Maybank GM Daily - 21 Jul 2015

FX

Global

      Commodities were sold off with a focus on the shocking slide in gold before its rebound in Asian open. Spot had tanked to a low of 1096.50 before rebounding above the 1104-mark as we write. Oil prices were also softer with WTI waffling around USD50/bbl as we write. Brent prices are still on the slide, last seen around USD56.55. Lower commodity prices benefit the US equities. The NASDAQ made fresh high as earning season shifts into high gear. That said, net gains for the session were small with DJI and S&P up 0.1% each.

      Dollar retained its gains on Mon with USD/JPY above the 124-figure. GBP slid as rate hike expectations adjust. AUD and EUR were back to where they were at the start of the day. NZD was a rare net gainer, up 0.6% against the greenback. Nearer to home, AXJs were vulnerable. THB weakened the most, -0.7% followed by KRW at 0.4%.

      Onshore markets in Indonesia are still away for Idul Fitri holidays, to resume tomorrow. Japan starts the week today on a positive note. Nikkei was up +0.5%. Kospi was also in moderate black. We do not think sentiments in energy producing economies will be as positive. BOJ Minutes was out with many BOJ members seeing an improvement in inflation trend. Governor Kuroda also speaks tonight in Bangkok. RBA Minutes is due later and any fresh directional cue from the report for the AUD would be a surprise. Apart from that, the calendar is light for Asia, EU and the US.

Currencies

      DXY – Upside Bias. USD pushed higher towards near 3-month high of 95.15 before closing at 97.99 levels overnight. There was little data to focus on overnight. DXY was last at 98 levels this morning.   We continue to maintain our long-held view for the first rate hike (25bps) in Sep as data continues to suggest that growth path remains intact. It remains our base-line scenario for the pace of tightening to be gradual, given that Fed will take into consideration domestic growth and external environment – China rebalancing risk, Greek development and USD strength. DXY was last at 97.99 levels this morning. Next resistance at 98.40/50 levels (76.4% fibo retracement of Apr high to May low); support at 97.37 (61.8% fibonacci retracement) before 96.50 (100 DMA). Day ahead, expect 97.50 – 98.30 range; better buyers on dips. Daily momentum/stochastics bullish underlying bias remains intact. Week ahead brings MBA mortgage applications; Jun existing home sales (Wed); Jun CFNAI; initial jobless claims (Thu); Jun new home sales; Jul prelim manufacturing PMI (Fri).

       EUR/USD – Consolidation. EUR traded a relatively quiet range of 1.0809 – 1.0870 before closing largely unchanged at 1.0825. Little news/data-flow overnight except that Greece made payment on about EUR6.8bn due to ECB and IMF; Greek banks re-opened to provide limited banking services. Focus on EUR is now back on monetary policy divergence – ECB still undergoing unconventional monetary policy (QE, negative deposit rate) while Fed and most recently BoE started talking about tightening. Risk-on sentiment is expected to see EUR lower. Next support at 1.0760 (trend-line support from the lows in Mar and Apr). Resistance at 1.0965 (50% fibonacci retracement of Mar low to Apr high) before 1.10 (100 DMA). Week ahead brings GE Jun PPI (Mon); FR Jul manufacturing confidence (Wed); EC Jul consumer confidence (Thu); EC, GE, FR prelim manf/services/ composite PMI (Fri).

       GBP/USD – Consolidate. GBP eased overnight amid mild USD strength. US-UK 2y bond yield spread continues to widen in favour of US, and that could weigh on the GBP near term. While BoE’s Carney did say that rate hike decision could come into “sharper relief at the turn of the year”, the BoE is unlikely to hike sooner than the Fed. Furthermore Carney noted that rate normalisation has traditionally been more modest in the UK than in US; and highlighted that current account deficit remains large and the right policy mix could be for monetary policy to remain accommodative amid tighter fiscal policy. GBP was last at 1.5570 levels; day ahead could see some consolidation; expect 1.55 – 1.56 range. Next resistance at 1.5630 (50% fibo of Jun high to Jul low), before 1.57 levels (61.8% fibo). Support at 1.5560 (50 DMA and 38.2% fibo), before 1.5420 (200 DMA). Week ahead brings Jun retail sales (Thu).

       USD/JPY – Consolidation. USD/JPY appears to be in consolidative mode around the 124-handle after onshore markets re-opened after a public holiday yesterday, helped by firmer dollar. Last sighted around 124.35, intraday MACD is showing mild bearish momentum indicators, while stochastics remained bullish bias, suggesting range-bound trades are likely ahead. We need to see a daily close above 124.50 levels (76.4% Fibo retracement of the 125.86-120.41 downswing) for further upmoves towards 126. Our base case remains for the BOJ to ease in Oct 2015, though recently released BOJ minutes for the 18-19 Jun meeting provided no hints. Instead the minutes reiterated the BOJ goal of easing till it achieved the 2% inflation target. Any dips could see support around 123.80. On tap today is the Cabinet Office Monthly Economic Report for July (Tue).

       AUD/USD – Whippy Trades, Upside Squeeze? This pair is whippy indeed, pressing at first to a low of 0.7328 before reverting back to recent support level at 0.7372. Despite the drag from commodity prices, bears might not be getting the momentum they desire with MACD forest still losing downside momentum on the daily chart. Risks are certainly to the downside but we do not rule out a squeeze to the upside given the lack of momentum. That would give the bears more momentum. Resistance is seen around 0.7410 ahead of the next at 0.7484 and then at 0.7550. Support is seen at 0.7261. RBA Minutes are due today and any fresh cue for the AUD would be a surprise. 2Q CPI is due on Wed and a stronger print of 0.8%q/q is expected compared to the previous 0.2%. That could pare expectations of a rate cut in the near term.RBA Glenn Stevens speaks tomorrow as well.

       USD/CAD – Soggy Growth, Soggy CAD. USDCAD inched a tad higher, underpinned by the slip in oil prices. Momentum is still bullish though next resistance is not far away at 1.3065. Upmove could be a grind now given overbought conditions flagged by the RSI. With oil prices still on the bearish trend, expect USDCAD to remain supported. Expect 1.2835 to support unexpected offers ahead of the next at 1.2660.

      NZD/USD – Risk of Aggressive Rate Cut. NZD squeezed higher, helped by NZ PM Keys comments that the NZD has fallen faster than expected. Further risk of near term position short squeeze as NZD shorts (according to CFTC positioning) are now at unprecedented levels. NZD was last at 0.6580 this morning. Upside squeeze towards 0.6670 (23.6% fibo of Jun peak to Jul trough), 0.6730 (21 DMA) cannot be ruled out. We remain better sellers on rallies.  We continue to reiterate our long-standing view for further downside pressure on the NZD on a combination of drivers including further expectation of RBNZ cutting rates for 2015; weak dairy prices weighing on dairy sector, falling CPI/ PPI amid weakening demand. A 25bps cut to bring OCR down to 3% for this upcoming meeting looks like a done deal (market expectation). We are biased for a 50bps cut as we remain concerned over the dairy sector (prolonged weakness in dairy prices can weigh on the dairy sector income, asset quality in banks’ lending books and given that a significant % of total dairy lending is in floating rate loans; an aggressive rate is expected to ease pressure on the sector).   Week ahead bring Jun credit card spending (Tue); RBNZ meeting (Thu); Jun trade data (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 0.49% below the implied mid-point of 1.3648. We estimate the top end at 1.3373 and the floor at 1.3922.

       USD/SGD – Range-Bound. The USD/SGD closed above the 1.37-handle yesterday and continues to trade above that level this morning, underpinned by a firmer dollar. Still, further upside momentum appears to have run out of steam with intraday MACD showing little momentum bias and stochastics falling from overbought levels. Look for the pair then to consolidate around current levels for now. Intraday range of 1.3670-1.3755 should hold.

       AUD/SGD – A Squeeze In the Making. AUD/SGD dropped in early Asia on Mon before creeping higher again. This cross extended upmove this morning, last seen around 1.0110. Momentum is turning bullish for this cross on the daily chart with SGD weakness a driver on top of reluctant AUD bears. An ascending triangle is in the making and there could be a squeeze towards the 1.0284. The weekly chart shows some indecisiveness. We still await the clearance of the 1.0160 for the next at 1.0300. Support is seen around parity.

       SGD/MYR – Approaching 2.76 Levels. Cross continues to ease from multi-year highs; last at 2.7760 levels this morning. Cross continues to be weighed by SGD weakness. Daily momentum and stochastics continue to show signs of mild bearish bias. We continue to see further downside pressure. Next support at 2.7620 levels (50 DMA); break below opens way for further move towards 2.74 (61.8% fibonacci retracement of May low to Jul high). Resistance at 2.7950 levels (23.6% fibo).

       USD/MYR – Downside Bias. USDMYR continues to hover around 3.8070 levels at time of writing off the back of USD strength, soft oil prices while domestic concerns remain. Technically, daily stochastics is turning lower from overbought areas while momentum is exhibiting tentative signs of bearish bias. A decisive close below 3.78 levels (21 DMA) could see the pair ease further towards 3.7580 levels (23.6% fibo retracement of Apr low to Jul high). Meantime resistance remains at 3.8250.

       1s KRW NDF – In Search of 1167? The pair maintained its push higher towards fresh 2-year high. Pair traded 1159 levels this morning. Bullish formation remains intact, with momentum/oscillators supporting further upside. We continue to see further upside, possibly towards 1167(bullish trend channel resistance) especially on the technical break above 1140 last week. On macro thoughts, we continue to reiterate our medium term bearish view for KRW - on concerns over growth/domestic consumption/ tourism/ foreign investment against a backdrop of subdued inflation, weak activity data, soft exports, weak JPY undercut Korea’s export competitiveness, and rising household debt (165% of annual household disposable income). USD strength on Fed rate lift-off in Sep (house view) could further provide further support for the pair.  Data for the week ahead –2Q GDP (Thu).

       USD/CNH – Tilting Higher. USD/CNH steadied around 6.2140 this morning, still sticky around the 100-DMA at 6.2140.  The latter seems to be guiding the pair lower and the daily ichimoku is not providing much support to prices. CNH discount to CNY persists around 30 pips, a reflection of prevalent CNY depreciation expectations.  A clear breakout of the 6.2000-6.2240 range is still needed for better directional cues. We continue to hold the view that the central bank wants to ensure a steady yuan. Key support for USDCNH is still seen at 6.2054 (200DMA). On 20 Jul (Mon), USD/CNY was fixed 5 pips higher at 6.1197 (vs. previous 6.1192). CNYMYR was fixed 1 pip higher at 0.6136 (vs. prev. 0.6135). From the local press, PBOC Stats Chief said that more focus on balancing the tightening and easing with the use of various policy tools to maintain liquidity at moderate level.

       SGDCNY – A Bit More Downside To Go. This cross slipped further towards the first support level around 4.5213 before rebounding to hover around 4.5270. The daily MACD reflects downside momentum of the pair with both MACD and signal line under the zero line as well as the forest. RSI, on the other hand, indicates oversold conditions. The weekly momentum indicators are a tad more bearish and we may even see a dip towards the 4.4560.

     USD/INR – Tilting higher. USDINR bounced on Mon and closed just under the 50-DMA at 63.6675. Downside pressure seems to be waning and the daily MACD has turned above the zero line. Spot prices are still in a neutral position, suspended in the thick of the daily ichimoku cloud. Trades to remain within 63.19-63.80. 1-month NDF hovered around 63.90 this morning, still supported by the bottom of the daily ichimoku cloud though its 50-DMA deters aggressive bids at the 64-figure. Next support to watch is at 63.58. This also coincides with the 100-DMA. We await the clearance of the support region for further bearish extensions and that would also lead spot prices lower. At home, Chief Economic Adviser Arvind Subramanian said public investment will not be constrained by ffiscal resources. He expressed confidence that FY16 growth will surpass FY15. Government and RBI are on the same page on monetary policy framework. A panel report on Indai’s GST rate will be ready in 4-6 weeks.

       USD/IDR – Closed For Holidays Until 21 Jul.  Onshore markets are closed for the Idul Fitri holidays until Tue (21 Jul) and will re-open on Wed. 1-month NDF is on the retreat after climbing to 13530 overnight. 1-month is currently sighted around 13468 with intraday MACD showing bullish momentum and stochastics tentative bearish bias, suggesting rangy trades is likely ahead. 

       USD/PHP – Limited Downside. USD/PHP is on the retreat below the 45.300 levels this morning, helped by a softer dollar tone, after climbing to an intraday high of 45.354 yesterday. Still, downside moves could be limited given expectations of an imminent Fed fund rate lift-off, though still strong macroeconomic fundamentals should cap any rapid jump. Intraday MACD and stochastics are showing mild bullish bias, suggesting downside could be limited. With our resistance level at 45.270 taken out, next hurdle to cross is 45.400. 45.160 should be supportive intraday. 1-month NDF is on the slide below the 45.50-levels this morning with both intraday MACD and stochastics showing little directional bias. Risk-off sentiments continue to weigh on equities with foreign funds selling a net USD18.74mn on yesterday

       USD/THB – Capped.  USD/THB hit multi-year highs of 34.490 yesterday, bolstered by dollar strength as well as domestic concerns, including weak domestic growth and severe drought conditions. Hovering currently around 34.450, the pair is a tad off our resistance level at 34.500. A daily close above this level could see the pair headed towards 34.645 (15 May 2009 high), but for now pair should be capped around 34.500. Intraday momentum indicators are still bullish bias though stochastics remains at overbought levels, suggesting a potential correction could be in the cards. A correction, if any, after the rapid climb towards the 34.500-levels could see the pair supported around 34.340. Any dips could be an opportunity to buy the pair. Investor sentiments remained mixed with foreign funds selling a net THB0.02bn in equities but buying a net THB0.16bn in government debt yesterday.

Rates

Malaysia

       Though most players have not returned from their Raya break, local government bonds saw buying flows on the 10y benchmark MGS 9/25s which ended 4bps lower from previous done. Decent trade amounts as the rest of the curve adjusted 1-2bps lower with the exception of the 15y MGS 4/30 closing 3bps higher.

       The local IRS market remain muted with no trades reported. Rates did not move as well and 3M KLIBOR stayed unchanged at 3.69%.

       Local PDS market had a very slow day. Dana 24s tightened by about 2bps while MYR20m of BPMB 21s traded away at last done levels. Odd amounts of bank names were traded possibly by PB. Total traded volume yesterday amounted to MYR47m.

Singapore

       Fairly intense flattening in the SGS curve with the front end up 7-8bps while the back end was down 1bp to 2bps up. This is likely due to funding becoming more expensive and if this persists, there could be continued weakness in shorter end bonds and demand for longer end bonds.

       Quiet day in the Asian credit space as Japan was out, with less participation seen on credits without cash treasuries. Spreads mostly unchanged from last Thursday, apart from property names which traded better on news of improvement in China home prices for June. Sovereigns were quiet as well, except for INDONs being lifted before Asian market closed. Beijing Infrastructure came out with a 4y EUR issuance, guiding at EUR MS+145bps which seems attractive amid the volatile market. China Oilfield Services Limited may be in the pipeline. With the Greece situation easing, we are seeing a pickup in activity in the market.

Indonesia

       Please note that there is no write-up on Indonesia fixed income as onshore markets have been closed since last Thu.