30 1.20 1.75 1.75 1.75 2.00
USD/CNY 7.00 6.95 6.50 3.40 3.40 3.40 3.40
Source: Citi, forecast as of Nov 16, 2018 Rate cut Rate hike
expectations expectations

Major Currencies Weekly Performance

Last week Weekly Year-To-Date
1 month high 1 month low 3 month high 3 month low 52 week high 52 week low
CCY close Change Change
USD 96.51 -0.8% 97.54 96.00 97.54 93.91 97.69 88.25 4.8%
EUR/USD 1.1379 0.5% 1.1454 1.1218 1.1777 1.1218 1.2555 1.1216 -5.1%
USD/JPY 112.69 -0.8% 114.07 112.55 114.53 110.99 114.55 104.56 -0.1%
GBP/USD 1.2726 -0.2% 1.3126 1.2719 1.3265 1.2706 1.4377 1.2659 -5.9%
USD/CAD 1.3322 0.2% 1.3383 1.3112 1.3383 1.2814 1.3445 1.2251 5.7%
AUD/USD 0.7208 -1.3% 0.7358 0.7173 0.7358 0.7052 0.8136 0.7021 -7.9%
NZD/USD 0.6866 -0.1% 0.6930 0.6710 0.6930 0.6443 0.7438 0.6425 -3.5%
USD/CHF 0.9920 -0.6% 1.0109 0.9920 1.0109 0.9587 1.0128 0.9188 1.6%
USD/CNY 6.8743 -1.2% 6.9636 6.8360 6.9757 6.8360 6.9799 6.2431 5.3%
USD/CNH 6.8850 -0.9% 6.9643 6.8507 6.9752 6.8355 6.9805 6.2361 5.5%
GOLD 1249.31 2.4% 1249.31 1200.37 1249.31 1182.83 1366.15 1160.39 -4.0%

Source: Bloomberg L.P., as of Dec 7, 2018 8

Please note and carefully read the Important Disclosure on the last part

Appendix 2: Last week’s Economic Figures

Time Importance Event Period Actual Survey Prior

Monday
12/03/18 07:50 JN !! Capital Spending YoY 3Q 4.50% 8.50% 12.80%
12/03/18 17:00 EC !! Markit Eurozone Manufacturing PMI Nov 51.8 51.5 51.5
12/03/18 17:30 UK !! Markit UK PMI Manufacturing SA Nov 53.1 51.7 51.1
12/03/18 23:00 US !! ISM Manufacturing Nov 59.3 57.5 57.7
Tuesday
12/04/18 11:30 AU !! RBA Cash Rate Target Dec 1.50% 1.50% 1.50%
Wednesday
12/05/18 08:30 AU !! GDP YoY 3Q 2.80% 3.30% 3.10%
12/05/18 17:00 EC !! Markit Eurozone Services PMI Nov 53.4 53.1 53.1
12/05/18 17:30 UK !! Markit/CIPS UK Services PMI Nov 50.4 52.5 52.2
12/05/18 21:15 US !! ADP Employment Change Nov 179k 195k 225k
12/05/18 23:00 CA !!! Bank of Canada Rate Decision Dec 1.75% 1.75% 1.75%
12/05/18 23:00 US !! ISM Non-Manufacturing Index Nov 60.7 59.0 60.3
Thursday
12/06/18 08:30 AU !! Trade Balance Oct A$2316m A$3000m A$2940m
12/06/18 08:30 AU ! Retail Sales MoM Oct 0.30% 0.30% 0.10%
12/06/18 21:30 CA !! Int'l Merchandise Trade Oct -1.17b -0.73b -0.89b
12/06/18 21:30 US !! Trade Balance Oct -$55.5b -$55.0b -$54.6b
12/06/18 21:30 US ! Initial Jobless Claims Dec 231k 225k 235k
12/06/18 23:00 CA ! Ivey Purchasing Managers Index SA Nov 57.2 -- 61.8
Friday
12/07/18 18:00 EC !! GDP SA YoY 3Q 1.60% 1.70% 1.70%
12/07/18 21:30 CA !! Net Change in Employment Nov 94.1k 10.0k 11.2k
12/07/18 21:30 CA !! Unemployment Rate Nov 5.60% 5.80% 5.80%
12/07/18 21:30 US !!! Change in Nonfarm Payrolls Nov 155k 198k 251k
12/07/18 21:30 US !!! Unemployment Rate Nov 3.70% 3.70% 3.70%
12/07/18 21:30 US !!! Average Hourly Earnings MoM Nov 0.20% 0.30% 0.10%
12/07/18 23:00 US !! U. of Mich. Sentiment Dec 97.5 97.0 97.5

Source: Bloomberg L.P. 9

Please note and carefully read the Important Disclosure on the last part

Appendix 3: Upcoming Economic Figures (Dec 10, 2018 – Dec 14, 2018)

Time Importance Event Period Actual Survey Prior

Monday
12/10/18 07:50 JN !! GDP Annualized SA QoQ 3Q F -- -- -1.20%
12/10/18 08:30 AU ! Home Loans MoM Oct -- -- -1.00%
12/10/18 17:30 UK !! Visible Trade Balance GBP/Mn Oct -- -- -£9731m
12/10/18 17:30 UK !! Industrial Production YoY Oct -- -- 0.00%
12/10/18 17:30 UK !! Manufacturing Production YoY Oct -- -- 0.50%
12/10/18 17:30 UK !! GDP (MoM) Oct -- -- 0.00%
12/10/18 21:15 CA ! Housing Starts Nov -- -- 205.9k
12/10/18 21:30 CA ! Building Permits MoM Oct -- -- 0.40%
Tuesday
12/11/18 08:30 AU ! NAB Business Confidence Nov -- -- 4
12/11/18 17:30 UK !! Average Weekly Earnings 3M/YoY Oct -- -- 3.00%
12/11/18 17:30 UK !! ILO Unemployment Rate 3Mths Oct -- -- 4.10%
Wednesday
12/12/18 07:30 AU ! Westpac Consumer Conf SA MoM Dec -- -- 2.80%
12/12/18 21:30 US !!! CPI YoY Nov -- -- 2.50%
12/12/18 21:30 US !!! CPI Ex Food and Energy YoY Nov -- -- 2.10%
Thursday
12/13/18 03:00 US ! Monthly Budget Statement Nov -- -- -$100.5b
12/13/18 08:01 UK !! RICS House Price Balance Nov -- -- -10%
12/13/18 20:45 EC !!! ECB Main Refinancing Rate Dec -- -- 0.00%
12/13/18 21:30 US !! Initial Jobless Claims Dec -- -- --
Friday
12/14/18 07:50 JN !! Tankan Large Mfg Index 4Q -- -- 19
12/14/18 10:00 CH !! Retail Sales YoY Nov -- -- 8.60%
12/14/18 10:00 CH !! Industrial Production YoY Nov -- -- 5.90%
12/14/18 16:30 EC !! Markit Eurozone Manufacturing PMI Dec -- -- --
12/14/18 21:30 US !!! Retail Sales Advance MoM Nov -- 0.40% 0.80%
12/14/18 21:30 US !!! Retail Sales Ex Auto MoM Nov -- 0.50% 0.70%

Source: Bloomberg L.P. 10

Please note and carefully read the Important Disclosure on the last part

Appendix 4: Upcoming Economic Figures (Dec 17, 2018 – Dec 21, 2018)

Time Importance Event Period Actual Survey Prior

Monday
12/17/18 18:00 EC !! CPI YoY Nov -- -- 2.20%
Tuesday
12/18/18 08:30 AU !! RBA Dec. Meeting Minutes Dec
12/18/18 17:00 GE !! IFO Business Climate Dec -- -- 102
12/18/18 21:30 US !! Housing Starts MoM Nov -- 1.00% 1.50%
12/18/18 21:30 US !! Building Permits MoM Nov -- 0.00% -0.60%
Wednesday
12/19/18 05:45 NZ !! BoP Current Account Balance NZD 3Q -- -- -1.619b
12/19/18 17:30 UK !! CPI YoY Nov -- -- 2.40%
12/19/18 21:30 US !! Current Account Balance 3Q -- -- -$101.5b
12/19/18 21:30 CA !! CPI YoY Nov -- -- 2.40%
12/19/18 21:30 CA !! CPI Core- Common YoY% Nov -- -- 1.90%
Thursday
12/20/18 03:00 US !!! FOMC Rate Decision (Upper Bound) Dec -- 2.50% 2.25%
12/20/18 05:45 NZ !! Trade Balance NZD Nov -- -- -1295m
12/20/18 05:45 NZ !! GDP YoY 3Q -- -- 2.80%
12/20/18 08:30 AU !! Employment Change Nov -- -- 32.8k
12/20/18 08:30 AU !! Unemployment Rate Nov -- -- 5.00%
12/20/18 17:30 UK !! Retail Sales Inc Auto Fuel YoY Nov -- -- 2.20%
12/20/18 20:00 UK !! Bank of England Bank Rate Dec -- -- 0.75%
12/20/18 JN !!! BOJ Policy Balance Rate Dec -- -- -0.10%
Friday
12/21/18 07:30 JN !! Natl CPI Ex Fresh Food YoY Nov -- -- 1.00%
12/21/18 17:30 UK !! GDP YoY 3Q -- -- 1.50%
12/21/18 21:30 CA !! Retail Sales MoM Oct -- -- 0.20%
12/21/18 21:30 CA !! GDP YoY Oct -- -- 2.10%
12/21/18 21:30 US !! Durable Goods Orders Nov -- -- -4.30%
12/21/18 23:00 US !! Personal Income Nov -- -- 0.50%
12/21/18 23:00 US !! Personal Spending Nov -- 0.30% 0.60%
12/21/18 23:00 US !! U. of Mich. Sentiment Dec -- -- --

Source: Bloomberg L.P. 11

Important Disclosure
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13
Important Disclosure
Unrated or non investment grade Debt Securities typically offer a higher yield than investment grade Debt Securities, but
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classified as non investment grade Debt Securities, these Debt Securities present a greater degree of credit risk relative to
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Downgrade Risk – Downgrades in the credit rating of unrated or non investment grade Debt Securities by rating agencies
are generally accompanied by declines in the market value of these Debt Securities. In some circumstances, investors in
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Higher Vulnerability to economic cycles - During economic downturns, unrated or non investment grade Debt Securities are
typically more susceptible to price volatility and fall more in value than investment grade Debt Securities as i) investors may
reevaluate holdings in lower-quality bonds in favor of investment-grade corporate Debt Securities; ii) investors become
more risk averse; and iii) default risk rises. This is often referred to a “flight to quality”.
Event Risk – This includes any of a variety of events that can adversely affect the issuer of unrated or non investment
grade Debt Securities, and therefore the issuer’s ability to meet debt service obligations to repay principal and interest to
Debt Securities holders. Event risk may pertain to the issuer specifically, the industry or business sector of the issuer, or
generally upon the overall economy. It could have a direct or indirect impact on the issuer and their outstanding debts.

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Important Disclosure
Risk relating to RMB – If you choose RMB as the base currency or the alternate currency, you should also note the
following:

RMB is currently not freely convertible through banks in Hong Kong. Due to exchange controls and/or restrictions imposed
on the convertibility, utilisation or transferability of RMB (if any) which in turn is affected by, amongst other things, the PRC
government's control, there is no guarantee that disruption in the transferability, convertibility or liquidity of RMB will not
occur. There is thus a likelihood that you may not be able to convert RMB received into other freely convertible currencies.

CNH exchange rates and CNY exchange rates are currently quoted in different markets with different exchange rates,
whereby their exchange rate movements may not be in the same direction or magnitude. Therefore, the CNH exchange
rate may be different from the CNY exchange rate.

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