Friday, February 27, 2015
Early week started with Fed’s Yellen attempting to tame USD bulls but as the week progresses, it was Fed’s Bullard who unleashed USD bulls overnight. In his comments to CNBC last night, he commented that the Fed should make a change to the FOMC statement next month, dropping the word “patient”, paving the way for a summer rate hike. He also noted that labor markets are improving rapidly, that it seems “bit little extreme” if unemployment drops below 5% and Fed still keeps rate near zero.
USD rallied with a vengeance, with DXY rising above 95 levels. EUR/USD tumbled to 1.12-levels. Commodity-linked currencies (AUD, NZD and CAD) all declined. Oil prices fell, with WTI leading the decline (-4%), on supply glut concerns.
Day ahead brings US 4Q GDP, Feb Univ. of Michigan Sentiment, Fed’s Mester and Lockhart to speak later. For EU, GE, IT Feb CPI, FR Jan PPI, GE Jan retail sales are due for release. We remain better buyers of USD on dips.
DXY – Buy USD dips. USD rebounded with a vengeance overnight, with DXY rising above 95 levels on stronger than expected core CPI (+0.2% y/y vs. +0.1% Cons.) durable goods order and Fed Bullard speech. He commented that the Fed should make a change to the FOMC statement next month, dropping the word “patient”. Still favour buying USD on any dips. Next support level at 94-levels, 93.66 (23.6% Fibonacci retracement of 87.627 – 95.527). Resistance still seen at 95.50 levels (Jan high); decisive close above 95.50 could open way towards 97 levels. Focus today on 4Q GDP, Feb Univ. of Michigan Sentiment, Fed’s Mester and Lockhart to speak later.
USD/JPY – Bullish Tilt. The USD/JPY tracked the dollar higher overnight pass the 119-handle before retreating this morning on month-end exporter selling. Last sighted around 119.28, intraday MACD and slow stochastics are signaling a bullish tilt ahead, suggesting that moves lower could be limited. Lower-than-expected Jan inflation increases the pressure on the BOJ to act, but recent comments by the BOJ suggest no additional measures are imminent. Expect a bullish tilt within 118.50-119.85 today. Dips are opportunities to accumulate dollar.
AUD/USD –Sell rallies. AUD/USD fell to a low of 0.7786 levels overnight on USD strength following strong US data and Fed’s Bullard hawkish talk. Pair now trades around 0.7810 at time of writing; and stochastics are falling from overbought areas. AUD/USD still needs to manage a daily close above 0.7880-0.7910 in order to see another leg higher. Failing which, should see the pair trade 0.7750 – 0.7880 intra-day range. Still prefer to trade the pair from the short side.
EUR/USD – Fade Rallies. EUR/USD dived towards a low of 1.1184 overnight on a combination of drivers including strong US data, Fed’s Bullard hawkish talk. To some extent, market chatters also attributed the plunge to imminent start of ECB QE. MACD and stochs are now signaling a bearish bias; we remain better sellers on rallies; 1.11 – 1.13 range intra-day expected. Day ahead brings GE, IT Feb CPI, FR Jan PPI, GE Jan retail sales.
EUR/SGD – Consolidation. EUR/SGD plunged overnight, driven by weaker EUR as broad USD strength took over. Pair has broken below 1.5280 its lower end of the Feb consolidation range and looks poised for further declines, with MACD and stochastics bearish bias. As we have mentioned yesterday, we prefer playing the pair from the short side. Day ahead see 1.5160 – 1.5280.
The SGD NEER trades around 1.49% below the implied mid-point of 1.3368. We estimate the top end at 1.3096 and the floor at 1.3639.
USD/SGD – Limited Downside. The USD/SGD see-sawed yesterday; first plunging to a recent low of 1.3486 and then rebounding to an intraday high of 1.3588 as the EUR/USD slipped below the 1.12-handle. Since then, pair has settled lower, sighted around 1.3573, weighed by the softer dollar tone this morning. Dips today could be shallow with 1.3545 supportive while rebounds should meet barrier around 1.3620. Intraday charts are showing a bias to the upside, suggesting moves lower could be limited. Preference is still to buy the dollar on dips.
AUD/SGD – Bearish. The AUD/SGD remains on the slide, currently sighted below the 1.06-handle at 1.0579. Intraday MACD and slow stochastics are signalling a downside bias ahead, suggesting continued retracement is possible. Support nearby remains at 1.0570 with a firm break exposing the next at 1.520. Rebounds should be capped around 1.0640 today.
SGD/MYR – Rangy. The SGD/MYR bounced higher to 2.6592 this morning on the back of MYR weakness after sliding to a low of 2.6512 overnight. Cross is currently trapped in a thin intraday ichimoku cloud and a break out higher could be capped by 2.6700 (18SMA). Dips should see technical support around 2.6430 (bottom of the cloud). Intraday charts continue to signal bearish bias ahead.
USD/MYR – Buy on Dips. MYR gains overnight were reversed on broad USD strength. Onshore USDMYR now trades around 3.6080 at time of writing. Local media reported that Malaysia cabinet has rejected the MYR3bn proposed injection into 1MDB. This underscores our view for persistent weakness in the Ringgit on contingent liability exposure which could put pressure on credit rating. Still favour buying USD dips. Intra-day range of 3.60 – 3.63 expected.
USD/CNH – Buy on Dips. USD/CNH has been whipped a lot higher today, tracking USD strength and higher USD/CNY fixing this morning. We continue to see USD/CNH higher on a combination of drivers including further intensification of USD strength, ongoing domestic growth, debt, capital, fx outflow concerns and possibility of further rate cuts (RRR and lending rate). Remain better buyers on USD dips. The pair now trades 6.2820; expect 6.2750 – 6.2900 range intra-day. USD/CNY was fixed higher by +96 pips at 6.1475 (vs. 6.1379). CNYMYR was fixed lower by -22 pips at 0.5688 (vs. 0.5710).
USD/IDR – Choppy. The USD/IDR is on the uptick this morning, playing catch up after the dollar edged higher overnight. Pair is sighted around 12866 though both intraday MACD and slow stochastics signalling a bias to the downside, suggesting upside could be capped. Dollar strength expectations ahead are likely to be tempered by BI moves to guard against volatility in the FX markets. Expect choppy trades within 12800-12945 to continue. Foreign funds bought a net USD96.72mn in equities yesterday, and added a net IDR1.32tn to their outstanding holding of debt on Wed. The 1-month NDF climbed within the 13000-figure, sighted around 12976 this morning, with slow stochastics showing a tilt to the upside. The JISDOR was fixed lower at 12862 yesterday from Wed’s 12887 but could be fixed higher today given the spot’s uptick this morning.
USD/PHP – Capped. The USD/PHP tested but failed to close below our support at the 44-figure yesterday and is on the uptick this morning, playing catch up with the dollar moves overnight. Sighted around 44.080 currently, intraday charts are still signalling bearish momentum ahead, suggesting upticks today could be capped. Resistance is seen around 44.230 today. Dips today should see support nearby at the 44-figure still before the next at 43.930. Foreign funds bought only a net USD0.45mn in equities yesterday, but which still provided support for the PHP. The 1-month NDF slipped briefly below the 44-figure this morning before rebounding to 44.080 with both the intraday MACD and slow stochastics are showing signs of a tentative bullish tilt.
USD/THB – Consolidation. The USD/THB took out key support at 32.500 yesterday on its way down towards 32.290. Strong inflows to debt in a search for yields probably accounted for this move. Yesterday, foreign funds purchased a net THB4.04bn in debt, which more than offset the THB2.86bn in equities sold. As well, there have been rumors of BoT intervention. Pair has since rebounded slightly to 32.378 but is still below yesterday’s close of 32.389. While continued inflows to debt should weigh on the pair, expectations of a narrower current account surplus could limit downticks today. After yesterday’s massive move lower, expect consolidative moves today within 32.290-32.500 though the bias remains tilted to the downside. Slow stochastics is signalling little directional bias but intraday MACD is showing bearish momentum.
Local government bond benchmarks traded mix but the overall sentiment was bullish, helped by the MYR appreciation. Meanwhile, the 5.5y GII 8/20s auction received very strong demand with bid-to-cover ratio of 3.015x on a MYR4b size. Post-tender, we saw buying interest continue as some local funds missed the auction. The strong MYR and auction bid spurred buying interest in the GII market and the Islamic benchmarks ended 1-3bps lower.
In the IRS market, there was pretty good paying interest but nothing dealt. 3M KLIBOR unchanged at 3.79%.
The local PDS market saw increased buying interest on the back of a stronger MYR and seemingly stable oil prices. Longer dated AAA bonds did well yesterday. We saw Plus 24s being taken at 4.50% (2bps tighter than MTM levels), Plus 32s taken at 4.96% (1bp tighter) and Telekom 22s and 24s taken at 4.54%. While there is an increase of flows back into the market, we note that investors remain cautious and prefer the AAA space, seeing value at the long end of the curve.
SGS prices across the curve rose, tracking the movement in US Treasuries (UST) which extended the rally from the previous day after Federal Reserve Chair Yellen’s similar message to the Financial Services Committee. The SGS curve flattened with yields down by 2-7bps.
Asian credit space continued to trade firmer on the back of the UST movement. Sovereign cash traded higher again, especially in the Indon space with Indon 2025 being taken above the 104 level. Country Garden Holdings (rated BB+ by S&P) is proposing a USD issuance of 5NC3 year bonds at the guidance of 7.875%, which appears attractive as market views the fair value to be around 7.30%-7.50%. However, with Kaisa's news still lingering, players may be less motivated to go into HY property market unless a premium is given on it. Elsewhere, Bank of Tokyo-Mitsubishi (BUTM) priced its USD issuances the previous night which included: 1) 3y fixed rate at CT3+77bps for USD1b, 2) 3y FRN at 3ML+55bps for USD500m, and 3) 5y fixed rate at CT5+87bps for USD1.5b. BUTM later traded 3-4bps tighter on the back of better onshore buying interest and lower UST yield.
Indonesia’s government bond was closed higher by 15-75bps yesterday. It was triggered by BI’s comment that February should be a deflation month and lower target on conventional auction next Tuesday (target Rp10 trillion). The 10Y yield declined to 7.10% and 20Y at 7.31%. Onshore foreign banks tried to replenish liquid series in anticipation of buying from offshore investor. We saw also they were looking for non-benchmark series as they still offer good yield, compared with the benchmark one.