From: Daniel Sabba <blackened out>
To: "jeevacation@gmail.com" <jeevacation@gmail.com>
Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I]
Sent: Friday, September 11, 2015 1:26:56 AM

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Classification: For Internal Use Only

Ok. There are two trades I would like you to look at. One a cheap long term play in crude, other a play on global central bank liquidity coming down.

From: jeffrey E. [mailto:jeevacation@gmail.com]
Sent: Thursday, September 10, 2015 04:21 AM
To: Daniel Sabba
Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I]

speak later today I am in europe

On Thu, Sep 10, 2015 at 4:48 AM, Daniel Sabba <██████████████████████████████████> wrote:

Classification: For Internal Use Only

Thought provoking charts.

From: Isin Sumengen-Ziel (DEUTSCHE BANK AG, LO) [mailto: Sent: Wednesday, September 09, 2015 10:09 AM Subject: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence

Given the volatile price action in the EMEA high betas (TRY, RUB, ZAR), the below charts may be informative:

1) Stretchometer: Price action is certainly stretched (on the weaker side) across the board, but especially in MYR and BRL. TRY ZAR RUB price action is also stretched, but not as much as before the rally over the past two days.

- Image/chart not legible / placeholder — no numeric series or legend extractable.
- Context text (from figure): "USDTRY price action is now stretched to the extent we saw earlier this year and more importantly at the start of 2014 (when the CBT undertook an emergency rate hike)."
- Key entities: USD/TRY (exchange rate), CBT (Central Bank of Turkey).
- Key timestamps/events: "earlier this year" and "start of 2014" (noted for CBT emergency rate hike).

Looking specifically at USDTRY, price action is now stretched to the extent we saw earlier this year and more importantly at the start of 2014 (when the CBT undertook an emergency rate hike).

Image: no readable chart or legend (appears to be a placeholder).

Key extracted points:
- USDTRY: price action is highly stretched — comparable to levels earlier this year and at the start of 2014 (when the CBT executed an emergency rate hike).
- USDZAR: the "stretchometer" is at 5‑year highs but has retraced over the past 2 days, consistent with a risk‑on appreciation move across EMEA high‑yielders.

The stretchometer for USDZAR is at 5-yr highs, but has retraced somewhat in the last 2 days (in line with the risk-on appreciation move observed across the EMEA high-yielders).

The image shows a square with diagonal lines forming an "X" inside, and a darker shaded section in the lower portion of the square.

USDRUB price action is also stretched, but we are still far below the 'stretch' levels we have seen in the recent past.

- Image assessment: appears to be a placeholder/blank image (gray box with an X). No visible chart, axes, series, labels or legend — no data to extract.
- Key info (from surrounding text): "USDRUB price action is also stretched, but we are still far below the 'stretch' levels we have seen in the recent past."

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry):

According to our short term financial fair value' metric, EM FX is cheap almost across the board, with ZAR being the the most undervalued currency. TRY is also cheap, while RUB less so. However, these results should be taken with a pinch of salt, as the short-term valuation metric provides a better picture when currencies are trading within relatively tight ranges, rather than trending strongly and breaking new ground (as is the case currently for many EM currencies) due to domestic factors/factors not captured by the model.

Financial fair value (USD crosses):

The image is a gray, noisy pattern with two diagonal lines crossing. It is difficult to extract any meaningful data or information from it.


As the charts below show, the extent of undervaluation (i.e. the magnitude of the model residual) is at 1y extremes for TRY and ZAR, but not for RUB.

USDTRY:

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

- Image shows a gray placeholder/corrupted figure (large "X" cross and shaded area); no readable axes, labels, ticks, legend, or plotted data.
- Context label provided: "USDZAR" (no numeric data visible).
- Request: please upload a higher-resolution/uncorrupted chart image or provide the raw data (dates/prices) for extraction.

USDZAR:

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

The image is an abstract grey texture with diagonal lines.

USDRUB:

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

The image is a blurry square with intersecting diagonal lines. The bottom right triangle appears smoother than the rest. It is difficult to decipher any further meaning or detail from the image.

Another point to highlight from the financial fair value metric, other than the cheapness of TRY and ZAR in particular, is the resilience of Central Europe (HUF. CZK. PLN. RON). We have been highlighting our bullish bias on the region (HUF and PLN in particular), and the financial fair value metric corroborates the fact that these currencies have been mostly immune to the recent sell-off in EM FX. They have the best performing EM currencies (vs USD) since the yuan deval. Over this period, there has certainly been differentiation within EMEA — weakening bias in the high yielders TRY RUB ZAR and resilience in Central Europe fx.

This differentiation is also evident in the chart below, which indicates that the average correlation between the EMEA fx currencies (USD crosses) has come down sharply in the past few months.

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

The image shows a pattern consisting of dots, with two diagonal lines intersecting in the center of the image. The bottom section is slightly different in pattern.

Best,

Gautam

[x]

Gautam Kalani, Ph.D
Economist/Strategist

Deutsche Bank AG, Filiale London
Emerging Markets Research
Winchester House. 1 Great Winchester Street. EC2N 2DB London. United Kingdom
Tel.
Email

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## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

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