Maybank FX Tech Weekly - 22 Apr 2016

      A week with FOMC and BOJ meeting can hardly be described as uneventful. Whilst Fed Fund futures indicate an implied probability of 0% for a rate hike at this upcoming meeting and Fed Yellen’s “words of caution” in Mar could still linger, we think this could be a meeting to usher in a potential rate hike in Jun. The language of the statement could be more balanced with more acknowledgements of strengths and expansion of activities in the economy. In fact, the Beige Book has already noted increase of consumer spending, increased manufacturing activity, improvement in credit conditions and modest rise in prices and input cost pressures. Another rate hike of 25bps accompanied by a very dovish statement could be sufficient to keep dollar from excessive strength.

      While the Fed looks for a gentle way to signal a hike, BOJ is likely to be scrambling for ways to ease. To be sure, BOJ may need a ‘nuclear option’ to change the USDJPY trajectory – namely expanding monetary base from the current JPY80trn, purchasing even more ETFs (from current JPY3trn), cutting interest rate further from -0.1% and if necessary, to finance government debt by printing money. Long USDJPY positions may continue to build in the hopes of further action by BOJ on Thu (28 Apr). Also in the Asia Pacific, RBNZ meets. Potential for a cut may keep the NZD on the backfoot against the USD and counterpart AUD as monetary policy divergence persists. However failure to do so may see the antipode swing the other way.

      In the FX space, the USD technical rebound could be coming in slow motion, against most AXJs (including SGD and MYR) over the next few sessions.   The SGD NEER was last seen 0.24% above the mid-point implied at 1.3503. Upperbound is implied at 1.3234 while lowerbound is now at 1.3772. Dollar strength could nudge the SGD NEER towards the lower half of the band (USDSGD higher) and we see upside risks to our technical charts as well. But our bias remains to sell USD, GBP (on ongoing Brexit concerns) on rallies against commodity-linked and higher yielding currencies in an environment where monetary conditions remain accommodative. On crosses, we continue to favor buying AUDSGD on dips towards 1.04, for a move towards 1.0760 objective. We remain bearish of SGDMYR.

      Other data we watch for the week includes US New Home Sales (Mar), GE IFO Survey (Apr). For Tue, focus on Durable Goods Orders (Mar P), Markit US Services PMI (Apr P), Consumer Confidence Index (Apr) out of US. On Wed, focus on US Pending Home Sales (Mar), Australia and UK’s 1Q GDP. For Thu, US releases its 1Q growth print, Personal Consumption, Core PCE (1Q), RBA Debelle speaks, EC economic confidence and GE CPI (Apr), Natl CPI (Mar), Retail Sales (Mar), Industrial Production (Mar). For Fri, Fed's Kaplan Speaks, US Personal Income, Real Personal Spending (Mar), PCE Core (Mar), U. of Mich. Sentiment (Apr F), Euro-area GDP (1Q). In Asia, we watch China’s industrial profits for Apr on Mon, Singapore’s Mar CPI, followed its Mar industrial production on Tue. Philippines will release its imports and trade balance for Feb.