EFTA Document EFTA01449346

16 May 2013 FX Blueprint: Dashing Buck Theme P4: Solid Bloc • The key US data suggest CAD's external backdrop remains supportive, as do Canada's commodity prices, and fears on Canadian housing are likely overdone. We maintain our recently entered CAD/JPY long. Having recently exited our long-held bullish AUD/CAD and NZD/CAD views from our previous Blueprint we now also go short NZD/CAD. ▪ With AUD looking to have clearly overshot to the downside we do not enter AUD/CAD shorts at this point. Indeed we are more inclined to take advantage of the skew in AUD/USD options to buy a vanilla AUD/US0 1.01 3-month call for around 100 pips. We have in the past noted how US data surprises tend to lead Canadian data surprises, showing the influence trends in Canada's largest trading partner have on its economy. CAD then tends to follows US data surprises. CAD has been surprisingly resilient to weakness in the broader US data flow in recent weeks - a period where our US Macro Pulse Index of data surprises has largely run in negative territory. As can be seen in Figure 1, however, the key parts of the US recovery story - the recovering housing and labour markets - have been more encouraging than the broader US data flow recently, and are providing greater support for CAD. Canadian commodity prices also remain supportive, with US natural gas prices having climbed solidly in 2013. Even in the weakest part of the Canadian outlook - the weakening building sector - the recent news is more encouraging, with overall building permits at a 5-month high in March (albeit driven by non-residential permits). While it is by no means a bullish factor yet, it may be that market participants are too negative on how much further this sector is likely to weigh on CAD (Figure 2). Given our ongoing bearishness on JPY, we expressed this CAD bullishness by going long CAD/JPY on 9 May when it rallied through 99 (see Trade Recommendation: Long CAD/JPY, 10 May) and we maintain this long. This improving macro backdrop for CAD is being reflected in the financial variables that drive our short- term models of CAD crosses. Our AUD/CAD model has clearly rolled over, while our NZD/CAD model is starting to roll over as well (Figure 4). So we recently exited our long-held AUD/CAD and NZD/CAD Blueprint views (see FX Daily: Changing the Call on CAD Crosses, 6 May 2013). Figure 1: Signals from US housing and labour market support CAD. ACM M11.1N.1Yl,Y 4.116/ It IC 10 I .6 -6 .10 -16 —Cenbrad Menage Apes TA Jobl••• dome 122.101264.106414•1111.121 07 00 01 W 0 Sane O.B.M. Bank Bbersbn lin LI 00 13 -16 Figure 2: .. Canadian building outlook starting to turn? 30 20 20 10 10 0 0 -10 -10 -20 -20 40 -40 40 -40 anco --Canaan Cluilthng P0111112$ 3m3a114,11.106) —coA 3m4m91(1b1S) an-05 amp Ain410 Source' Dasterlta Bent Eiloreinen Awn:* LP Jan-11 Jail-13 Figure 3: NZD/CAD model Is rolling over - even though spot has overshot near-term, we target a move to 0.80 an miy12 —**40,0**60eiry rulares 10•046.000. 0111. Mw tow *0 1V.1 . . . . i1/44 12 lier 72 Feb13 way 13 Sane' Purse** Link Bloteren Finance LP Deutsche Bank AG/London Page 9 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL SDNY_GM_00250900 DB-SDNY-0 104716 EFTA01449346