Maybank GM Daily - 22 Apr 2016

FX

Global

      ECB Draghi kept its policy package unchanged. The deposit facility rate was held at -0.4% and the central bank retained its asset-purchase program at EU80bn a month. QE will continue until sustained inflation adjustment, at least Mar 2017.  EURUSD rallied a big figure before making a full reversal back under the 1.13-handle within a couple a hours as investors noted Draghi’s assurance of rates at present or lower levels for extended time.  

      While EUR and GBP were back at where we left them in Asian hours yesterday, their reversal dragged AUD and NZD lower. The commodity-linked currencies were also weighed by the retreat in crude prices as market players took profit from year’s high. Not helping in the least is the soured sentiments on Wall Street where benchmark indices were weighed by the telecommunication sector. MYR, KRW and THB traded on the backfoot against the USD this morning. JPY was strengthened by the return of market caution.

      Earlier in the day, Bank Indonesia held rates, as expected. The central bank noted that monetary policy transmission improved in Mar with deposit rates losing 37bps this year while lending rates are down13bps. 7-day repo rate was unchanged at 5.5% as well but this will only be the policy reference rate starting in Aug.

      The day ahead has preliminary PMI-mfg for Apr for the US, Europe, Japan as well as Malaysia FX reserves. Expect position adjustments ahead of the weekend before the next BOJ and FOMC decision.

Currencies

G7 Currencies

      DXY – A slow motion rebound. The DXY index was pulled below the 94-figure at one point before a strong reversal that saw the index back at the 94.57-level. Action was mostly driven by the reactions to ECB decision and Draghi talks. Upside momentum is helped by retreat in oil and equities. The 94-figure continues to be a tough support to crack and remains to be for the near-term. While we are looking for further downside, the time is overdue for a technical rebound in order for bears to gain more mileage. Barrier is seen at 94.90 (21 DMA), before 96 (50 DMA). Support at 94 levels before 92.50.  Week ahead brings PMI Mfg (Apr P) on Fri.

      EURUSD – Downside Risks. EUR was still around the 21-DMA, last seen just under the 1.1300. The downside risks flagged by momentum indicators seem to be taking its time to manifest and support is seen around 1.1260 (76.4% fibo retracement of the Oct-Dec sell off) before 1.1188 (50 DMA). We remain bias to accumulate on dips targeting a move towards 1.15, 1.18. The ZEW survery of the current situation slipped more than expected though expectations improved from 4.3 to 11.2, exceeding consensus. Week ahead brings EC, GE, FR Flash PMI (Apr) on Fri.

      GBPUSD – Sell on Rally. GBP touched a high of 1.4440 before reversing lower, swung by the EUR. The GBPUSD was last seen at 1.4330. Daily momentum and stochastics indicators continue to point north. Resistance is seen at next at 1.4430 (100 DMA) which has resisted the overnight bids before the next at 1.45-figure. The 50-DMA at 1.4230 has turned into a support before the next at 1.4150 (38.2% fibo retracement of Feb high to low), 1.4030 (23.6% fibo) before 1.3830 (Feb low). The main underpinning of our call is still Brexit concerns which should continue to weigh on the currency until referendum takes place on 23 Jun. Week ahead brings retail Sales, public finances (Mar) on Thu.

      USDJPY – Limited Downside. USDJPY is slipping lower towards the 109-levels this morning amid a firmer dollar. Downward pressure on the pair is likely intraday given that the Nikkei is in the red this morning, tracking global equities overnight, and most of the majors were sold off against the JPY. Pair was last seen around 109.80-levels.  Daily momentum is exhibiting increasing bullish momentum and stochastics is climbing higher. Monthly and weekly momentum indicators though are all still bearish bias. Intraday down moves could be limited around 108.60 (15 Apr low). Resistance remains around 110.40 (61.8% Fibo retracement of the 2014 low to 2015 high; 21DMA).  PMI Mfg (Apr F) is due later today.

      NZDUSD – Remains Confined within the Trend Channel. NZD slipped to around 0.6920 as we write. The upward sloping trend channel still holds. Bullish steam is waning on this pair and interim support is seen at the 21-DMA (0.6872) and barrier at 0.7070 (upper bound of the trend channel). Beyond that, next barrier is seen at 0.7126 (61.8% fib retracement of the Apr-Aug fall). Support at 0.6750 (50 DMA, 38.2% Fibo) before 0.6680 (lower bound of the trend channel). Week ahead brings ANZ Consumer Confidence (Apr); credit card spending (Mar) on Thu.

      AUDUSD – Potential Correction Ahead. AUD was dragged lower as well, weighed by the commodity prices, EUR reversal and a slightly weaker risk appetite overnight. Last seen at 0.7760, uptrend is still intact but we see potential correction ahead as momentum indicators as flag bearish divergence. Barrier is seen at 0.7850. Support is still at 0.7720 before the next at 0.75 (50% Fibonacci retracement of the May-Jan sell off) before 0.7429(50DMA) and then 0.7282 (100 DMA). We still hold on to our bullish target at 0.7850 (76.4% Fibonacci retracement of the May-Jan sell off) before the big 0.80. The RBA was seen as dovish after the recent speech by Stevens. Week ahead brings RBA FX Transactions (Mar) on Fri.

      USDCAD - Downtrend. CAD made a retreat overnight but moves were rather muted, last seen around the 1.2700. Focus is clearly on oil rather than the dollar. Downtrend is strong in this one and momentum indicators are still tilted south. Support at the 1.2660 (5 Jun 2015 high) should be retested before the next seen at 1.2574. Week ahead has retail sales for Feb due tonight, along with Mar CPI. Consensus expects a firmer print for the latter at 0.5%m/m vs. previous 0.2%. Retail sales is forecasted to fall an average of -0.8%m/m from previous 2.1%.

     Asia ex Japan Currencies

      The SGD NEER trades 0.17% above the implied mid-point of 1.3510 with the top end estimated at 1.3241 and the floor at 1.3780.

      USDSGD – Still Capped By 21-DMA.  After climbing higher past the 1.35-handle briefly yesterday, USDSGD is holding steady around the 1.3490-levels this morning amid a firmer dollar and waning risk sentiments in the wake of weak earnings in the US. Daily momentum is only very mild bullish and stochastics is showing no strong bias. Range trading is likely intraday with support remaining around 1.34-handle (50% Fibo retracement of 2014 low to 2016 high). Upside remains capped by 21DMA at 1.3520 (21DMA). A clean break here on a daily basis could see a move back towards 1.3650 (38.2% Fibo).

      AUDSGD – Grinds. This cross touched a high of 1.0530 before tapering off to levels around 1.0470. Resistance is still seen at 1.0540 (23.6% Fibonacci retracement of May-Sep sell off). Bullish target is seen at 1.0760 (50% fibo). We still hold on to our word of caution - weekly stochastics is entering into overbought conditions – that may suggest some pullback towards 1.04 levels. We maintain our call to hold long AUDSGD and to buy AUDSGD on dips.

      SGDMYR – Sell On Rallies. SGDMYR is bouncing higher amid the relative strength of the SGD and as the MYR played catch-up with the rest of its regional peers, even as oil prices climbed higher overnight. Cross was last seen around 2.8955-levels. Daily momentum and stochastics are bullish bias. Immediate resistance is seen around 2.9040 (23.6% Fibo retracement of the Jan high to Apr low) before 2.92-handle (8 Apr high). Any slippages should find support around 2.8670 (18 Apr low) ahead of the year’s low at 2.85-handle. We continue to favor selling on rallies.

      USDMYR – Upside Pressures. USDMYR gapped higher at the opening this morning to 3.9035 from yesterday’s close of 3.8688. Pair is playing catch-up with the rest of its regional peers following the dollar’s resurgence overnight. Still firmer oil prices - Brent and WTI are printing USD45.02/bbl and USD43.68/bbl respectively this morning – should be supportive of the MYR and could cap the pair’s upside. Upside pressure could also be coming from MIER’s downward revision of its 2016 GDP growth forecast 4.2% from 4.7% previously on the back of weaker exports (slower China growth) and limits to domestic sources of domestic growth. Pair was last seen around the 3.9040-levels. Daily momentum and stochastics are both still mildly bullish. Immediate resistance is seen around 3.9160 (21DMA) ahead of 3.9630 (18 Apr high); 4.0-figure (50% Fibo of May-Sep 2015 upswing). Any retracement should find support nearby at 3.8990 (61.8% Fibo) before 3.8442 levels (2016 lows).

      1s USDKRW NDF – Mild Bullish Bias. 1s NDF continues to bounce higher as dollar remained firmed and global oil prices stay elevated. Last seen around 1141-levels, this NDF is now exhibiting increasing bullish momentum, though it remains mild, and stochastics is showing tentative signs of turning higher. Resistance at 1150 (21 DMA). Support remains around 1125 (19 Apr low). In the news, BOK governor commented that there were some positive signals in the economy but further monitoring would be required to confirm its development into a stable recovery.

      USDCNH – Watch the 6.45-6.54 Range. Pair bounced this morning and was last seen around 6.48690, still capped by the 50-DMA at 6.5055. Upside momentum seems to be waning. Barrier is now seen at 6.5014 (50-DMA), ahead of the next at 6.5379. We continue to observe that PBOC uses the DXY index and the RMB index to guide the USDCNY. USDCNY was fixed 95 pips higher at 6.4898 (vs. previous 6.4803). CNYMYR was fixed 26 pips higher at 0.5990 (vs. previous 0.5965). RMB index edged higher at the latest fixing, estimated by us at 97.43. We think there that given the primary concerns on capital outflows had ebbed and an outstanding overvaluation of its REER, PBOC would be less concern of a weaker RMB against the basket and seek to adjust the fixing in order for its REER lower in episodes that the dollar is weak. This is again, in line with our observations that the RMB index is positive correlated to the dollar. In news, CRBC has started a trial for 10 banking institutions to provide loans to startups in scientific fields and their institutions investment arm to hold equity of startups through investment (BBG).

      1s USDINR NDF –200-DMA support tracked. 1M NDF recovered from the fall in the earlier part of the week and was last seen around 66.80. This pair is still sticky around the 200-DMA at 66.53 and could remain a line of pivot in the absence of stronger market cues. Immediate barrier at 67.175 before the next at 67.50 (100-DMA). Support is seen at 65.98 (76.4% Fibonacci retracement of the Oct-Mar rally). Foreign investors bought U$156.1mn of equities and U$227.3mn of bonds on Apr 18th. In news, RBI will tweak the method to compute spot USDINR reference rate.

      USDIDR – Consolidating. USDIDR is inching higher this morning amid a firmer dollar overnight but appears to be in consolidative mode. Still, firmer oil prices overnight could help cap further upmoves in the pair and keep the pair rangy ahead. Last seen around 13170-levels, pair is showing mild bullish momentum and stochastics is exhibiting no strong bias. Upside remains capped around the 21-DMA around 13197 before 13238 (50DMA). Support remains around the 13000-handle. The JISDOR was fixed higher for the first time in three sessions yesterday at 13182 from Wed’s 13133. Risk sentiments remained positive with foreign funds purchasing a net USD29.58mn in equities. As expected, BI kept its policy rate unchanged at 6.75% ahead of its adoption of a new policy rate on 19 Aug. They also set the 7-day reverse repo rate at 5.5%. In view of the new policy framework and BI’s optimistic outlook for the economy. It sees 2Q growth improving to 5.2-5.3%.

      USDPHP – Sell Into Rallies.  USDPHP gapped up again this morning, on the back of a firmer USD. Last seen at 46.570, this pair has broken out to the upside of its recent range of 45.90-46.40. Momentum on both the MACD and stochastics are bullish. Barrier is seen at the 50-DMA at 46.680 before the next at 46.730 (38.2% Fibo retracement of the Jan high to Mar low). The 50-DMA has crossed the 200-DMA lower and we see more risks to the downside in the medium-term. Hence this recent upmove could be one to sell into. Support is seen at 46.410 (23.6% Fibo). Risk appetite remained weak with foreign investors selling a net USD2.96mn of equities yesterday.

Rates

Malaysia

      Government bonds ended mixed again. Trades mostly centered on the 7y MGII 7/23 which ended unchanged with a total of MYR410m volume traded. ASW trades were still being placed as offshore parties continued to buy front-end MGS 17s and 18s.

      The IRS market saw active payers taking charge, though there was still receiving interest in the market. 2y IRS traded at 3.59%, 3y at 3.60% and 5y at 3.70%. IRS levels were mostly higher by 1-2bps, while 3M KLIBOR remained at 3.70%.

      In PDS, secondary market was quiet as investors focused on the new Danainfra issuance of at least MYR1.8b. Final pricing came in at 4.10% for the 7y, 4.29% for 10y, 4.57% for 15y and 4.76% for 20y which seems fair given current levels in rates. The papers could do well if the risk-on sentiment sustains. Secondary space largely saw crosses across credit curves. Dana 11/22s traded 1bp wider at 4.07% (G+43bps/Z+20bps), while longer-dated Dana and Prasa papers exchanged flat to MTM levels. The AAA curve saw better buying at the belly, with Plus 25s tightening 1bp to 4.35% (G+51bps/Z+33bps). KLCC 24s and Putrajaya 24s traded rather close to Plus 25 despite being 1y shorter in duration. We think spreads could compress at the belly of the AAA curve. 

Singapore

      SGS prices softened, tracking the tumble in UST overnight. The yield curve rose higher by 6-10bps, outperforming SGD IRS, as sporadic short covering interest helped to cap the rise in yields. SGD IRS rose by 9-12bps on strong paying interest. We believe this cheapening of SGS is a healthy retracement as market heads toward the 7y reopening auction next week.

      Asian credit market turned firmer, helped by the stronger crude oil prices. The new MALAYs had a good start in the secondary market despite pricing being on the tight side in the primary. MALAY 46s outperformed, better by 13bps, while the 26s were better by 9bps. Elsewhere, PHILIP 41, INDON 26 and INDON 46 all reported a marginal increase, and CDS outperformed cash bonds.

 Indonesia

      Indonesia bond market closed with a slight decline as there were minimal market sentiments. During the day, Central Bank Board of Governor meeting decided to halt the reference rate at 6.75% after cutting it for three times in a row. Indonesia President manages to receive commitment worth of Rp250 tn during his visit in London as part of the 5 days state visit to EU. Book building of SBR002 (Saving Bond retail) will soon be held with an expectation to raise approx. Less than Rp5tn while its spread above the LPS rate would probably be decent enough for retail investors. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.183%, 7.397%, 7.648% and 7.686% while 2y yield was noted to be unchanged at 7.100%. Trading volume at secondary market was seen moderate at government segments amounting Rp10,333 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp3,068 bn with 69x transaction frequency and closed at 106.996 yielding 7.397%.

      Corporate bond trading traded heavy amounting Rp1,000 bn. TELE01CN1 (Shelf registration I Tiphone Phase I Year 2015; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp480 bn yielding 10.108%.