AUG-09_Mizuho Dealers Eye

8/9/2019 AUG-09_Mizuho Dealers Eye

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Mizuho Dealers EyeAugust 2010

U.S. Dollar....................................................................1Euro ..............................................................................8Canadian Dollar .........................................................14British Pound..............................................................17Singapore Dollar ........................................................22Thai Baht ....................................................................25Malaysian Ringgit......................................................28

Indonesian Rupiah .....................................................30Philippine Peso...........................................................34Korean Won ...............................................................38

New Taiwan Dollar....................................................41 Hong Kong Dollar......................................................44Chinese Yuan .............................................................47Australian Dollar........................................................51

Mizuho Corporate Bank, Ltd.

Forex Division


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Daisuke Karakama, Market Economist, Forex Division

U.S. Dollar August 2010

1. Review of the Previous MonthThe dollar rose in the first half of July then fell towards mid-July before trading with a lack of

incentives in the latter half of the month.

The dollar/yen pair opened the month on July 1 at the mid-88 yen level. With concerns over

Europes financial system smoldering away in advance of the absorption of the ECBs 1-yearrefinancing operations (442 billion euros), a subsequent worsening of U.S. economic indicators helped

push the pair down to around 87 yen level, but the pair was then bought back to the lower-88 yen level

in the wake of firm Japanese and U.S. stocks. The U.S. June employment statistics announced on July

2 showed mixed results, so the impact on the pairs movements was limited.

On July 7, a risk-evasive mood grew on the back of reports that the Committee of European

Banking Supervisors (CEBS) had released a summary of the stress tests for European financial

institutions, and the currency pair fell to around 87 yen. On July 8, however, risk-tolerance levels

improved and moves away from the yen increased after Australia posted better-than-expectedemployment data and the IMF raised its World Economic Outlook. This, together with the positive

contents of ECB President Jean-Claude Trichets press conference after the ECB Governing Council

meeting, led the dollar/yen pair to shoot up to the upper-88 yen level.In the middle of the month, on July 12, the markets saw yen selling after it emerged that the

Japanese Democratic Party had lost the previous day's upper-house elections, and the currency pair

temporarily rose to 89.15 yen, its high for the month. After this, though, risk-evasive yen buying

became prevalent after a U.S. credit rating agency voiced concerns about the UKs credit rating and

after the announcement that another U.S. credit rating institution had downgraded Portugals sovereign

debt. With the euro also rising against the U.S. unit, the dollar/yen pairs topside was held down and

the pair dropped to around 88 yen. The pair then fell to the lower-87 yen level following: the

greater-than-expected fall in the U.S. June Production Price Index (PPI) (announced July 15); and the

bearish contents of the Federal Reserve Bank of New Yorks July Empire State Manufacturing Survey

and the Philadelphia Feds Business Outlook Survey. Fears over the U.S. economic recovery grew

further following the weaker-than-expected contents of the University of Michigan Consumer

Sentiment Index for July, announced the following day (July 16). This saw the currency pair being sold

for a time to 86.27 yen, its low for July. After this, cross-yen buying increased due to purchasing by

Japanese importers and stock-price loss-trimming. This pushed the dollar/yen pair back to the mid-87

yen level. On July 21, U.S. interest rates fell further and the currency pair dropped once more to the


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upper-86 yen level after FRB Chairman Bernanke indicated in his testimony to the U.S. Congress that

the economic outlook will continue to be unusually uncertain and that the Fed. was ready to take

further action if necessary. Thereafter, however, the pair was bought back to the lower-87 yen level

after the markets reacted favorably to bullish European stocks and better-than-expected U.S. economic

indicators.

Towards the latter half of the month, on July 24, the results of the European stress tests were

announced. Although these had been eagerly anticipated, the tests were concluded without any

problems, as had been expected, and the dollar/yen pair continued trading with a lack of incentives at

the 87 yen level. U.S. interest rates rose over July 2627 following a series of favorable U.S. economic

indicators, and the currency pair recovered to the 88 yen level. However, risk-evasive yen buying then

gathered steam once more after the Beige Book (Summary of Commentary on Current Economic

Conditions by Federal Reserve District, released July 28) confirmed that the pace of economicrecovery was slowing down in some regions, and the pair was sold-back to the lower-87 yen level.

86

87

88

89

90

91

92

93

94

95

10-4 10-5 10-6 10-7

(JPY) USD/JPY

2. Outlook for This Month:

The currency pair will continue to be weighed down by bearish U.S.

business confidence

Expected Ranges Against the yen: JPY85.0089.50

In August the dollar/yen pair is expected to continue moving bearishly. In July, bearish U.S. economic

indicators led to a further fall in U.S. interest rates, resulting in a shrinking of Japanese/U.S.

interest-rate differentials. This weighed down the currency pair, which continued to trade below the 90


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yen level. Since the Federal Open Market Committee (FOMC) statement was released at the end of

June, it seems that Japanese/U.S. interest-rate differentials have been shrinking at a faster pace. The

speculation over the next U.S. financial policy will continue to determine the direction of the policy

rate market in August too and the dollar/yen pair will probably continue to trade within a range around

8590 yen. The FRB is unlikely to significantly alter its stance of maintaining a low-interest policy

while recognizing improvements in the economic/financial situation and at the moment it seems that

this stance will be maintained for an increasingly long time. The BOJ will probably maintain its current

policies as a matter of course, so both the U.S. and Japan will remain in a zero-interest situation and

the currency pair will continue to trade with a lack of any clear drivers. August usually sees thin trading,

with overseas investors on summer vacation and with the Obon holidays in Japan, and in these

circumstances the currency pair is more susceptible to price fluctuations than usual. With Japanese/U.S.

interest-rate differentials prone to shrinkage, market participants should expect some downward riskfor the currency pair.

Turning to U.S. economic fundamentals, in August attention will be focused once more on the July

employment statistics (announced August 6). In Junes employment statistics, the number of people in

employment fell for the first time in 6 months due to the wearing-off of the temporary employment

effects of the U.S. government census as well as a slackening of private-sector payrolls. The jobless

rate itself improved from 9.7% to 9.5%, which is not necessarily a positive trend because this was

mainly due to the decrease in the number of people included in the unemployment count following a

fall in the labor force. Behind this fall in the labor force was an increase in the number of people whohave given up looking for work due to long-term unemployment, etc. As far as one can tell from the

various economic indicators released in July, there is unlikely to be any dramatic improvements in the

July employment figures. At the moment market forecasts are centered on job losses in the region of

100,000 compared to the previous month, the second consecutive month of negative results. The

dollar/yen pair can perhaps be expected to fall if headline figures perform below market expectations.

Turning to other economic indicators, housing-related indicators are attracting more attention than

usual, with signs of bearishness beginning to emerge. There are rumors that the markets may see new

moves by the U.S. FRB and the Obama administration in the wake of these weak results, and these

trends will have a significant impact on the dollar.

Furthermore, the most important forecast is of U.S. financial policy. As can be seen in the way the

markets focused on the statement in FRB Chairman Bernankes testimony to the U.S. Congress in July

that the economic outlook will continue to be unusually uncertain, it seems that the FRBs distance

from an exit has grown substantially. The FOMC meeting will be held on August 10. If one focuses

solely on the U.S. economic indicators that have emerged between the time of the last meeting (June

2223) and now, then it is hard to see the FOMCs statement swinging in a hawkish direction. If

anything, the contents may perhaps become even more dovish. The Summary of Commentary on

Current Economic Conditions by Federal Reserve District (Beige Book, released on July 28) will be

the biggest factor influencing the August FOMCs decisions. The Book reported how economic


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activity was slackening in some regions, and following this the markets are unlikely to see the

emergence of any tightening maneuvers compared to the previous month. Market participants should

probably expect the FRBs economic outlook to decline somewhat or, at best, to remain as it is. As for

comments by key figures in August, in addition to Federal Reserve Bank of Chicago President Charles

Evanss speech on August 24 (Tuesday), as usual the markets will also be keeping an eye on FRB

Chairman Bernankes speech at the annual Jackson Hole symposium on August 27 (Friday).

Turning to Japanese factors, attention will probably be focused on the Bank of Japan (BOJ)

Monetary Policy Meeting, scheduled to be held on August 910. This comes directly after the launch

of a new funding system for strengthening the foundations for growth, so essentially there are unlikely

to be any new easing policies in August. In the wake of recent yen bullishness, however, the markets

are gradually starting to hear scattered statements by key figures from the government/ruling party. The

Bank of Japan may be forced into taking some kind of action or making some kind of announcementdepending on stock/currency levels at the time of the meeting. As for the BOJs next moves, there will

be speculation with regards to such options as 1) expanding or revising existing measures, such as

extending the loan provision period from three months to six months or 2) increasing the ceiling for

government bond purchases. There are periodic concerns that the Democratic administration may favor

option 2, but with sovereign risk currently being a major theme in the markets, there is a danger that

this will appear to weaken fiscal discipline and as such have an adverse effect. For this reason, it is

difficult to imagine option 2 being adopted. The rising uncertainty with regards to the Japanese

political situation after the ruling partys losses in the upper-house elections will probably be seen as ayen-selling factor by overseas investors. Japanese political trends are likely to become factors in the

currency markets over the next month or two, with the markets watching to see what kind of political

framework will be adopted to deal with the divided Diet, for example, or how the ruling Democratic

Partys presidential elections develop.

In the short-term, market participants will continue paying attention to the behavior of speculators

(in IMM currency futures and so on) to try to gauge the direction of the dollar/yen pair. As of July 20,

net positions for the yen against the dollar were at their highest level for the year, with long positions

having accumulated to the tune of $5.84 billion. If some positive factors emerge with regards to the

U.S. economy, this would probably be conducive to a substantial and comparatively fast-paced

unwinding of positions (dollar-buying/yen-selling). If this happens then market participants should

perhaps be wary of the currency pair trading at the 90 yen level for a time in August. However, the

pair's sojourn at this price would probably be short lived.

In August the dollar/yen pair is likely to continue trading mainly below 90 yen. U.S. interest rates

have been conspicuously moving downwards since the FRB lowered their economic outlook. As of

July 29, however, Japanese/U.S. two-year interest-rate differentials have shrunk to the roughly the

same level as in November 2009, when the dollar/yen pair fell below 85 yen. These differentials and

the currency pair are strongly correlated, so the situation is unlikely to change significantly in August.

Judging solely on interest-rate differentials, in August the dollar/yen pair will either remain at current


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levels or have its downside tested further.


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Dealers' Market Forecast

(Note: These opinions do not necessarily agree with the other contents of this report.)

Bullish on the dollar (5 bulls: 85.0090.50, Core: 85.5090.00)

Kato

85.00

90.00

From the time when the euro/dollar pairs recovery high is confirmed to the time when the euro/dollar pair starts

falling, the yen will continue trading with a heavy 90-yen topside. When the euro/dollar pair does start falling

though, the dollar/yen pair's downside is likely to edge up gradually despite cross-yen selling.

Noda

85.00

90.00

At present U.S. business results are comparatively healthy, but there are rising concerns that the U.S. economy is

slowing down on a macro level. The dollar/yen pair will probably move without a sense of direction. However,

there is a strong chance that stocks will rise due to seasonal factors, so the markets may see a slightly bearish yen

as risk-tolerance levels expand.

Tsuda

85.00

90.00

Bearish U.S. economic indicators are expected from hereon too and the dollar will also continue trading bearishly

in the wake of fears that the U.S. economy might weaken. However, the dollar and yen both remain refuge

currencies and the dollar/yen pair will probably trade within a range.

Takahashi85.50

90.50

Dollar-selling/yen-buying movements on the back of Japanese/U.S. interest-rate differentials will be limited. Thoughmarket participants should be cautious of dollar selling in the wake of the deteriorating business confidence in the U.S., the

dollar/yen pair will gradually start moving firmly.

Niwata

85.00

90.00

Amid rising concerns that the U.S. economic recovery is slowing down, the dollar/yen pairs downside will

probably be tested for a time. However, the U.S. is unlikely to experience a double-dip recession and there is only

so much room that Japanese/U.S. interest-rate differentials can shrink by, so the dollar/yen pair will start moving

firmly.

Bearish on the dollar (12 bears: 82.0090.00, Core: 85.0088.00)

Arai

83.50

88.50

Since the Lehman shock the financial markets have been supported by expectations for a global economic

recovery on the back of rising stocks, but the real effects of the collapse of the U.S. credit bubble will be felt fromhereon. The recovery of final demand (consumption) has been sluggish, leading to an increasing risk of price falls

in developed nations, so risk-evasive yen-buying needs remain deep-rooted.

Zenno

82.00

90.00

The dollar/yen pair is moving firmly amid a scarcity of yen-buying factors. However, there has not been enough

momentum to push the pair over the 90 yen level and trading remains stuck below 90 yen. With U.S. economic

indicators remaining unsatisfactory, if Asian investors engage in fully-fledged yen buying then the currency pairs

downside will probably be tested once more. The cross yen is trading firmly, but if bullish signs appear then there

remains a risk of the dollar/yen pair targeting 80 yen.

Tanaka(Yoshihisa

85.00

89.00

The dollar/yen pair will probably continue trading with a heavy topside. There are lingering concerns of a U.S.

economic slowdown, and, with the U.S. mid-term elections looming into view, there is speculation regarding

further financial easing, and U.S. interest rates will continue to experience downwards pressure. Under these

circumstances, attention will be focused on U.S. economic indicators and the FOMC meeting. Also, August sees a

substantial redemption of U.S. treasuries, which will also act to hold down the dollar/yen pairs topside. If any

unexpected negative factors emerge, the markets may see risk-off yen buying and attempts on the currency pair's

downside.

Tate

84.80

88.10

August is usually a month with a relatively large amount of U.S. treasury redemptions, so the markets may see

U.S. treasury-selling by Japanese investors and the situation will be conducive to yen interest-rate swaps. At the

same time, it is difficult to foresee any active investment in overseas securities by Japanese investors during the

Obon holiday season. For all these reasons, the markets are likely to see downwards pressure on the dollar/yen

pair. Supply and demand are likely to hold down the pair due to a lack of any particular incentives.

Hasegawa

85.00

89.00

The outlook for the U.S. economy was revised downwards in the Beige Book, and with the dollar/yen pair

continuing to be influenced by major U.S. indicators at the beginning of the month, dollar-selling sentiments lookset to continue beyond the August FOMC meeting.

Miyachi 84.00 With speculators unwinding their major-currency positions, the dollar/yen pair can be expected to move bullishly


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89.50

during the early stages of any cross yen position-adjustments. However, August is likely to see yen buying due to

seasonal factors such as the redemption of U.S. treasuries, so with risk aversion continuing to smolder away the

dollar/yen pair's topside will be limited.

Sato(Masahide)

84.00

88.00

U.S. interest rate hikes seem to have been pushed back into the future and there is room for a fall in long-term U.S.

interest rates. There is also speculation about a shrinkage in Japanese/U.S. interest-rate differentials and the dollar

will probably trade with a heavy topside.

Otani

85.00

90.00

It is difficult to discern any factors for either the yen or the dollar. Amid uncertainty about the direction of the U.S.

economy, as typified by FRB Chairman Bernankes testimony to the U.S. Congress, and with interest-rates set to

remain low, the environment will continue to be unconducive to any active dollar buying.

Nakayama

85.00

90.00

U.S. interest rates fell in the wake of worsening U.S. economic indicators and the downwards revision of the

FOMCs economic outlook. The situation remains conducive to dollar selling and the dollar/yen pair is likely to

continue trading with a heavy topside.

Tasaka

84.50

89.50

At present U.S. interest rates are falling due to rising concerns over the direction of the U.S. economy. Dollar selling is

expected to continue on the back of this and the dollar/yen pair is likely to trade with a heavy topside. Furthermore,

with U.S. treasury redemptions and the Japanese Obon holidays looming, market participants should be wary of anysudden plunge amid thin trading.

Sato

(Tomoko)

84.50

89.00

The markets are focusing on the slowdown of the U.S.s economic recovery, and even if stocks move firmly in the wake

of the favorable business settlement results, the dollar will move bearishly. The economic outlook seems bleak, as seen in

the U.S. FOMCs statement, though it will probably difficult for the yen to test its 2009 highs.

Yamaguchi

85.00

89.00

In FRB Chairman Bernankes July testimony to the U.S. Congress, he mentioned how the economic outlook will

continue to be unusually uncertain. This was seen as a signal that U.S. interest-rate hikes were being put off even

further into the future and the dollar fell against the yen. If August also sees the release of worse-than-expected

economic indicators, then the dollar/yen pair can be expected to have its downside tested once again.

(As of July 30)

This report was prepared based on economic data as of July 28, 2010.

This report is intended only to provide information and does not constitute an inducement to engage in any particular investment. This report

is based on information believed to be reliable, but Mizuho Corporate Bank, Ltd. (MHCB) does not warrant its accuracy or reliability. The

contents of this report may be subject to change without notice. Final investment decisions should be made based on your own judgment.

Furthermore, this reports copyright belongs to MHCB and this report may not be cited or reproduced without the consent of MHCB,

regardless of the purpose.

This document is a translation of a Japanese original.


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Daisuke Karakama, Market Economist, Forex Division

Euro August 2010

1. Review of the Previous MonthJuly was a month of appreciation for the euro/dollar pair.

The pair started the month on July 1 at the lower-US$1.22 level. European sovereign risk concerns

then receded and the pair rose to the US$1.25 level in the wake of the favorable results of Spains

auction of 5-year government bonds. Towards July 6 risk-tolerance levels improved in tandem with thefirm movements of European stocks, and the currency pair strengthened to the upper-US$1.26 level.

The pair was then bought to the US$1.27 level on July 8 in the wake of: the increase in risk appetite

following the better-than-expected Australian employment data; and the favorable reception to the

positive contents of ECB President Jean-Claude Trichets press conference after the ECB Governing

Council meeting.

The middle of the month (July 12) saw an increase in risk-evasive dollar buying, with the

euro/dollar pair weakening to the upper-US$1.25 level. This was due to movements to lock-in profits

in advance of U.S. business settlements and the announcement of the European stress test results. OnJuly 13 the pair fell to the lower-US$1.25 level in the wake of the downgrading of Portugals sovereign

debt by a U.S. credit rating agency. Risk appetite then grew, however, and the pair was bought back to

the lower-US$1.27 level after the auction of Greek government bonds passed satisfactorily and after a

large U.S. aluminum company announced healthy results. The minutes of the U.S Federal Open

Market Committee (FOMC) meeting were released on July 14 and they reconfirmed the FRBs bearish

economic outlook. This led to further dollar selling and the euro/dollar pair finally broke through

US$1.30. Euro selling then increased after a large U.S. credit rating company downgraded Irelands

sovereign debt, but the euro was then bought against the U.S. unit on July 20 due to rising optimism

with regards to the stress tests of European financial institutions. This pushed the euro/dollar pair up to

hit its temporary high for the month of US$1.3029. Risk aversion increased the following day (July 21)

in the wake of FRB Chairman Bernankes guarded testimony to the U.S. Congress about the future of

the U.S. economy, with the currency pair crashing to the lower-US$1.27 level as a result. After this,

however, the pair shot back up to the lower-US$1.29 level after the favorable results of major U.S.

companies were confirmed. The European stress tests (results announced on July 24) passed without

any problems, as had been expected. As a result they did not really impact the markets and the pair

continued trading stably at high prices around US$1.29.

Entering the latter half of the month, July 26 saw the announcement of better-than-expected U.S.

economic indicators. Against this backdrop, the NY Dow-Jones Average experienced substantial gains


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and risk appetite increased, all of which saw the euro/dollar pair rising to the mid-US$1.29 level. ECB

President Jean-Claude Trichets positive remarks about the stress tests were also well-received,

pushing the pair up to around US$1.300. The pair then reached its monthly high of US$1.3047 on July

27 after large German and Swiss banks posted strong results. On the following day (July 28) the

slackening pace of the U.S. economic recovery was confirmed once more in the Beige Book (Summary

of Commentary on Current Economic Conditions by Federal Reserve District). This led to a bearish

Dow Jones and the euro/dollar pair continued to move around the upper-US$1.29 level.

(Euro/Yen)

In July the euro/yen pair underwent a gentle appreciation.

The pair opened the month at the upper-109 yen level. It strengthened to the lower-110 yen level on

July 1 in the wake of the favorable results of Spains auction of 5-year government bonds. TheAustralian dollar then rose against the yen on July 8 following better-than-expected Australian

employment data, and the euro/yen pair was also dragged higher to reach the upper-112 yen level.

The middle of the month (July 12) saw the euro/yen pair lose value after the downgrading of

Portugal's sovereign debt by a U.S. credit rating agency, but the pair then recovered to the mid-112 yen

level after the markets reacted favorably to the satisfactory results of the auction of Greek government

bonds. The currency pair then strengthened to 113 yen level after the markets focused on the bullish

results of a large U.S. semiconductor company. Dollar selling increased after the U.S. economic

outlook was further revised downwards in the minutes of the U.S. FOMC meeting, announced July 14.On top of this, on July 19 the euro/yen pair rose to the lower-113 yen level after the European unit was

given a lift by optimistic views with regards to the stress tests. The euro/yen pair then crashed to the

upper-110 yen level on July 21 following reports of FRB Chairman Bernankes guarded testimony to

the U.S. Congress about the future of the U.S. economy. The much-anticipated July 24 stress test

results passed safely, as expected, wiping away credit uncertainty. This saw the euro/yen pair rise to

the upper-112 yen level. The pair was bought temporarily to its monthly high of 114.74 yen over July

2728 as some large German and Swiss banks posted strong results and after stocks rose globally.

After this though, the slackening pace of the U.S. economic recovery was confirmed once more in the

Beige Book and stocks began trading bearishly. Under these circumstances the currency pair was sold

back to the lower-113 yen level.


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1.18

1.20

1.22

1.24

1.26

1.28

1.30

1.32

1.34

1.36

1.38

10-4 10-5 10-6 10-7

(USD)

107

112

117

122

127

132(JPY)EU R/U SD EU R/J P Y


Pay attention to neutralized speculator positions

Expected Ranges Against the US$: US$1.24001.3100Against the yen: JPY107.00114.50

In August market participants should be wary of the euro/dollar pairs leeway for depreciation. The

euro beat market expectations by strengthening throughout June and July. Looking at IMM currency

futures, it seems that euro positions are gradually approaching neutral levels. There is a distinct

possibility that the euros bullishness was caused by the process of eliminating short positions that had

accumulated to historically high levels. Not many observers believe that we have seen a decisive end to

the turmoil in Europe that was set off by government sovereign problems. Market unease had jumpedfrom liquidity concerns solvency concerns through to the major theme of concerns about the

eurozone system, but as euro short-covers accumulate there is a sense that this unease gradually

fading away. However, there were doubts about the rigor about the stress tests, and the results have

failed to eradicate uncertainty about the European financial system. On top of this, tough fiscal

reconstruction measures will undoubtedly lead to a weakening of various European economic

fundamentals and indicators. More than anything, it is difficult to imagine the ECB moving closer to an

exit strategy during this phase of fiscal tightening. One of the main reasons why the eurozones

problem nations have managed to dispose of their government bonds without problems is because

Europes private financial institutions have managed to maintain their purchasing power on the back of

liquidity provision by the ECB. If the ECB adopts some tightening measures then this will probably act


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to pour cold water on attempts to resolve Europe's sovereign problems. In these circumstances, the

situation will continue to be fraught with downside risk for the euro.

After the examinations of the soundness of European banks (stress tests) there is now a sense that one

of Europes biggest issues has been laid to rest. Market concerns are currently shifting away from

Europes sovereign problems towards fears of a U.S. economic slowdown and it is difficult to see the

euro being swayed by any factors emanating from Europe. The euros rise in June and July was in the

end a result of dollar weakness. During this time there have also been a series of events that would

have invited market displeasure in the past, such as the downgrading of the sovereign debt of some

euro-affiliated countries and the strikes in Greece, and in actual fact there are not many factors that could

be interpreted as being favorable for the euro. This euro strength due to enemy slip-ups may well

continue in August and as a result the euro will also be swayed by U.S. economic indicators.

The ECB Governing Council is unlikely to diverge substantially from their financial easing policieswhen they meet on August 5. August will see 3-month refinancing operations. These operations are

contributing in no small way to the successful auctions of the sovereign debt of the eurozones problem

nations. If we assume that this provision of liquidity by the ECB is what is stopping Europes sovereign

problems from worsening, then the ECB may expand or strengthen these measures, but there will

probably be no repatriation of funds for the time being. With no major policy decisions on the horizon,

market participants will be focusing on the details of ECB President Jean-Claude Trichets press

conference after the meeting of the ECB Governing Council. With governments refraining from any

expansionary fiscal policies, the ECB will continue to pursue easing policies in August too, so theenvironment will remain conducive to a bearish euro.

It will be difficult for either the FRB or the ECB to move towards an exit (interest rate hikes) in the

short term. Regarding the distance from an exit of financial policy, up until the beginning of June the

ECB was clearly lagging behind the FRB, but from the end of June onwards, with the FRBs economic

outlook being revised downwards, the gap between the two banks has shrunk somewhat. This has

probably underpinned the recent euro/dollar pairs movements. In 2010 the pair has repeated a pattern

whereby the markets see short covering when the euro rises, only for the euro to hit new lows when the

short covering comes to an end. It is possible that the euros rise during June and July was down to the

revision of short positions that had previously accumulated (short covering). As stated at the beginning of

this report, it seems that euro positions are gradually approaching neutral levels and it is difficult to

discern any factors leading to active euro buying. In these circumstances, the possibility cannot be ruled

out of short positions accumulating once again.


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Dealers' Market Forecast

(Note: These opinions do not necessarily agree with the other contents of this report.)

Bullish on the euro (6 bulls: 1.26001.3400, Core: 1.29001.3200)

Zenno

1.2600

1.3400

The stress tests are over and the markets are seeing some temporary euro buying. Worrisome factors for the euro

have in no way been totally eradicated, but with most market participants expounding euro shorts, short buying

back has probably led to a further increase in euro buying. There is no sense yet that euro shorts have been settled

and the euro/dollar pairs topside will be tested once more in August.

Tate

1.2800

1.3300

There still remains pressure on market participants to revise their overly-factored-in concerns over a double-dip

recession and European sovereign risk. The gap between European and U.S. fundamentals became conspicuous at

the end of July, as did the widening European/U.S. interest-rate differentials. It is unclear how long these trends

will continue, but from a technical standpoint, the euro may very well experience significant gains if it looks like

breaking above US$1.3115.

Otani

1.2750

1.3250

The markets have recovered some composure in the wake of the stress test results. Last month saw some euro

buying as a result, but there are still doubts as to the contents of the tests and sovereign risk problems continue tosmolder away, so the euro/dollar pair will continue to trade heavily while having its topside tested.

Tsuda

1.2900

1.3400

Dollar selling is expected to continue due to concerns over the deterioration in the U.S. economic outlook. On the

other hand the euro/dollar pair will continue rallying, in part due to the fund inflows into the currencies of those

emerging/resource-rich nations that are leading the world economy.

Sato

(Tomoko)

1.2600

1.3300

Although concerns over Europes finances have not been eradicated, market participants have shifted their focus

to the U.S. In these circumstances, the situation is expected to remain relatively conducive to euro buying. There

are no positive euro-buying factors and there may be a period of reversal, but on the whole the pair is likely to

trade firmly.

Yamaguchi

1.2800

1.3200

The European stress tests have passed safely, though there have been some criticisms that the audit criteria were

too lenient. Further euro buying is likely as a result of the emergence of a series of bullish European economic

indicators. However, sovereign risk still remains, so the euro/dollar pair's topside will be limited.

Bearish on the euro (11 bears: 1.25001.3300, Core: 1.28001.3150)

Arai

1.2600

1.3300

Euro buying-back is likely in the near future due to the sense of relief that emerged after the European stress tests

passed safely. In the mid-term though, the outlook for the global economy is bearish, as seen in the poor state of

balance sheets, so the main trend will be for dollar and yen appreciation. Either way, the ECB will have to

consider some further easing measures, so the markets will probably not see the euro hitting its highs.

Kato

1.2700

1.3200

The euro's room for appreciation is limited following the shrinking of speculative short positions after the stress

tests were navigated safely. The current difference between business confidence in the U.S. and Europe is just a

temporary phenomenon and the mid-term outlook for growth still seems more optimistic for the U.S., so the

markets will gradually see some dollar buying.

Tanaka

(Yoshihisa

1.2700

1.3200

The euro/dollar pair will probably trade in a range. The stress tests, a major market factor, have passed without

incident and market participants are now awaiting the emergence of new factors. Though there remain

deep-rooted causes for concern in the fiscal arena and so on, these are unlikely to become an issue in the short

term. The markets have seen some favorable European indicators on the back of the weak euro. On top of this, the

euro/dollar pair has been supported by dollar selling due to fears of a U.S. economic slowdown. However, there is

an undeniable sense that the pair lacks the momentum to rise above and beyond current levels.

Hasegawa

1.2700

1.3200

From the beginning of the month until the FOMC meeting the markets will continue to see

dollar-selling/euro-buying while keeping an eye on U.S. interest rate trends. However, there are no reasons for

active euro buying and from the latter half of the month onwards market participants will probably be looking for

selling opportunities.

Noda1.2600 The current bullish European economic fundamentals were probably influenced by the World Cup and the bearish

euro, so the durability of this trend remains to be seen. With deep-rooted concerns remaining with regards to


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13

1.3200 Europes finances, the markets will probably see some adjustment.

Miyachi

1.2550

1.3150

The markets have reacted favorably to the conclusion of the stress tests and the temporary calming-down of

concerns over sovereign risk/the financial system. However, risk continues to smolder away. Furthermore, some

observers believe that an appropriate level for the euro would be between US$1.201.30, so the euro's room for

appreciation will be limited.

Sato

(Masahide)

1.2800

1.3200

The main reason for the current euro appreciation against the dollar is the buying-back of euro shorts. The pairs

room for appreciation will probably be limited from hereon.

Nakayama

1.2600

1.3200

The U.S. has seen a series of weak economic indicators. At the same time, the announcement of the eurozone's

stress test results has led to a dilution of market uncertainty and Europe has seen the announcement of

better-than-expected economic indicators. As a result of all this, the markets have seen euro buying-back.

However, the situation in the eurozone remains difficult, with fiscal austerity leading to economic sluggishness, so

the euro/dollar pair's topside will be limited.

Takahashi

1.2500

1.3250

Market participants should be wary of dollar selling on the back of deteriorating business confidence in the U.S.

economy. However, amid eurozone fiscal concerns and lingering financial uncertainty, the euro/dollar pair'stopside will be limited. There is a risk of depreciation if the markets avoid risk assets for a time.

Tasaka

1.2650

1.3200

The markets are currently seeing some revisions to the excessive pessimism that had been factored in with regards

to Europe. This has led to euro buying-back. Europe's sovereign problems have by no means been eradicated as a

result of the stress tests though, so the euro will start trading bearishly once again after a round of buying back has

finished.

Niwata

1.2500

1.3200

The stress tests have been completed and the various European CDS markets are gradually recovering composure.

There are also smoldering concerns regarding a U.S. economic slowdown. All this will probably see the euros

highs being temporarily tested, but euro buying will probably be limited following a lull in euro short unwinding.

(As of July 30)









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14

Katsuhiko Takahashi, Americas Treasury Department

Canadian Dollar August 2010

1. Review of the Previous MonthAt the beginning of July crude oil prices fell sharply in tandem with globally bearish stocks, leading to

an environment conducive to Canadian-dollar selling, and the Canadian unit began the month trading

at the C$1.0677 level. However, the U.S. markets went on holiday after the announcement of U.S.

employment data, so adjustive movements saw the Canadian unit break below C$1.06. Though thesubsequently-announced Canadian home-building approvals figure was significantly lower than market

expectations and Canadas Ivey Purchasing Managers Index also posted weak results, Canadian-dollar

buying remained prevalent against a backdrop of firm U.S. stock markets, and the U.S. dollar/Canadian

dollar pair broke below C$1.04. The June Canadian employment data (announced July 9) was stronger

than expected, causing the currency pair to temporarily crash below the C$1.03 level. The number of

people in work increased by 93,200, significantly more than expected (20,000), and the unemployment

rate hit 7.9%, beating forecasts/the previous figure. Expectations for a Bank of Canada consecutive

interest-rate hike had receded but they bounced back once more with these figures. Buying pressure onthe Canadian dollar subsequently became entrenched and the currency pair fell for a time to C$1.0276,

but on the whole the pair continued to make small movements back and forth around the lower-C$1.03

level.

Mid-July saw the selling of the currencies of resource-rich nations against major currencies such as

the dollar, euro and yen. This followed a series of bearish Chinese economic indicators as well as the

revelation in the FOMC minutes that the FOMC had revised their U.S. economic outlook downwards

slightly. Canadian-dollar selling saw the U.S. dollar/Canadian dollar pair reach C$1.0580 and the

Canadian unit experienced an across-the-board depreciation. On July 20 the Bank of Canada

announced that they would be raising the policy rate by 0.25% to 0.75%, the second successive month

of rate hikes. As regards the next policy rate amendment though, in their statement they announced that

they would be making a prudent assessment of the situation while keeping a close eye on global

economic developments. The markets had seen Canadian-dollar buying in the wake of the rate-hike

announcement, but the dovish statement soon led to selling-back.

In the latter half of the month, the May retail sales figures were announced and they disappointed

market expectations by falling for the second consecutive month. On top of this, Canadas

much-anticipated core CPI index recorded sluggish results, falling 0.1% from the previous month and

marking 1.7% y-o-y growth. These figure failed to elicit any clear response from the U.S.

dollar/Canadian dollar pair though. The results of the European financial institution stress tests were


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15

announced after this. Although some observers were skeptical, a sense of relief developed in the

markets. This led to some positive movements and the risk-sensitive currencies of resource-rich nations

rose together with stock markets and commodity prices, with the Canadian dollar strengthening

temporarily to C$1.0256 against its U.S. counterpart. After this, however, crude oil prices crashed

below 76 dollars and unstable trading saw the currency pair return to C$1.0396 before ending the

month at the upper-C$1.03 level.

0.98

0.99

1.00

1.01

1.02

1.03

1.04

1.05

1.06

1.07

1.08

10-4 10-5 10-6 10-7

(CAD)

81

83

85

87

89

9193

95

97(JPY)

U SD/CAD CAD/J PY


With uncertainty growing about the future, pay attention to the results of

major economic indicators

Expected Ranges Against the US$: C$1.01001.0700Against the yen: JPY81.5088.00

At present the currency markets are shifting their focus from Europes problems to concerns over the

U.S./global economic slowdown. Concerns over economic downside risk increased after FRB

Chairman Ben Bernanke stated in his testimony to the U.S. Congress on July 21 that the economic

outlook will continue to be unusually uncertain. Under these circumstances, although the Bank of

Canada raised the policy rate for the second consecutive month, with regards to the next rate hike they

announced that they would be making a prudent assessment of the situation while keeping a close eye

on global economic developments. Furthermore, the Bank revised downwards their economic growth

forecasts for both 2010 and 201, from 3.7% to 3.5% in the formers case and from 3.1% to 2.9% in


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16

the latters. Canada relies heavily on the U.S. economy, so concerns over a U.S. economic slowdown

often affect the Canadian dollar more than the U.S. dollar. As long as the economic situation remains

uncertain, the markets will swing between hope and despair depending on whether certain event or

major economic indicators surpass or fall below expectations. It will be difficult to discern any clear

trends and thus dangerous to make any premature decisions.









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17

Hidetoshi Honda, Europe Treasury Department

British Pound August 2010

1. Review of the Previous MonthIn July the pound rallied from its downturn at the end of June and started the month trading bullishly.

This downturn/rally were both dragged along by the euros movements, so although the UK unit fell

and then rebounded against the yen and the dollar, during the same phase it rose then fell back against

the euro. A number of factors have been suggested for the euros fall, such as: expectations for thelarge-scale selling of Greek sovereign debt at the end of the first half of the year (the end of June) by

those investors who manage their investments mainly according to bond indices; and concerns that the

auction of Spanish sovereign debt on July 1 would not go well. However, Greek sovereign debt traded

more or less stably and the auction of Spanish government bonds actually went quite well, so the

markets saw substantial euro buying-back.

While the euro then rose steadily against the dollar and the yen, the pound traded at an impasse

without a clear sense of direction against these latter two currencies. The reason why the pound was

not dragged along by the euros recovery was probably because of the stagnant UK economicindicators released around this time. The following indices were all worse than the markets had been

expecting: the June Services PMI (announced July 5); the HBoS June house price index (July 8); the

May manufacturing and industrial production figures (July 8); and the May trade balance (July 9, the

balance fell substantially more into the red than expected). When each of these figures was released,

the pound traded bearishly across-the-board against all the major currencies.

At the same time the euro was boosted further by the July 7 announcement by the Committee of

European Banking Supervisors (CEBS) with regards to the details of the bank stress tests, such as the

number of target banks (91) and the date when the results would be announced (July 23). Though the

CEBS failed to specify any concrete auditing criteria, the markets saw euro buying, perhaps because of

the alleviation of some uncertainty and the spreading sense of relief with regards to the European

financial system. Stocks rose across-the-board during this phase, led by financial stocks, and the

markets also saw rising crude oil prices. Then yen also traded bearishly during this period of growing

appetite for risk.

The Bank of Englands (BoE) Monetary Policy Committee meeting was held on July 8. At the

meeting the base rate was kept at 0.50% and the ceiling for the total amount for the asset purchase

program (quantitative easing) was kept at GBP200 billion. The both conformed to market expectations,

and the reason why the pound subsequently began trading bearishly across-the-board for a time is

perhaps because the decision frustrated the expectations for monetary tightening held by some sections


19/54

18

of the market.

From July 13 onwards, however, the pound began rising once again against the dollar in particular,

reaching an around 11-week high of US$1.5473 on July 15. This appreciation was probably due to the

combined effects of the following: buying factors on the pounds side such as the bullish UK June CPI

figures (announced July 13), interpreted as possibly accelerating the schedule for UK interest-rate

hikes; and selling factors on the dollars side, such as the apparently bearish contents of the minutes to

the Federal Open Market Committees (FOMC) June meeting (announced July 14), such as the

reference to deflation risk, leading to the fall of U.S. long-term interest rates. There also appeared to be

significant technical factors behind this trend, such as the fact that the New York Mercantile

Exchanges U.S. dollar index had breached the 61.8% retracement for the period from its low in April

to its high in June.

From July 20 onwards the pound began selling intermittently once again in the wake of theannouncements of the UK June fiscal balance (July 20) and the minutes of the July BoE Monetary

Policy Committee meeting (July 21). The markets reacted unfavorably after: the fiscal deficit expanded

more than expected; the minutes made it clear that the only committee member to vote for an

interest-rate hike was Andrew Sentence. However, the pounds bearishness during this phase was

significantly influenced by the euros depreciation, and the UK unit actually traded firmly against the

euro. On July 20 the unsatisfactory results of the auction of short-term Hungarian bonds were seen as a

selling factor for the euro.

The euro continued trading bearishly thereafter, but the pound began appreciating across-the-boardagainst the major currencies from July 22. There were several factors behind this phase too, but as for

factors on the pounds side, the UK units rally was propelled by the clearly better-than-expected

results of such UK economic indices as the June retail sales figures (announced July 22) and the

preliminary GDP figures for the period AprilJune (announced July 23). FRB Chairman Ben

Bernankes testimony to the U.S. Congress on July 21 was read as being bearish with regards to the

direction of the U.S. economy and dovish with regards to financial policy. This was seen as a dollar

selling factor, with also contributed to the dollars overall bearishness.


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19

1.41

1.43

1.45

1.47

1.49

1.51

1.53

1.55

1.57

10-4 10-5 10-6 10-7

(USD)

126

131

136

141

146

151(JPY)U SD/GBP GBP /J P Y


Revisions to the UKs GDP and the BoEs quarterly inflation report

Expected Ranges Against the US$: US$1.51001.5900

Against the yen: JPY131.00141.00

In August the pound may very well strengthen further against the yen and the dollar due to technical

factors. However, it will probably trade flatly on the whole against the euro with limited room for

appreciation, so if it seems that euro appreciation against the dollar and yen is floundering, this might

also weigh down the pounds topside. The first technical point attracting attention will be the 136 yenlevel against the Japanese unit. The pounds topside has met resistance at this level three times since

June. If the UK unit clearly breaches/takes root at this level then further pound appreciation can be

expected. At the same time, if it seems that the euro/yen pair is going to break through the 113 yen level

to reach 114 yen, this could be the impetus for across-the-board yen depreciation. Regarding the

pounds movements against the dollar, market participants have been focusing on the trend channel that

formed from mid-May onwards. Even if the currency pair remains within the boundaries of this channel,

the pound can be expected to rise from US$1.57 level to US$1.63 level against its U.S. counterpart.

However, it seems that the pound will continue to trading leadenly at the GBP0.82 level against the

euro. After the bankruptcy of the large U.S. investment bank in September 2008, the turning point for

the pounds dramatic crash was when it breached GBP0.82 against the euro in November 2008. The


21/54

20

pound temporarily broke back through this level at the end of June, but this rally ended with

reconfirmation of heaviness of the pounds topside at this level.

Apart from technical factors, though there may be some revisions with regards to the various events

that became factors last month, the markets may enter a summer dead season lacking any decisive

factors. Events that became factors last month include the EUs bank stress tests, for example, as well

as the expectations for financial easing by the U.S. Federal Reserve and the accompanying fall in

long-term interest rates. These factors could have been interpreted in several ways, depending on

market sentiments: the stress tests were read as a factor pushing the euro upwards, despite the details of

the tests not being thoroughly verified; and, despite the near-identical contents of the FOMC statement,

the FOMC minutes and the FRB chairmans testimony to congress, the fall in long-term interest rates

was seen as encouraging yen appreciation once more on the back of the relatively limited room for

interest-rate falls and rising risk aversion. Many market participants will be taking summer vacationsand liquidity can be expected to fall from hereon. Considering the aforementioned price movements, the

markets will probably see some adjustments even if no particular new factors emerge, and market

participants may lose even more motivation.

As for factors on the UKs side, attention will be focused on the revised GDP figures for AprilJune,

scheduled to be announced on August 27. The preliminary figures released on July 23 were

substantially better than the markets had been expecting, the main reason for this being the strong

growth in the construction sector, which saw a 6.6% rise in output compared to the previous quarter and

contributed 0.4% to GDP growth. However, this large-scale growth in construction-industry output wasassumed to be down to the significant impact of the amendment to the yardsticks used as reference

points when estimating the provisional GDP. So far there have been no calculations as to the extent of

this impact. There is a distinct possibility that the revised GDP figures will be substantially amended

and, in light of the extreme nature of the industrys output growth, this amendment is likely to be in a

downwards direction. The rise in GDP led to pound buying when the provisional figures were

announced last month, so if these figures are significantly revised downwards, this will probably push

the pound lower too. However, it is possible that the financial markets are already factoring in a

downwards revision to some extent before the revised figures are announced on August 27, so

depending on the circumstances, the markets may actually see some pound buying if the figures are

only revised slightly downwards.

Another UK factor attracting attention is the BoE quarterly inflation report, scheduled for release on

August 11. In relation to the BoE, the markets are focusing on how the Monetary Policy Committees

(MPC) Andrew Sentence voted for a 0.25% rise in the base rate in both June and July. However, just

because one member voted for an interest-rate hike, this will not necessarily lead to rising speculation

that the BoE will be strengthening their monetary tightening stance or that the time for rate hikes is

drawing nearer. The voting results or the minutes do not reveal much with regards to how many people

in the MPC as a whole share Sentences inflationary concerns. The most precise way to gauge this

speculation about the MPC will be to look at the quarterly inflation report itself. By studying the


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21

growth/price forecasts, it might be possible to assess whether the MPC vote was a simple 81 split or

whether those 8 people who voted against a rise also had growing concerns with regards to inflation.

The AprilJune CPI figures on a simple average basis rose more than 3.4% y-o-y, slightly high

compared to the forecast in the last inflation report (May). It will first of all be important to see whether

the BoE interprets this as just a temporary rise or as showing upwards pressure on prices in the

mid-term.

Other noticeable economic indices include the U.S. July employment data (announced August 6)

and the U.S. Federal Open Market Committee (FOMC) meeting (August 10). However, even if the

Federal Reserve is bearish about the U.S. economy, the markets have already factored in the possibility

of further financial easing measures, so as long as no surprisingly bullish statement or figures emerge, a

period of sluggish trading during the summer dead season will probably be unavoidable. UK indices

scheduled for release in August include: the results of the BoE Monetary Policy Committee meeting(August 5); the June manufacturing and industrial production figures (August 6); the June trade balance

(August 10); the July employment figures (August 11); the July CPI data (August 17); the minutes of

the August BoE Monetary Policy Committee meeting (August 18); the July retail sales figures (August

19); and the July fiscal balance (August 19). Besides the aforementioned revised GDP figures and BoE

inflation report, market participants should pay attention to the fiscal balance this month. The coalition

government of Conservatives and Liberal Democrats, launched on May 11, announced a quick

succession of fiscal austerity/consolidation measures, such as the plan to slash GBP 6.25 billions worth

of waste (announced May 24) and the emergency budget (revised budget, announced June 22). Julywas the first month for this series of measures to be fully implemented, so these results may well attract

more attention than they usually do.









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22

Noriko Suzuki, Singapore Treasury Department

Singapore Dollar August 2010

1. Review of the Previous MonthJuly saw a bullish Singapore dollar on the back of the euro rally and the strong Singapore economy.

From the beginning to the middle of the month the markets saw a one-sided Singapore dollar

appreciation, supported by stock markets rallying worldwide and the sharp rebound of the euro (one of

the Singapore dollars basket currencies), which reached the US$1.30 level by mid-July after startingthe month at around US$1.22. The euros rally was to a large extent self-propelled after the markets

had sufficiently discounted the euro selling that had taken place over a two-month period due to

negative European factors. This rally was also connected to a revival of risk preference, with stock

markets and emerging markets also rebounding across-the-board. Under these circumstances the

Singapore dollar rose to the mid-S$1.37 level by July 13 after starting the month at S$1.40 level.

The much-anticipated Singapore AprilJune preliminary GDP figures were announced on July 14.

Although there was already expectation for strong growth, the figures actually exceeded these

expectations to record growth of 19.3% y-o-y, a 26.0% rise from the previous period. Moreover, theGDP figures for JanuaryMarch were also revised significantly upwards from the preliminary figures

to record growth of 16.9% y-o-y and 45.9% q-o-q. This led the government to revise their growth

forecast for 2010 from 79% to 1315%. However, although the markets saw Singapore dollar buying

directly after this announcement, its rise was stalled at around S$1.37 due to strong concerns over

intervention.

Risk appetite waned a little in the latter half of the month due to growing concerns over a global

economic slowdown, led by the U.S. July 15 saw the announcement of Chinas AprilJune GDP

figures, and although these recorded high growth of 10% level, this was less than had been expected,

leading to concerns of a Chinese economic slowdown. With the U.S. also posting a series of bearish

economic indicators, concerns over an economic slowdown grew stronger after the minutes of the June

FOMC meeting (released July 14) and FRB Chairman Ben Bernankes testimony to the U.S. Congress

(July 21) both suggested a cautious outlook towards the U.S. economy. Risk preference changed to

uncertainty and as a result the Singapore dollar continued trading at in impasse at the S$1.37 level for

the time being.

The Singapore unit began rising once more towards the end of the month, shooting up to the

upper-S$1.35 level on July 26, its highest point since July 2008. This followed news that a Japanese

company would be investing in a large Singapore drinks firm. Thereafter, the Singapore unit continued

to trade firmly around S$1.36, supported by further euro appreciation and bullish stocks.


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23

1.35

1.36

1.37

1.38

1.39

1.40

1.41

1.42

1.43

10-4 10-5 10-6 10-7

(SGD)

62.0

63.0

64.0

65.0

66.0

67.0

68.0

69.0

70.0(JPY)U SD/SGD SGD/J PY


The Singapore dollar will trade firmly on the back of the strong

Singapore economy

Expected Ranges Against the US$: S$1.34501.3800


In August the Singapore dollar will probably trade firmly on the back of the strong growth of the

Singapore economy and a recovery of risk preference.

The AprilJune GDP figures announced in July recorded higher-than-expected growth of 26.0% on

a quarter-on-quarter annualized basis, and the Singapore economys recovery since the latter-half of

2009 has been remarkable. If Singapore attains 1315% growth for 2010, as forecast by thegovernment, the self-propelled appreciatory pressure on the Singapore dollar will surely continue.

However, amid rising concerns over an economic slowdown in the U.S. and Europe, there is some

uncertainty as to whether the Singapore economy will be able to maintain its current rate of expansion.

These preliminary GDP figures did not include the results from June, so attention will be focused on

the final figures, which will include June, as well as the next announcement regarding export data. If

the effects of the European and U.S. economic slowdown are manifested in these statistics, this will

pour cold water on anticipation for a Singapore dollar rise. In particular, if exports to Europe

(Singapores biggest export destination) decline, this will have a significant impact on the Singapore

units price against the euro, a price that has already risen by around 15% compared to the beginning

of 2010. Market participants will also be paying attention to export trends to China. China has replaced


25/54


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25

Shinsuke Mitsuishi, Singapore Treasury Department

Thai Baht August 2010

1. Review of the Previous MonthThe dollar/baht pair opened July at around Bt32.42. The markets saw baht selling towards July 7 in the

wake of rising risk aversion, sparked off by the deterioration of U.S. economic indicators. This pushed

the currency up to around Bt32.48. The baht was then bought back following European and U.S. stock

market rallies and a bullish Thai SET stock-price index. Sudden baht appreciation towards July 12 pushed the currency pair to around Bt32.32. With the Bank of Thailands (BoT) Monetary Policy

Meeting looming on July 14, baht buying was supported by hints that an interest rate hike was

imminent such as: comments on July 12 by the Thai finance minister Korn Chatikavanij to the effect

that the BoT will probably raise interest rates within the week; and deputy governor Dr. Bandid

Nijathaworns comment that an interest rate hike would be on the agenda during the weeks Monetary

Policy Committee meeting. At the much-anticipated July 14 meeting, the BoT announced

they would be hiking the policy rate by 25bp to 1.50%, as most observers had expected. The contents

of the accompanying statement were quite hawkish. The statement gave a bullish outlook for thecurrent Thai economy, while Prasarn Trairatvorakul, the next BoT governor, said that the policy rate

would probably be raised to 2.00% within the year. In the wake of this meeting the baht appreciated

further against the dollar to rise to around Bt32.20. The markets then saw some adjustment to dollar

selling/baht buying and the currency pair breached Bt32.30 on July 21. This was due to rising risk

aversion following the bearish movements of European and U.S. stock markets. The pair then fell,

however, due to: confirmation in the June trade balance (released by the Thai Ministry of Commerce

on July 21) that Thailand was still maintaining a healthy surplus of US$2.32 billion; and the upwards

revision of the BoTs forecast for 2010 GDP growth to 6.57.5%. On July 23 the results of the stress

tests of European financial institutions were announced. Only 7 out of 91 institutions failed the test,

with all the major financial institutions passing, as was more or less expected. This led to risk appetite

sentiments and the baht opened the week on July 26 by rising against the dollar to around Bt32.20.


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26

32.0

32.1

32.2

32.3

32.4

32.5

32.6

32.7

10-4 10-5 10-6 10-7

(THB)

2.58

2.63

2.68

2.73

2.78

2.83

2.88

2.93

2.98(JPY)

U SD/TH B TH B/J P Y


The baht will continue trading firmly due to rising expectations for an

interest-rate hike and a healthy trade surplus

Expected Ranges Against the US$: BT31.4032.60


In August the markets will see dollar selling/baht buying. The statement released after last months

BoT Monetary Policy Committee meeting struck a bullish tone with regards to the Thai economy,

indicating that the tourist industry was showing signs of recovery and recognizing that the impact of

recent political turmoil was limited. Prasarn Trairatvorakul, the next BoT governor, said that the policy

rate would probably be raised to 2.00% within the year, and with only 3 more MPC meetingsremaining this year, there are rising expectations for a further rate hike at the next meeting on August

25. Also, the BoT raised their 2010 GDP forecast from 4.55.8% to 6.57.5%, vividly demonstrating

the growing strength of Thailand's domestic economy. After dropping into the red in May, Thailands

balance of trade returned to a healthy surplus last month, and all of these factors will probably lead the

Thai currency to trade firmly against the dollar. Risk aversion grew sharply for a time last month

following the sudden deterioration of a series of U.S. economic indicators and FRB Chairman Ben

Bernankes statement that the U.S. economic outlook will continue to be unusually uncertain.

Market participants should continue to pay attention this month to: the movements of major-country

economic indicators (such as the U.S. and Europe); statements by important figures; and any increase

in risk aversion as a result of these indicators/statements.


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27









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28

Norihumi Yoshida, Singapore Treasury Department

Malaysian Ringgit August 2010

1. Review of the Previous MonthIn July the dollar/ringgit pair traded within its established range around MYR3.20.

At the beginning of the month, concerns grew that the U.S. economic recovery was slowing down

after a series of worse-than-expected U.S. indicators, such as the employment statistics and the ISM

Manufacturing Index. This led to ringgit selling and the pair fell to around MYR3.19 after starting themonth at the MYR3.25 level.

On July 8 the Malaysian central bank raised the key policy rate for the third time in succession,

from 2.50% to 2.75%, and the bank predicted that the Malaysian economy would continue expanding

on the back of strong private consumption and private/public investment. The markets were somewhat

surprised by the rate hike and the dollar/ringgit pair fell temporarily to the MYR3.18 level. Once the

pair breached the MYR 3.20 level though, fears of intervention grew and on the following day the pair

rebounded, so in the end the impact of the rate hike was limited.

Towards the end of the month, uncertainty over the direction of the U.S. economy grew even more

pronounced following weak U.S. economic indicators and FRB Chairman Ben Bernankes statement

that the economic forecast will continue to be unusually uncertain. On the other hand, Europe

continued to see bullish economic indicators, while the financial-institution stress tests were also

concluded without any problems, so the euro moved firmly against the dollar. As risk aversion

diminished, Asian currencies began moving somewhat firmly and the ringgit also broke through

MYR3.20 to trade between MYR3.18 and MYR3.19 against the dollar.

3.17

3.22

3.27

3.32

3.37

3.42

10-4 10-5 10-6 10-7

(MYR)

24.5

25.5

26.5

27.5

28.5

29.5

30.5(JPY)

U SD/MYR MYR/J P Y


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The ringgits firmness will be confirmed on the back of receding riskaversion

Expected Ranges Against the US$: MYR3.17003.2500


In August the ringgit will move firmly on the back of healthy fundamentals and diminishing risk

aversion.

The Malaysian economy remains bullish, as stated in the aforementioned central bank statement,

and steady growth is expected to continue in tandem with growing domestic demand. In July stocks

rose to their highest level in two months and moved firmly thereafter. These healthy fundamentals

look set to continue into August, and amid growing uncertainty about the direction of the U.S.

economy, the ringgit will continue to feel appreciatory pressure against the dollar.

On the other hand, the much-anticipated European financial-institution stress tests passed by safely,

as most observers had expected. The markets are also seeing a lull with regards to concerns over the

direction of the eurozone economy, and if recent risk-evasive movements ease off, there will be

substantial ringgit buying on the back of the healthy fundamentals.

In July the bullish ringgit was pulled along by the RMBs revaluation, but this appreciation did not

continue despite the surprise hiking of interest rates for the third time in succession, and the Malaysian

unit met resistance at its six-month high. With the latest rate hike, there is a sense that factors on the

Malaysian side have run their course. With expectations declining for a further rate hike within the

year, the markets will probably see some profit taking at the ringgits high levels. The ringgit will trade

firmly on the whole with a firm downside.









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Masahiro Gao, PT. Bank Mizuho Indonesia

Indonesian Rupiah August 2010

1. Review of the Previous Month

The U.S. dollar/Indonesian rupiah exchange rate in July was at a standstill, trading within a narrow

monthly range of less than 100 points as of the end of July 23, but saw a slight appreciation of the

Indonesian rupiah in the fifth week. The exchange rate is below IDR 9000 to the U.S. dollar.

The U.S. dollar/Indonesian rupiah pair opened at the IDR 908595 level on July 1. The pair

momentarily approached the IDR 9105 level with rupiah-selling being slightly more dominant thanbuying due to risk aversion, as the June PMI of China was worse than expected. However, the U.S. dollar

did not surge because of U.S. dollar-selling triggered by the U.S. lowering of the long-term interest rate.

Thereafter, the U.S. dollar began to be sold against currencies, such as the euro, on July 1 local time

because of the worse-than-expected economic indices of the U.S., such as the number of new

applications for unemployment insurance and the June ISM Manufacturing Index, as well as the May

existing home sales. Subsequently, the exchange rate temporarily approached the IDR 903035 level on

July 2. The pair closed the first week of trading by slightly rebounding to the upper IDR 9000 level. The

June inflation rate was announced on July 1, which was +0.97% from the previous month and +5.05%YOY, providing evidence of the acceleration of the rise from the May result (+0.29%/+4.16%). The

YOY result reached the 4% level in May for the first time this year, but the figure rose further to the 5%

level in June.

The U.S. dollar/Indonesian rupiah pair opened the second week of trading with persistent concerns

over the double-bottom of the U.S. economy. This is due to the U.S. June employment statistics that were

announced on the previous weekend local time, showing the worse-than-expected result of growth in the

private sector payrolls, even though the unemployment rate was 9.5%, which dropped below the

predicted rate, and the decrease in non-farm payrolls was smaller than expected. The exchange rate

approached the IDR 9100 level once again on July 6, due to risk adverse sentiment in the market.

Nevertheless, the pair went back to the lower IDR 9000 level during July 79 because of the overall

risk-taking trend in the market, after failing to hit the IDR 9100 level, possibly affected by media reports

on Chinas additional purchase of Japanese government bonds. The risk-taking trend was supported by

the spread of optimistic outlook on the stress tests for European financial institutions and the Australian

June employment statistics, which were much better than expected. The central bank of Indonesia

decided at its regular meeting on July 5 to maintain its policy interest rate of 6.50%, marking the 11 th

consecutive month with the same rate. In the statement, the central bank called for caution over the

increasing inflation rate, while indicating that the AprilJune actual GDP growth rate had reached around

6% YOY, and this years annual growth rate was also expected to be near the upper limit of the estimate


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of 5.56%.

The price movements of the U.S. dollar/Indonesian rupiah pair came to a standstill in the third and

fourth week of trading, hovering around at the mid-IDR 9000 level without a strong sense of direction.

The overall market sentiment fluctuated between risk-taking and risk-averting, waiting for the

announcement of the results of the stress tests in Europe scheduled for July 23 local time. Major

risk-taking factors include the better-than-expected earnings results of major American companies,

Greeces government bond auction that showed a desirable result, economic statistics of the euro zone

(the July PMI of the euro zone, the July Consumer Confidence Index of the euro zone, and the July IFO

Business Climate Index of Germany all showed better than the estimated figures), and the appreciation of

European stock prices. Major risk-averting factors included concerns over the sovereign debt rating (not

only over the downgrading of British sovereign debt, but also over the downgrading of Ireland and

revision of Hungarys rating in anticipation of its downgrading), the U.S. and Chinas economic indices(the U.S. saw weak results for June retail sales, the July New York Manufacturing Index, and the July

Philadelphia Federal Index, and China saw a downturn of the AprilJune GDP, the June CPI, PPI, retail

sales, and industrial production), bearish expressions in the U.S. FOMC minutes (the forecast of the U.S.

GDP to be released by the FRB was also revised downwards), and the statement of FRB Chairman Ben

Bernanke at the FOMC meeting (indicating that economic outlook was unusually uncertain). These

factors all contributed to the lack of clear direction in the market of major currencies, causing the euro to

fluctuate with the manifestation of each of these factors.

However, the risk adverse sentiment faded in the fifth week of trading replaced by a sentiment of relief,caused by the results of the stress tests in Europe (although some point out the assessment method and

foreseen scenarios are too optimistic), which showed that the level of failure and the amount of capital

deficiency were both less than expected. On the other hand, the U.S. saw a strengthening of U.S.

dollar-selling due to concerns over the economic downturn triggered by the U.S. Beige Book, indicating

a slowdown of the U.S. economic recovery, leading to rupiah-buying in the U.S. dollar/Indonesian rupiah

market. The pair opened below IDR 9000 to the U.S. dollar on July 30 and traded at the IDR 895070

level.


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8950

9000

9050

9100

9150

9200

9250

93009350

9400

10-4 10-5 10-6 10-7

(IDR)

0.90

0.92

0.94

0.96

0.98

1.00

1.02

1.04

1.06(JPY)

U SD/IDR IDR/J P Y

2. Outlook for this Month:

Pressure for rupiah appreciation due to the asset inflow is likely to be

inevitable, while volatility is expected to be stable at a low level.

Expected Ranges Against the US$: IDR 87009150

Against the yen: IDR 97.00106.00

The U.S. dollar/Indonesian rupiah exchange rate in August is expected to trade narrowly, but the rupiah

is more likely to appreciate.

Among the six-item policy package announced by the central bank in June, the new requirement to

hold Bank Indonesia Certificates (SBI) for a minimum period of one month has been in effect since July.In announcing the policy package, the central bank once again indicated its expectation to lower the

volatility of the foreign exchange market. Although it is not clear how much the enactment of the policy

has contributed to lower volatility in the U.S. dollar/Indonesian rupiah exchange rate, the current

volatility is on a level to satisfy the central bank (however, it should be noted that the exchange rate has

been on the IDR 8900 level since the opening of July 30). Ramadan is scheduled to start in August, and

the central bank is not likely to welcome an unnecessary rise in the volatility of the rupiah in such a

restless time, instead waiting for large festivals after the end of Ramadan. The overall U.S.

dollar/Indonesian rupiah exchange rate is therefore expected to remain stable with a low level of

volatility in August. However, as is symbolized by the appreciation in the Jakarta Composit Index, cash

inflow from abroad to Indonesia is likely to continue, given the comparison between the speed of


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economic growth (including future expectations) of developed countries with various concerns and that

of Indonesia. Although a bubble economy is to be avoided, pressure for rupiah-buying is likely to mount,

along with stock price appreciation. Additionally, the U.S. dollar is likely to remain a difficult option (the

yen can be a better option) for risk aversion for the time being because of the previous months statement

by FRB Chairman Ben Bernanke and the U.S. Beige Book, in addition to the recent weak U.S. economic

indices. Even though the U.S. dollar/Indonesian rupiah pair is not likely to see a dramatic rupiah

appreciation down through the IDR 9000, 8900, and 8800 level one after another, it is possible for the

pair to slowly lower the downside of the U.S. dollar.





Furthermore, this reports copyright belongs to MHCB, and this report may not be cited or reproduced without the consent of MHCB,




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Taichi Kubota, Manila Branch

Philippine Peso August 2010

1. Review of the Previous MonthForeign Exchange

The Philippine peso started trading by falling to PHP 46.65 against the U.S. dollar, due to the drop in

Philippine stock prices. However, this

Documents

AUG-09_Mizuho Dealers Eye