Maybank GM Daily - 31 Jul 2014

FX

Global

       The greenback bounced on stronger growth. 2Q GDP swung to a growth of 4.0%q/q (ann.) from the previous fall of -2.5%. The Fed reduced asset purchase by $10bn as expected though statement was not more hawkish. Despite acknowledging broad improvements in the economy, the central bank also noted a “significant underutilization of labour resources” still and that longer-term inflation expectations remain stable. Dollar reached a high of 81.545 before softening towards the 81.40-mark after the FOMC decision. UST sold off as 10-year yields soared to a high of 2.5642 overnight before levelling off around 2.55% this morning.

       The usual jobless claims are due today but focus is now on the NFP tomorrow. The average forecast for Jul is 231K and any upside surprise could spur more dollar bids. Before the release, CPI estimate for Jul is on the tap today and may give EUR players more bearish cues for the currency. EUR was last seen a touch under the 1.34-figure. Meanwhile, Argentina could not reach a deal with its creditors and S&P declared that the country is in default.

       Despite a mixed session for US equities, Nikkei was up this morning along with Kospi. Asia is likely to trade in modest black after the strong growth number out of the US. In Philippines, BSP decides on monetary policy later today. Our economic team does not expect a change although majority of the private analysts forecast a 25bps hike. Thailand’s trade numbers are also due today.

G7 Currencies

       DXY – Buoyant Trades. DXY bulls were given a boost by 2Q GDP which came in well above consensus. Growth quickened to 4.0%q/q (ann.) in the quarter, an upswing from the -2.1% decline previously. The print eclipsed the ADP report which decreased to 218K from the previous 281K. NFP on Fri is watched now and could also see a similar decline from the previous 288K in tandem with the ADP report. Momentum indicators are still slightly bullish on the intra-day chart and we expect dips to be supported by 81.20-support (around the 18-SMA on the 4-hourly chart). 81.60 marks the barrier today ahead of the next at the 82-figure. Dips are unlikely to challenge the 81.02-support.

       USD/JPY – Upside Risks. USD/JPY spike above the 103.00-figure following a jump in the dollar overnight, taking out several barriers on its way up before easing to close below that level. Pair is currently sighted around 102.82 with risks biased to the upside though RSI is indicating overbought conditions. Immediate barrier is seen at the 103-figure and a firm break could see the pair headed towards the next at 103.680. Recent barrier at 102.20 is now seen as support for today.

       AUD/USD – Heavy. AUD/USD broke below the 0.9329-support and waffled a touch below this level. Momentum is bearish and next support is seen around the 0.9274 ahead of the 0.92-figure. With 18-SMA below the 40-SMA on the intra-day chart, expect this pairing to remain heavy in this session ahead of the NFP tomorrow. Jun building approvals underwhelmed with a print of -5.0%m/m compared to the previous 10.3% (revised). The lacklustre data is likely to keep the downside pressure on the pair today.

       EUR/USD – Bearish. EUR/USD touched a low of 1.3367 this morning and was back around the 1.34-figure. MACD forest is still below the zero line and moving averages are also trending lower. Risks are still to the downside in this pairing. CPI estimate for Jul should be closely watched in late Asia for additional bearish cues that could drag the pair under the 1.3367-support towards the next support around 1.3316. Otherwise, expect heavy trades within 1.3370-1.3430.

        EUR/SGD – Consolidation. EUR/SGD bounced overnight on SGD weakness and is still within the 1.6640-1.6730 range. The cross is last seen around 1.6690. The 18-SMA shifts closer towards the 40-SMA on 4-hourly chart and could signify a period of consolidation in the near-term. Main barrier of the week is seen around 1.6730, ahead of the next at 1.6760. Eyes on the CPI estimate out of the Eurozone today ahead of the NFP tomorrow.  

Regional FX

       The SGD NEER trades 0.44% above the implied mid-point of 1.2509 with the top end estimated at 1.2260 and the floor at 1.2758.

       USD/SGD – Rangy With Upside Bias. USD/SGD took out our barrier at 1.2445 on its way up following the dollar upmoves overnight. Pair was last sighted around 1.2452 with intraday MACD forest still hugging close to the zero line, suggesting little momentum ahead. Ahead of the next key event - the NFP due on Fri – pair is likely to remain in rangy trades for now with the bias still to the upside given that the 18-DMA lies above the 40-DMA. New barrier is now at 1.2472 with 1.2415 providing support today.

       AUD/SGD – Downticks. AUD/SGD inching higher this morning after the massive overnight slide to a low to around at 1.2590 on the back of AUD weakness. Cross is currently sighted around 1.1614 with intraday MACD still showing little directional cues though RSI is indicating oversold conditions. Still, risks are tilted to the downside given the negative cross-over of the 18-DMA and 40-DMA. With our support at 1.1620 taken out, new support is now at 1.1590 before 1.1573. 1.1680 should guard topside today. SGD/MYR – Rangy With Downside Bias. SGD/MYR was quite resilient, hovering range-bound within 2.5547-2.5630. Cross is currently inching higher around 2.5597 with intraday MACD forest hugging close to the zero line, suggesting the lack of directional cues again, though risks are still tilted to the downside as the 18-DMA lies below the 40-DMA. We look for continued range-bound trade today with topside guarded by 2.5630 ahead of 2.5721, while downsides should be limited by 2.5547.

       USD/MYR – Firmer in Range. USD/MYR pairing gapped up this morning and was last seen around 3.1880, underpinned by strong dollar upmove overnight. MACD trades above the zero line. The domestic bond markets could be affected by the surge in UST 10-year yields overnight. Still, the current upmove lacks conviction and two-way interests are seen. We expect pairing to remain in firmer end of the 3.1660-3.2040 range. 1-month NDF touched a high of 3.1979 before easing to around 3.1860. Risks are tilted to the upside and next barrier is seen around 3.2055. Support is seen around 3.1880.

       USD/CNY was fixed at 6.1675 (+0.0030), vs. previous 6.1645 (+2.0% upper band limit: 6.2932; -2.0% lower band limit: 6.0467). CNY/MYR was fixed at 0.5161 (+0.0019). USD/CNY – Downside Bias. Pair steadied around 6.1740 after open, underpinned by a higher fixing though bulls are hardly inspired. Bearish pressure is still dominant on the intra-day charts with 18-SMA well below the 40-SMA (4-hourly). Expect bids to be limited by the 6.1860-resistance. Next support at 6.1699 ahead of the next, some distance away at 6.1533 (50% Fibonacci retracement of the Jan-Apr rally). From the press, China will start an OTC market-making mechanism on 25 Aug (China Securities Journal).

       1-Year CNY NDFs –Choppy. The NDF hovered around 6.2550 this morning after a strong upmove overnight. MACD forest on the intra-day chart is above the zero line. 18-SMA has crossed above the 40-SMA. Bias is still tilted to the upside with break of the 6.2575-barrier exposing the next at 6.2625. USD/CNH – Shallow Dips. USD/CNH waffled around 6.1745, still within striking distance of our double-topped target of 6.1706. We will take profit once the target is reached. MACD shows little cue, only slightly above the zero line. 18-SMA is below the 40-SMA and upticks may be on short leash. Expect sideway trades at this point. Barrier remains around 6.1850 for intra-day trade. Support is now seen around 6.1706.

       USD/IDR – Closed For A Week-Long Holiday. Onshore markets are closed for the Idul Fitri celebrations and will re-open only next Mon. With onshore markets closed for the week-long holiday, market focus will be on the offshore price. The 1-month NDF spiked to an intraday high of 11775 overnight on the back of dollar strength before easing slightly to hover around 11755. Risks are still tilted to the upside as indicated by intraday MACD as well as by the positive cross-over of the 18-DMA and 40-DMA. Moreover, a thick intraday cloud lies below that should limit downside. Support today is seen around 11700 (top of the cloud) with 11800 likely to cap topside.

       USD/PHP – Still Capped. USD/PHP bouncing higher this morning following a resurgent dollar overnight. Pair is currently hovering around 43.445 with intraday MACD indicating mild bullish momentum though RSI is showing near overbought conditions. Still, upsides today could be capped given the negative cross-over of the 18-DMA and the 40-DMA. Still, a thin cloud lies overhead with immediate resistance likely around 43.528 and we need to see a firm break of this barrier to expose the next at 43.720. We expect support to remain around 430.185. Markets will remain focused on the BSP decision out later this after with a rate hike likely to drag the pair towards 43.070. 1-month NDF is wobbling this morning, hovering around 43.450 currently, little changed from its overnight close. The 1-month is currently in the thick of the ichimoku cloud and with intraday MACD still showing little momentum in the day ahead, range-bound trades are likely today. BSP meets today and market expects the central bank to hike the overnight borrowing rate by 25bp to 3.75%. This however is not our economic team’s base case. They do not expect any rate hike anytime soon. More likely than not, the BSP is likely to use macroprudential measures to curb excessive liquidity rather than use interest rate.

       USD/THB – Two-Way Trades. USD/THB is now in the thick of the ichimoku cloud following the break higher overnight following better-than-expected US GDP and strong inflation prints. Pair is wobbling this morning, hovering around 31.975 currently with intraday MACD showing mild bullish momentum though the pair is just out of overbought conditions. Foreign funds continued their sell-off of equities with a net THB1.67bn sold yesterday, but at the same time loaded up on government debt with a net THB4.02bn purchased, which net-net continued to support the THB. With the cloud thin, a break above the cloud is possible, exposing the next hurdle at 32.050 ahead of 32.145. 31.800 continues to provide support today. The Finance Ministry is expecting 2Q14 real GDP to contract by 0.3% y/y, but then rebound by 4.3% y/y in 2H underpinned by government spending. The government now expects real GDP growth for 2014 to expand by 2.0% from 2.6%. For 2015, the government is estimating growth at 5.0%.

Rates

Malaysia

      The MGS curve ended the day almost unchanged. We noted some flows into the belly of the curve although volumes remained thin as players slowly get back to work after the long holiday. We think the yield levels will remain stable without new impetus. Focus will be on the 7-year MGS re-tap auction.

       The IRS market was quiet with no trades reported. Levels barely moved. 3M KLIBOR stayed unchanged at 3.59%.

      The PDS market was equally quiet back from the holiday, although volumes look decent but some was due to asset reallocations. Levels generally traded rangebound. We noted some interest in short-dated issues, e.g. Putrajaya 16 traded 1bp lower to close at 3.83%.

Singapore

      In the SGS market, we saw market participants switching from the rich short end and belly to the relatively underpriced long end papers. Except for the very long end 15 to 30-year sector, issues at the short end of the curve up to the 8-year point were sold down, especially the  5-year benchmark SGS. In contrast, the 15, 20 and 30-year SGS benchmarks were firmly bidded.  With the IRS curve slightly higher and flatter, front end swap spreads narrowed by 2-3bps whilst back end widened by 1-2bps.

       In the Asian credit market, we noted players selling the long ends switching to the short ends, probably positioning defensively ahead of the upcoming jobs data release from the US. Buying interest in the Indon names remained, with names from Pertamia to INDON well bid. Chinese developers on the other hand experienced some selling pressure.

Indonesia

      Please note that there is no write-up on Indonesia fixed income this week.