The end of last week saw dollar mildly higher as risk sentiments soured in Asian markets. News of brokerages under investigations spooked the Chinese equity markets. USDCNH rallied, commanding a premium of >500pips above USDCNY. The rest of Asian currencies came under pressure as well. Even MYR pared some of its stellar gains. The USD also gained against other majors last Fri and extended gains, especially against the AUD and NZD this morning.
We brace for more volatility this week. Key focus includes IMF decision on RMB entry into SDR and its % weight in the basket today and then RBA meeting (Exp: on hold at 2%), Mfg PMIs from China, Europe, JP (Tue); Fed’s Yellen speaking & Bank of Canada meeting – Expected to be on hold at 0.5% (Wed); ECB meeting (Thu); US Nov payrolls report and OPEC meeting (Fri). We remain constructive of USD strength but caution for possible near term downside risk, as indicated by short-term technicals. We like to take this opportunity to re-load USD longs on dips into FOMC meeting (mid-Dec). USD/AXJs may face renewed upside pressure. USDMYR could see a technical bounce, following 2 weeks of big declines. EUR could be subjected to upside risk if ECB fail to deliver expectations.
Other data we watch includes US Oct pending home sales; German Nov CPI; AU Oct new home sales, BOJ Kuroda’s speech (Mon); US Nov ISM Mfg; AU Oct Building Approvals; NZ 3Q ToT; BoE Financial Stability Report JP 3Q capex (Tue); EC Nov CPI estimates; AU 3Q GDP; SG Nov PMI; Fed speaks – Yellen, Brainard, Williams (Wed); US Oct durable goods, factory orders; Fed’s Yellen to appear before Congressional Joint Economic Committee; Fed’s Fischer to speak (Thu) AU Oct retail sales; JP Oct cash earnings; Malaysia Oct trade; Philippines Nov CPI; US payrolls (Fri). For US payrolls – consensus is expecting +200k for NFP (vs. +271k in prior month) and +0.2% m/m for average hourly earnings (vs. +0.4% in prior month). Philippines onshore markets will be closed on Mon.
DXY – Testing Fresh Highs? USD firmed amid widening 2Y EU and US yield spreads. DXY was last at 100.16 levels. Weekly momentum and stochastics remains bullish bias. Key resistance at 100.39 (previous 2015 high), before 102. Failure to move convincingly above 100.39 level could suggest interim top. Support at 99.20, 98.55 (76.4% fibo retracement of Mar high to Aug low) before bigger support at 97.40 (61.8% fibo).We remain constructive of USD strength leading into next FOMC meeting in mid-Dec. Key data we are watching for the week ahead includes Oct Pending home sales; Nov Dallas Fed Mfg activity (Mon); Nov ISM; Mfg PMI; Fed’s Evans speaks (Tue); Nov ADP, ISM NY; Fed’s Beige Book; Fed’s Yellen, Brainard, Williams speak (Wed); Nov composite/services PMI; Oct durable goods orders; Nov ISM non-mfg; Oct factory orders; Fed’s Yellen appear before Congressional Joint Economic Committee; Fed’s Fischer speaks (Thu); Nov NFP, unemployment rate, average earnings; Oct trade; Fed’s Bullard, Kocherlakota speak (Fri).
EUR/USD – Sell on Rallies. EUR remains soft amid mounting expectation of ECB to ease monetary policy further this Thu. All eyes on the upcoming ECB meeting/ Draghi press conference (Thu) – if the ECB will deliver its do whatever it takes to ease further, so as to achieve its mandate of getting inflation to 2% target (top concern of ECB). ECB’s options are expanding size of asset purchase; extending duration of asset purchase and or lowering the deposit rate (which is already at -20bps). We believe ECB has to at least deliver further easing but there may not be an urgent rush to expend all tools at this meeting unless there is any sudden deterioration in risk sentiment or EM hard landing or steep decline in oil prices. We do not envisage a “show-hand” (i.e. using all 3 options above-mentioned) scenario, but believe there could be a bigger than expected deposit rate cut of 10 - 20 bps (our base line scenario). EUR was last at 1.0580 levels at time of writing. Weekly momentum remains bearish bias. Support at 1.0530 (Apr low) before 1.0460 (2015 low in Apr). Resistance at 1.0760 (21 DMA, 76.4% fibo retracement of Mar low to Aug high). Week ahead brings German Nov CPI (Mon); EC, GE, FR Nov PMI (Tue); EC Oct PPI; EC Nov CPI estimate (Wed); ECB meeting; EC Oct retail sales (Thu); GE Oct factory orders; EC, GE, FR Nov retail PMIs (Fri).
GBP/USD – Downside Pressure. GBP remained soft amid broad USD strength. Price action in the near term is expected to be driven by monetary policy divergence between Fed and BoE, and this suggests downside pressure may persist further. Daily momentum and stochastics remain mild bearish bias. Next support at 1.5030 (Nov low), before 1.48. Resistance remains at 1.5210 (38.2% fibo retracement of Oct high to Nov low), 1.5270 (50% fibo), 1.5330 (200 DMA). Week ahead brings Oct consumer credit, mortgage approvals (Mon); Nov PMI; BoE Financial Stability Report; BoE Carney press conference (Tue); Nov construction PMI (Wed); Nov services/composite PMI (Thu).
USD/JPY – Looking For 121.50. USD/JPY was a touch softer for the week, hovering below the 123-levels. Last seen around 122.80, daily momentum and stochastics are still bearish bias. Downside pressure could persist in the near term. Underperforming industrial output and retail spending (Oct: 1.4% m/m; 2.9% y/y vs. cons.: 1.8%; 3.0%) is keeping the pair supported for now. Support remains at 122.30 (23.6% Fibo retracement of the Oct-Nov upswing), 121.80 (100DMA) before 121.50 (38.2% Fibo retracement, 200DMA). Resistance is seen around 123.50-60 (Nov high). Week ahead brings BOJ governor Kuroda speech and later presser (Mon); 3Q Capex, company profits (Tue); BOJ Iwata speaks (Wed); Nov PMI; BOJ Iwata speak (Wed); Nov PMI; BOJ Kiuchi speaks (Thu)l Oct cash earnings; Nov consumer confidence index (Fri).
AUD/USD – Sell into RBA, GDP. AUD fell after the 3Q CAPEX came in poorer than expected but market investors are two-minds on how RBA would view the latest report. For one, the central bank has reiterated that they are comfortable with the current level of rates. Second, RBA had held the view that non-mining business investment would remain cautious until prospects are more certain. So the latest fall may not change the view of the central bank. RBA is unlikely to act now. We expect this pair to be sold into RBA on Tue with a break of 0.72-figure to expose the next at 0.7156. Resistance is seen around 0.7267. Next support is seen around 0.7140. Week ahead brings Oct new home sales (Mon); RBA meeting; Oct building approvals; Nov house prices (Tue); 3Q GDP; RBZ Gov Stevens speaks (Wed); Oct trade (Thu); Oct retail sales (Fri).
USD/CAD – Bulls Are Weak. USDCAD bounced last Fri and remains on the upmove, underpinned by the firm dollar, last seen around 1.3380 this morning. We still see a bearish set up in play with a second peak of the double top pattern formed. Resistance is still seen at the 1.3457. Given the lack of upside momentum, we hold on to our tactical call to short the USDCAD around 1.3360 with an initial target of 1.3136 and stoploss around 1.3460. Support is seen around the 1.33-figure and then at 1.3220.
NZD/USD – Soft. NZD slipped amid broad USD strength. Last seen around 0.6515 levels. Momentum and stochastics are showing tentative signs of turning bearish bias. Continue to favour selling on rallies, for a move towards 0.6430 first objective (Nov low) before 0.6390. Resistance at 0.6550 (21 DMA), before 0.6610 (38.2% fibo retracement of Oct high to Nov low). Week ahead brings Oct building permits; Nov activity outlook (Mon); 3Q terms of trade; Nov QV house prices (Tue); Nov ANZ commodity prices (Wed).
Asia ex Japan Currencies
The SGD NEER trades 0.65% below the implied mid-point of 1.4058. The top end is estimated at 1.3775 and the floor at 1.4341.
USD/SGD – Supported. The USD/SGD firmed towards the week close, edging back above the 1.41-levels. Pair is currently seen around 1.4145 with daily MACD showing waning bearish momentum and stochastic no strong bias. Mild downside appears likely in the near term. Favour buying on dips towards 1.4265 levels (Nov high). Support nearby is seen around 1.4100 (50DMA) before 1.4010 (100DMA). Quiet data week ahead with just Nov PMI due on Wed.
AUD/SGD – Tilting Lower. AUD/SGD remained on the decline, last seen around 1.0150. Nearby support is seen at 1.0133 (61.8% Fibonacci retracement of the Aug-Sep sell off). Bullish momentum is almost depleted and next support is seen around 1.0080 (100-dma). First barrier for unexpected bids is seen at 1.0235 (76.4% fib ret.) ahead of the next at 1.0290 (200-DMA).
SGD/MYR – Rebound. SGD/MYR firmed; last seen around 3.0240 levels this morning. bearish momentum is waning; stochastics is showing tentative signs of rising from oversold levels. These could suggest some rebound in early part of the week. Resistance at 3.0460 levels (23.6% fibo of Jul low to Sep high). Support remains at 100 DMA – now at 2.9770 levels.
USDMYR – Firmed. USDMYR rose amid USD strength. Last seen at 4.28 levels this morning. Bearish momentum is showing signs of waning while stochastics is also showing tentative signs of rising from oversold levels. Key resistance at 4.28 (50% fibo retracement of Sep high to Oct low), before 4.30 (50 DMA). Support remains at 4.20. Week ahead brings Nov PMI (Tue); Oct trade (Fri).
1s USDKRW NDF – Upside Risk. Pair was a touch firmer amid USD strength. Last seen around 1160 levels. Daily momentum is flat but oscillators is showing signs of rising from oversold levels. 4-hourly momentum and stochastics are rising – suggest some upside bias intra-day. Next resistance at 1162.50 (50% fibo retracement of Sep high to Oct low), before 1166 (100 DMA). Support at 1152 (38.2% fibo). Week ahead brings Nov CPI inflation, trade, PMI (Mon); 3Q GDP; Nov FX reserves (Thu).
USD/CNH – Eyes on IMF SDR Vote. USD/CNH broke above the 6.4480-barrier and was last seen around 6.4520 as we write this morning, ahead of the SDR vote. Pair is still bullish. Next barrier is seen around 6.4719. CNH is trading at a widening discount to CNY against the USD of around 570 pips ahead of onshore yuan open. The barrier at 6.4483 has turned into a support, ahead of the next at 6.4200. USD/CNY was fixed 47 pips higher at 6.3962 (vs. previous 6.3915). CNY/MYR was fixed 55 pips higher at 0.6636 (vs. previous 0.6581). News of investigation on local brokerages spooked equity markets last week. Shanghai Comp and Shenzhen Comp fell more than 5% by close.
SGD/CNY – Choppy. SGD/CNY under 4.5210 this morning, weighed by the weaker SGD. Intra-day chart shows increasing bearish momentum and pair may be on its way towards 4.5140 and the clearance of that support level exposes the next support at 4.4900. This cross ended the week with a doji and price action in the past few weeks have been choppy. Expect action to remain within 4.4670-4.5720 though we eye the IMF SDR decision for better cues.
1s INR NDF – Bid. 1s USD/INR ended the week higher underpinned by apprehension over the parliamentary session and the anticipation for the Fed to raise rates. Pair was last seen around 67.30. Weekly chart shows increasing bullish momentum. Next barrier is seen around 67.40 ahead of the next at 67.62. MACD shows potential for bearish divergence though. Nearby support is seen at 66.66 ahead of the next at 66.21. Foreigners sold a net of USD40.3mn of equities last Thu and USD10.3mn of bonds. India releases 3Q GDP today and consensus expects a slight acceleration to 7.3%y/y from previous 7.0%. A stronger than expected number may pull the rug under rupee bears.
USD/IDR – Upside Bias Within Range. USD/IDR continues to firm in line with its regional peers. Last seen around 13809 with daily momentum indicators exhibiting bullish bias. This suggests upside pressures remained in the near term. Pair is now trapped within a daily ichimoku cloud and further upmoves within range is possible ahead. Immediate resistance is around 13860 (50DMA) ahead of the 14000-figure. Support nearby is around 13770 (lower bound of the ichimoku cloud) before 13700. The JISDOR was fixed higher at 13747 to end the week from Thu’s 13733. Risk appetite improved last week with foreign funds buyng a net USD22.59mn in equities. Quiet data week ahead with just Nov CPI due tomorrow.
USD/PHP – Bullish Bias. USD/PHP gapped slightly higher at the opening to 47.210 from its Fri high of 47.209, playing catch-up with its regional peers. Pair is holding steady currently with daily momentum indicators showing mild bearish momentum though stochastics is inching higher. This suggests the potential for two-way trades ahead. Look for barrier at 47.250; 47.500. Support nearby is seen around 47.080 (21DMA) before 46.700. 1s USD/PHP NDF is softer to start the week with daily MACD showing bearish momentum and stochastics bullish bias. Risk sentiment deteriorated last week with foreign funds selling a net USD59.14mn of equities. Data-quiet week with just Nov CPI inflation due on Fri.
USD/THB – No Directional Clarity. USD/THB was firmer towards the end of last week. Last seen back above the 35.900-levels, pair is showing no strong bias as given by both daily MACD and stochastic, suggesting range-bound trades are likely in the near term. Cautious trades are likely in the lead up to the US NFP on Fri. Resistance is seen around 36.080 (61.8% Fibo retracement of the 36.670-35.130 downswing). Any dips should find support nearby around 35.820 (50 DMA); 35.720 (38.2% Fibo retracement). Risk appetite was mixed last week with foreign funds selling a net THB1.82bn of equities and purchasing a net THB10.31bn of government debt. Week ahead has Oct trade; Oct current account (Mon); Nov CPI (Tue); and 27 Nov foreign reserves (Fri).
Local government bonds softened slightly as yields closed 1-3bps higher on the front to the belly of the curve. Trading volume turned lower compared to earlier days in the week as market comes closer to the year-end.
IRS levels were up 1-3bps across the curve, possibly due to the slightly weaker MYR and risk-off sentiment. Nothing traded in the market though. 3M KLIBOR was higher by 1bp at 3.77%.
PDS market fairly lackluster. The GG space was muted, while the AAA space was better bid with Aman 21 and 24 tightening 1bp. Danga 20s and Kexim 18s traded range bound, while IBK 17s traded 1bp wider. In the AA space, few short-dated papers were picked up. Mumtalakat 17s tightened 19bps but this name is typically rather illiquid though it offers some yield pick-up (z-spread 119bps).
SGS market saw selling on short-dated bonds in the morning but sentiment reversed later with buying interest for short covering and portfolio rebalancing. Yields mostly ended flat, except for the 2y +1bp and 15y -2bps. The 20y and 30y SGS were under pressure as these two tenors will have a new benchmark in 2016. Primary dealers appear to be still running a flat book.
Asian credits traded sideways and CDS levels mostly unchanged. HNA Group sold USD250m 3y bonds at 8.125% which closed 99.20/99.50 after coming off 1pt near noon. New BNKEA had a small rally and INDONs traded slightly higher on the back of real money demand. Tower Bersama was downgraded from BB to BB- with a stable outlook by S&P, citing the company’s more generous dividend/share buyback policy and lack of intention to deleverage in the next 2 years. We expect flow to stay quiet in December as players go for holidays or lighten books ahead of the Dec FOMC meeting.
Indonesia’s government bonds were traded lower on the last Friday. Global risk off sentiments came back, thus it impacted to a weakening in both Rupiah and the country’s financial markets. Selling activities on IDR bonds markets were dominated by local banks that also positioning their book ahead of the next additional supply on tomorrow’s regular auction. Meanwhile, the onshore foreign banks appeared to buy patiently on the other side. Overall, the yields on IDR bonds were higher by around 3 to 6 bps across the curve during that day.