Maybank FX Tech Weekly - 15 May 2015

      With the dollar bulls still languid, markets could continue to look for carry before a likelier hike in Sep. We continue to favor buying on dips. Any further indications of possible China monetary easing, softer US data (i.e. rates volatility and diminishing fear of the Fed), and fading Greek risk could maintain current rise in bond yields, commodities technical rally and euro upside. In the region, USD/AXJs are likely to retain their downside bias with the exception of USD/THB given its capital outflow policies.

      The soft dollar was welcomed by equity markets. Tame inflation and tightening job market gave a goldilocks feel to the US economy, boosting stocks.  No surprise that dollar remains on its corrective slide.  Key release this week is FOMC Minutes on Wed night. Recall that the lackluster data for 1Q was only partially attributed to the weather and labour dispute. Dollar strength shouldered the rest of the blame and Fed is thus perceived less likely to raise the funding rate in Jun. The Minutes will be scrutinized for another confirmation of a Sep rate hike as opposed to one in Jun. US data out next week include housing starts (Tues, 19 May, Cons 1020K), existing home sales (Thurs, Cons. 0.6% m/m) and CPI M/m (Cons 0.1% m/m).  With oil moving higher it will be harder for USD upside momentum to pick up, even if the US data starts to turn. Also with US economic softness and monetary policy divergence factors being unclear now, we think USD strength could still remain mildly at risk.

Minutes from RBA and BOE are out this week. RBA had already put the easing option back to the table with its quarterly Statement on Monetary Policy but we do not think the central bank can deliver a cut as soon as Jun or Jul. The Minutes may reiterate the same. That should leave sometime for more upsides in AUD. On the other hand, BOE revised growth forecast lower in its quarterly inflation report but made a mild upside revision in CPI forecasts. While timing the first hike will always be a guessing game at this juncture, expectations of the move itself should keep the pound sticky on the downside in the near-term. BOJ meets next Fri but we expect no action.

      EUR/USD seen consolidating recent gains around 1.1380/1.1415 with EUR longs coming in more recently on the back of better possible repatriation and risk appetite and should retain its momentum, but in the next 3-6 months we still expect eventual euro declines towards 1.04 as euro shorts set in.  Spread between US and Bund little changed near lows and will weigh on asset classes until volatility subsides. Greece is expected to repay another 1.5 billion euros to the IMF and another three billion euros to the ECB in July and August. Germany ZEW index (19 May, Tues, Cons. 69), Eurozone CPI (Apr, 19 May Cons 0.2% m/m) and Eurozone Flash PMIs (Thurs, Cons 51.7).  Further indication of cyclical moves in the Eurozone and unwinding of Greek risk premium could be further supportive of the euro towards 1.15 levels in the interim as the dollar retains its muddied outlook.

      In Asia, Thailand will unveil 1Q GDP (Cons. 3.4%y/y) early on Mon. Other data released that day includes Singapore’s Apr NODX (Cons. -5.0%y/y), China’s property prices. Singapore will release its growth numbers (Cons. 2.2%y/y) anytime next week as well. Tue should see BI static on its policy reference rate at 7.50%. Wed is PMI-mfg estimate day with China’s HSBC flash PMI-mfg  (Cons. 49.4 vs. prev. 48.9) to kick start the releases, followed by European Union and US. Come Fri, Malaysia will release CPI for Apr. The euro strength could help support the SGD on a relative basis compared to other regional currencies.  USD/SGD has dropped more than 2cents this week on the back of the dollar and euro swings and we expect the USD/SGD to potentially hover lower towards 1.3150-1.3250 next week. The SGD NEER remains close to the mid-point with band still limiting it at around an implied 1.3000-1.3550 range at this point in time.