Maybank GM Daily - 10 Mar 2016

FX

Global

      CAD was the outperformer overnight after BOC left rates unchanged and its statement was little changed from its previous one in Jan. Long USDCAD positions were unwound right after the decisions, also spurred by higher oil prices. Thereafter, RBNZ is catching up with RBA with a surprise cut of 25bps to unprecedented low of 2.25%. NZD fell to mid-0.66 just ahead of Asia open.

      The mood overnight was one of cautious optimism as equities traded mildly higher ahead of ECB rate decision tonight. Consensus expects at least a 10bps cut to the deposit facility rate and with the central bank’s credibility at stake, others were looking for a 20bps adjustment. Earlier in Asia, FX was a mixed bag with KRW on the backfoot with North Asians on the backfoot while ASEAN strengthened. BNM did not act as expected. MYR strengthened this morning, underpinned by higher crude as well.

      BOK left rates unchanged as expected by most, including us. China’s Feb inflation numbers are due today and softer numbers could provide room for the central bank to ease. Monetary data may be released anytime from today. Philippine is due to release its Jan exports data as well. The elephant in the room today is the ECB meeting and no key North American data is likely to steal its limelight. Expect a rather consolidative session ahead of the key event.

Currencies

G7 Currencies

      DXY – Consolidate. DXY Index consolidated 97 – 97.50 range overnight amid a quite week for US in terms of economic data release. Jan wholesale inventories were above market expectations. Implied probability of rate hike from fed fund futures showed only a 4% probability of a hike in Mar; and futures suggest Sep remains the earliest Fed could next hike rate (61% probability). USD weakness was more pronounced against commodity-linked currencies including CAD, AUD but less so against NZD due to surprise RBNZ cut this morning. DXY was last seen at 97.20 levels. Bullish momentum continues to wane and stochastics is falling. Resistance remains at 97.50 (50& fibo retracement of Jan high to Feb low), 98 (61.8% fibo), 98.75 (76.4% fibo). Support at 97-levels (21, 200 DMA, 38.2% fibo) before 96.32 (23.6%). Relatively quiet week remaining for the US with initial jobless claims (Thu); Feb import prices (Fri) to keep an eye on.

      EURUSD – D-Day for ECB. All eyes on ECB meeting. Will they surprise? Will they not? Looks like market believes the hurdle for a surprise is high given recent price action with EUR trading a muted range of 1.0950 – 1.1040 range and EUR-shorts positioning (CFTC positioning) has seen a reduction since Nov. EUR shorts are now at its least short in a year. IS that a sign of complacency? We observed EUR tends to get sold as low as 1.05 into ECB meeting where there was some form of easing (Mar and Dec 2015) and subsequent price action saw a 400-500 pips rebound post-ECB. This time it could be different given some complacency in the markets. EUR is supported on complacency and may plunge on decision. We expect further easing in the form of 20bps cut to -0.50% on the deposit rate and a further expansion of monthly asset purchase (by another EUR10 – 20 bn). Technical adjustment to the QE program is required (for details please refer to our tech weekly dated 4 Mar). EUR was last seen at 1.0985. Daily momentum is flat. We do not rule out further short-squeeze. Bias remains to sell rallies. Resistance at 1.1050 (200 DMA) before 1.1070 (21 DMA), 1.11 (50% fibo). Support at 1.0950 (23.6% fibo retracement of Dec low to Feb high) before 1.0830 (Mar low) before 1.05 (previous lows in 2015). Week remaining brings ECB Meeting; GE Jan trade; FR Jan IP (Thu); GE Feb CPI (Fri).

      GBPUSD – Waning Momentum. GBP traded a muted range of 1.4178 – 1.4241 yesterday. Industrial production and manufacturing production held up. BoE’s Furse said there are clearly downside risks from Brexit; BoE’s Sharp said global economic conditions are extremely challenging and represent a major medium term threat. GBP was last at 1.42 levels. Bullish momentum on daily chart is waning and stochastics is entering near-oversold conditions. We remain cautious of GBP-short squeeze given record GBP short positioning. We look for opportunities to sell towards 1.4250 (50% fibo retracement of Feb high to low), 1.4350 (50 DMA, 61.8% fibo). Support at 1.38, 1.35 levels. Week ahead brings RICS House Price Balance (Feb) on Thu; Trade, Construction output (Jan) on Fri.

      USDJPY – Upside Risks. USDJPY is on uptick this morning, tracking the climb in the Nikkei and upmoves in the dollar, though pair continues to trade within familiar ranges of 111-115. Pair was last seen around 113.47 with daily charts now showing bullish momentum though stochastics is bearish bias. Yesterday’s low of 122.23 should be supportive intraday. Resistance is around 115.10 levels (38.2% Fibo Fibo retracement of the Jan-Feb downswing). Both BOJ governor Kuroda and board member Iwata appear in parliament later this morning.

      NZDUSD – Surprise Cut. RBNZ surprised with 25bps cut early this morning, taking the OCR to record lows of 2.25%. We were looking for a cut in the Apr or Jun meeting. Nevertheless the cut and dovish statement reaffirmed our bearish bias on the NZD. Statement specifically noted “there has been a material decline in a range of inflation expectation measures… a concern because it increases the risk that the decline in expectations become self-fulfilling and subdues future inflation outcomes”. This is in line with 2-year inflation expectation which fell to its lowest level since 1994. Statement also noted dairy sector is facing difficult challenges (we noted renewed weakness in dairy prices) and that the TWI is more than 4% higher than projected and a decline would be appropriate given weakness in export prices. This is in line with RBNZ Asst Governor Mcdermott’s speech (in Feb) that NZD needs to be sustainably lower than what it is today and where it has been over the past few years. NZD plunged from bear 0.68-handle to a low of 0.6626 following RBNZ decision this morning. Last seen around 0.6640. Bullish momentum on daily chart is waning and stochastics is falling. We had called (in our previous GM Dailies) to sell rallies towards 0.68, 0.6880 (Dec high). This is now panning out. Support at 0.6630 (50, 200 DMAs), before 0.6550 (38.2% fibo of Dec high to Jan low). We continue to maintain our call on NZD bearish outlook due to a combination of factors including RBNZ explicit bias for further easing and weaker NZD (as export prices remain soft), benign inflation outlook, challenging dairy market dynamics, high risk of current account deficit widening, further downside risk to growth outlook. Week remaining brings Feb BusinessNZ Mfg PMI; Feb food prices (Fri).

      AUDUSD – Upside Bias. AUD steadied above the 0.74-figure for the whole of Tue. China’s imports growth was actually better than expected at -8.0%y/y vs the consensus forecast of -11.7% and an improvement from the previous -14.4%. Last seen around 0.7430, this pair seems to be on the retracement. However, momentum is still bullish and we see next support around 0.7340 (38.2% Fibonacci retracement of the May-Jan sell off). Resistance is still seen at 0.75-figure. A break there exposes the next target at 0.7654 (61.8% =). Support is now seen at 0.7340 (38.2% Fibo). Week ahead brings consumer inflation expectations (Thu). 

      USDCAD – Bullish Divergence. USDCAD rebounded from the 200-DMA and hovered thereabouts, last seen around 1.3420. The bounce was due to the retreat in oil prices overnight and also in part due to the Bank of Canada’s meeting tonight. While markets do not see a move by the central bank, the recent strength of the CAD might prompt some jawboning from the central bank. In the past meeting, a key reason for withholding additional stimulus was a weak currency that was supporting the economy. MACD forest indicates bullish divergence and the meeting tonight might spur further buying interest. Resistance is seen at 1.3540 (61.8% Fibo of Oct low to Jan high), 1.3677 (100 DMA). Week ahead brings BOC Rate decision (Wed), jobless numbers on Fri.

     Asia ex Japan Currencies

      The SGD NEER trades 0.22% below the implied mid-point of 1.3792. We estimate the top end is at 1.3516 and the floor at 1.4069.

      USDSGD – Interim Double-Bottom.  USDSGD is bouncing higher this morning 1.38-handle, supported by a resurgence in the dollar. Pair was last seen around 1.3835. Bearish momentum continues to wane, while stochastics is just a tad off oversold levels. Still, a possible interim base for a double-bottom has formed and this could potentially point to further upside ahead. Slippages intraday should find support around 1.38-levels (50% Fibo retracement of the Jun 2015-Jan 2016 upswing) before 1.3735 (double-bottom on 15 Oct 2015 and 4 Mar 2016). Rebounds should meet resistance around 1.3895 (4 Mar high) ahead of the 1.3950-levels (38.2% Fibo).

      AUDSGD – Maintain Long Bias. AUDSGD edged higher, touching a high of 1.0384 before easing back towards the 1.03-figure. AUD strength continues to underpin this cross, helped also by SGD weakness ahead of MAS MPC in mid Apr. We eye a clean break of the barrier seen at 1.0350 (double top in Nov and Dec) before 1.05 (our ultimate objective).

      SGDMYR – Consolidate with Upside Risk. SGDMYR continued to hold up. Cross was last seen at 2.98 levels. We have reiterated that the 200 DMA remains a key support level. The cross needs to break for downside to gather momentum. But meantime daily momentum is flat and stochastics is showing tentative signs of rising. This could suggest some upside risk in the interim. Resistance at 2.9870 (50% fibo retracement of Jan high to low) before 3.0090 (61.8% fibo retracement of Jan high to Jan low). Support at  2.9380 (23.6% fibo retracement of Jan high to low) before 2.8940 (previous low).  

      USDMYR – Consolidate. BNM kept OPR and SRR unchanged at 3.25 and 3.5%, respectively. Our Economists are expecting another 50bps cut in SRR; maintain OPR forecast range of 3.00%-3.25% this year, and together with any further SRR cut, it will be data dependent in terms of the balance of risk between growth and inflation, as well as liquidity condition and movement in market interest rates. Pair was last at 4.1250 levels. Daily momentum is flat and stochastics is rising from oversold conditions.   Key support at 4.08 (Oct low) before 4.05. Resistance at 4.1460 (200 DMA), 4.16 (23.6% fibo retracement of Jan high to Mar low).

      1s USDKRW NDF – Downside Pressure Waning. BoK  kept policy rate unchanged at 1.5%, as widely expected. Pair was last seen at 1213 levels. Bearish momentum on daily chart is slowly waning and stochastics is showing signs of rising from oversold levels. Resistance at 1221 (21 DMA, 50% fibo retracement of Feb high to Mar low). Support at 1208 (23.6% fibo).  

      USDCNH – Guided by the 100-DMA. The pair is still stuck around 100-DMA, last seen at 6.5135. There is an upside bias in this pair but intra-day trades have been choppy. CNH on par with CNY against the USD. Next support for the USDCNH is seen at 6.4858 (61.8% Fibonacci retracement of the Oct – Dec rally, Feb low).  We think this pair could remain in consolidation within 6.48-6.58 given the lack of momentum. USD/CNY was fixed 21 pips higher at 6.5127 (vs. previous 6.5106). CNY/MYR was fixed 13 pips lower at 0.6311 (vs. previous 0.6258). Feb inflation numbers are due this morning at 0930 (SGT). Consensus expects a steady print from Jan as food prices remain firm. Softer prints could provide PBOC another excuse to ease. Monetary data may be released anytime from today. In news, PBOC Deputy Pan Gongsheng urged for regulation on peer-to-peer lending platforms.

      SGDCNY – Double topped? This cross bounced yesterday and was closed at 4.7154 on Wed. Apart from the double topped formation, bearish divergence suggests that risks are to the downside for this cross. We anticipate a sharp reversal towards the 4.6260 (50-DMA). Rebounds need to test the barrier targeted at 4.7400 for the next barrier at 4.7600.

      1s USDINR NDF – 100-DMA eyed. Pair swivelled within the 50 and 100-DMA and was last seen around 67.60. Bearish pressure seems to be waning on the MACD and pair seems to be settling into consolidative range for the near-term. The 100-DMA at 67.25 supports downside and a break there opens the way towards the 200-DMA at 66.20. Bounces in the 1s USDINR NDF could meet barrier around the 68-figure (50DMA). Foreign investors bought USD115.0mn of equities and sold USD69.4mn of debt on 8 Mar.   

      USDIDR – Gapped Lower; Downside Limited. Onshore markets re-opened today after a public holiday yesterday with the USDIDR gapping lower at the opening to 13130, playing catch-up with its regional peers. Pair was seen around 13140 this morning. Daily bearish momentum is waning and stochastics bullish bias. Further downmoves could be supported by improving macroeconomic fundamentals, political stability, and the Jokowi government’s push for infrastructure building and investment amid low oil prices and supportive monetary policy. Still with risks now tilting to the upside, further downside could be limited intraday. Look for support around 13050 (4 Mar low) and resistance around 13230 ahead of 13335 (61.8% Fibo retracement of the Jan-Sep 2015 upswing) intraday.

      USDPHP – Gapping Lower.  USDPHP gapped lower at the opening this morning to 46.800 from yesterday’s low of 46.834, playing catch-up with its regional peers. Pair is seen around 46.813 with daily charts showing bearish bias and stochastics at oversold levels. Further downside should find support nearby around 46.755 (50% Fibo Fibo retracement of the Oct 2015-Jan 2016 upswing) before 46.610 (200DMA). Resistance is around 47.065 (38.2% Fibo). Jan unemployment rate is on tap tomorrow. Investor sentiments soured with foreign funds selling a net USD7.12mn in equities yesterday. Exports disappointed, falling by 3.9% y/y in Jan vs. expectations for a 0.4% gain. The bright spot was electronics, which rose 5.0% in Jan.

      USDTHB – Whippy. USDTHB is whippy this morning, pulled in one direction by dollar softness and the other by concerns about a slowdown in China. Last seen around 35.284, pair is still exhibiting very mild bearish momentum, though stochastics remains at oversold levels. Weekly charts remain bearish bias. With risks still tilted to the downside, further downside pressure could see the pair revisit the year’s low of 35.210. The 200DMA at 35.440 continues to cap upside 35.500 (23.6% Fibo retracement of the Jan-Feb downswing). Foreign funds remained supportive of Thai assets purchasing a net THB0.49bn and THB4.61bn in equities and government debt yesterday.  4 Mar foreign reserves print is on tap on Fri.

Rates

Malaysia

      In the government bond market, trades mostly centered upon MGIIs with the yield curve ending 1-2bps lower. For MGS, front end bonds saw buying as foreign names sought after the 2019 maturities. On MPC meeting outcome, OPR was maintained at 3.25% and no cut in SRR.

      Ahead of the MPC statement, the IRS market remain better offered as players expected a dovish rhetoric. There were some trades reported on the 4y and 5y IRS, with the curve closing 1-2bps lower. 3M KLIBOR was unchanged at 3.71%.

      PDS market was quiet, though better buyers were seen in AAA and GG spaces, mostly on short duration. Plus 24 was dealt 1bp tighter at 4.42% (MGS+69bps/Z+47bps), and subsequently Telekom 12/24 was taken 3bps tighter at 4.47% (MGS+63bps/Z+45bps). For GGs, Prasarana 23 tightened 1bp to 4.26% (MGS+58bps/Z+36bps), while Dana 27s and PTPTN 24s traded unchanged.

Singapore

      SGD rates lowered 1-2bps as risk sentiment improved. SGS continued to see strong buying in long duration bonds, especially 10y-15y tenors which is currently short in supply in the primary dealers market. The benchmark yield curve bull flattened, down 1-2bps at the front end and 3-5bps after the 5y point.

      Asian credits continued to trade slightly weaker. China names broadly 2-5bps weaker, with AMC names actively traded. Tech names held up well at the front end but widened 2bps at the long end. Elsewhere China financials were unchanged. In EM sovereign space, PHILIES stayed the same, while INDONs were down 25cents at the belly and 50-75cents at the long end, with quasis following INDON benchmarks.

 Indonesia

      Indonesia was out for a public holiday yesterday.