FOREIGN EXCHANGE RESEARCH Global Foreign Exchange Strategy | 6 September 2010 PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 20 THE FX QUANTITATIVE ANALYZER Interest rates and global equity prices were the main drivers of G10 currencies last week, and most pairs moved in line with what was suggested by our financial fair value (FFV) model, except for EUR/CHF. The GBP was the worst-performing currency, with a run of soft UK economic data weighing on the currency, while the AUD benefited from strong domestic economic data and generally improved risk sentiment on the back of decent US economic data. Although not as extreme as before, our FFV model shows the EUR remains undervalued across the board, especially against the GBP, possibly due to investors’ concerns about peripheral euro area economies. Fundamentals, such as interest rate differentials and equity/commodity prices, likely will continue to be strong drivers in coming weeks, and currencies are likely to remain sensitive to economic data and central bank decisions, in our view. Chart of the week: Weekly percentage changes in spot and FFV -2.0-1.5-1.0-0.50.00.51.01.52.02.5EUR/USDUSD/JPYEUR/GBPEUR/CHFUSD/CADAUD/USDNZ D / USDEUR/NOKEUR/SEKactualFFV Source for all charts and tables: Barclays Capital Yuki Sakasai +81 (3) 4530 5026 yuki.sakasai@barcap.com www.barcap.com Contents Summary 3EUR/USD Spot 4EUR/USD Volatility 5USD/JPY Spot 6USD/JPY Volatility 7EUR/GBP Spot 8EUR/GBP Volatility 9EUR/CHF Spot 10EUR/CHF Volatility 11USD/CAD Spot 12USD/CAD Volatility 13AUD/USD Spot 14AUD/USD Volatility 15NZD/USD Spot 16EUR/NOK Spot 17EUR/SEK Spot 18A Primer on Quantitative Analysis (QA) 19 Barclays Capital | The FX Quantitative Analyzer 6 September 2010 2 This page is intentionally left blank Barclays Capital | The FX Quantitative Analyzer 6 September 2010 3 SUMMARY1 SPOT Deviation from fair value Market sentiment Risk premium Momentum % No. of SD Signal No. of SD Signal No. of SD Signal No. of SD EUR/USD -4.4 -1.6 Bearish -0.5 High -0.7 Oversold -1.0 USD/JPY 0.0 0.0 Bearish -0.1 Low 1.1 Oversold -2.0 EUR/GBP -8.3 -2.3 Bearish -0.5 High -0.2 Oversold -0.6 EUR/CHF -1.4 -0.9 Bearish -1.1 Low 0.4 Oversold -3.2 USD/CAD -0.9 -0.7 Bullish 0.7 High -1.0 Oversold -0.6 AUD/USD 1.1 0.5 Bearish -0.7 High -0.6 Overbought 0.6 NZD/USD 1.0 0.5 Bearish -0.2 – – Overbought 0.5 EUR/NOK -1.1 -0.8 Bullish 1.5 – – Oversold -1.7 EUR/SEK -2.0 -0.5 Bullish 1.6 – – Oversold -1.4 Note: All the measures refer to the crosses rather than the specific currencies. The blue shaded area shows extreme overbought conditions, while the grey shaded area shows extreme oversold conditions. The notional of standard deviation shows the strength of each signal as well as the direction of deviation „ Interest rates and global equity prices were the main drivers of G10 currencies last week, and most pairs moved in line with what was suggested by our financial fair value (FFV) model, except for EUR/CHF. The GBP was the worst-performing currency, with a run of soft UK economic data weighing on the currency, while the AUD benefited from strong domestic economic data and generally improved risk sentiment on the back of decent US economic data. Although not as extreme as before, our FFV model shows the EUR remains undervalued across the board, especially against