EU leaders have urged UK to detail the exit plan amid concerns that the uncertainty could affect the rest of the Union.

FX

Global

      EU leaders have urged UK to detail the exit plan amid concerns that the uncertainty could affect the rest of the Union. Chancellor Merkel has been most vocal about Brexit thus far saying that the UK “wouldn’t be allowed to cherry-pick the things it wanted out of its future relationships”. It is the lack of leadership in the respective UK political parties that leaves the EU in a state of limbo. Labour’s Jeremy Corbyn has just lost a confidence vote but was adamant to remain as leader while Conservatives have also not voted for a new leader. However, the urgency of the EU leaders to avoid an extended period of uncertainty seems to have offered tentative comfort for the financial markets. Equities rose NY and Europe. The former was also underpinned by higher-than-expected 1Q GDP for US.

      Risk sentiment has been positive overnight but we note the rise in currency volatility as well. Equity inflows may support Asian currencies but a lingering state of uncertainty is likely to keep a lid on USDAXJs. NZD has risen on better risk sentiments but warnings of rate cut by RBNZ stopped the currency in its northbound track, last seen around 0.7070. USDCNH has been rather elevated in the past few days but better risk mood may see some pullbacks.

      The day ahead is rather light in terms of data releases out of the region. Beyond Asia, US has personal spending for May due, PCE Core for May and pending home sales. The Fed stress test results will be out as well. Europe has industrial confidence scheduled for release for Jun.

   Currencies

   G7 Currencies

      DXY – Supported on Dips. Dollar index eased slightly but remains near its recent highs (levels not seen since Mar) as cautious risk sentiment abates. DXY was last seen at 96.07 levels. Daily technicals suggest dollar index remains supported. Key resistance at 96.50 (200 DMA). Only a break above on daily close basis could see an extension of the rally towards 97.96 (76.4% fibo retracement of 2016 high to low). But shorter term technical suggest that the index could see some pullback. Next support at 95.80 (50% fibo). Overnight data was mixed – 1Q GDP was revised upwards by 0.3ppt to 1.1% (above market expectation) while Conference Board consumer confidence also surprised to the upside. Richmond Fed Mfg disappointed to the downside. Fed’s Powell spoke this morning – that long run interest may be lower than expected (not new); recent development in UK adds up to modest tightening of financial conditions. Week remaining brings Personal spending (May); PCE Core (May); Fed’s Yellen participates in panel at ECB forum; Pending home sales (May); Fed’s stress test results on Wed; Chicago Purchasing Manager (Jun) on Thu; ISM Mfg, PMI (Jun) on Fri.

      EURUSD – Sell on Rallies. As expected, we saw EUR short covering (as cautious sentiment abates) sending EUR to an overnight high of 1.1112. We retain our call to sell EUR on rallies towards 1.1100 (200 DMA) -  1.1150 levels for a move back below 1.10-handle. Daily momentum remains bearish bias, but short term technical (as indicated on the 4-houly momentum and stochastics) suggests that the pair could still see some upside intra-day. Pair was last seen around 1.1060 levels. Support at 1.0940 (61.8% Fibonacci retracement of Dec low to May high), 1.0780 (76.4% fibo). Resistance at 1.11 (200 DMA), 1.1230 (100 DMA). Week ahead brings ECB forum in Portugal (Mon – Wed); EC industrial confidence (Jun) on Wed; CPI estimate/ core (Jun) on Thu; EC Mfg PMI (Jun); Unemployment rate May) on Fri.

      GBPUSD – Remains Bearish Bias; Political Headlines to Drive Direction. GBP-short squeeze overnight saw the pair traded as high as 1.3419. We do not rule out further short squeeze but prefer to sell on rally as uncertainty on separation looms. PM Cameron reiterated that trigger of Article 50 is matter for next Premier. Expect more political-headlines to keep GBP volatile and keep the currency under pressure.  GBP was last seen at 1.3290 at time of writing. Daily momentum remained bearish and GBP could test lower towards 1.30-handle. Resistance at 1.36. Week ahead brings Nationwide House Prices (Jun) on Wed; GDP (1Q); Business Investment (1Q) on Thu; PMi Mfg (Jun); Unit labor cost (1Q) on Fri.

      USDJPY – Supported For Now. USDJPY saw some relief overnight as the pair climbed higher above the 102-levels overnight as global risk appetite improved on expectations that central banks would take action to limit the fallout from Brexit. Pair has eased off from its overnight high of 102.84 on possible profit-taking activities. Also, market could have been disappointed that the second meeting between PM Abe, FM Aso and BOJ governor in a week turned out to be a non-event with Kuroda providing an update on the liquidity situation among banks and the ability of the BOJ to provide sufficient FX liquidity if needed and FM Aso commenting that markets have calmed down in the short-term. This was after PM Abe had said that Japan would mobilize all possible resources to temper the impact of Brexit. The Nikkei futures are higher this morning, and allude to potential upside risks for the pair intraday, possibly limiting the pair’s downside. Pair was last seen around 102.45 levels. Daily momentum remains bearish bias and stochastics continues to climb higher from oversold levels. With the threat of intervention still lingering, pair should remain supported and hover within its current trench channel, though markets could test the MoF’s and BOJ’s convictions. Support nearby remains around the 101 levels (lower bound of the trench channel) before 99-levels (year’s low). Should confidence in Abenomics fade, a move towards the 95-handle seems likely. Any rebound is likely to be capped around 103.80 (38.2% Fibo retracement of May-Jun downswing); 105.25 (50% Fibo). Expect 101-105 for the week with bias to sell on rallies. Remaining week has May preliminary industrial production (Thu); May jobless rate, May CPI, 2Q Tankan Survey results, Jun final Nikkei PMI Mfg (Fri).

      NZDUSD – Range of 0.7030 – 0.7130 Range Ahead. NZD rebounded amid the improvement in 1Q jobless rate to 5.2% (from 5.7%) and the rebound in sentiment (as Brexit-related over-selling reverses). Pair was last seen around 0.7070 levels. Daily momentum is mild bearish bias while stochastics has fallen from near-overbought conditions. But 4-hourly technical continue to suggest upside risk intra-day. NZ Finance Minister said RBNZ could cut rates if needed in response to Brexit; added that Brexit event could support the Kiwi given NZ’s attractive yields and credit rating agencies remain “quite positive” on NZ; noted there is no new agreement to add new macro-prudential tools (on housing) with RBNZ yet. Expect 0.7030 – 0.7130 range today. Some technical levels to watch – support at 0.7030 (21 DMA), 0.6930 (50% fibo retracement of May-2015 high to Aug-2015 low). Resistance at 0.7130 (61.8% fibo), 0.7360 (76.4% fibo). Week ahead brings May building permits and Jun business confidence (Thu).

      AUDUSD – Risk-On? AUDUSD was last seen around 0.7400 after a night of better risk sentiments. Despite the morning rebound, momentum indicators are suggesting waning bullish momentum. A barrier is seen around 0.7450 (38.2% fibo retracement level of the Jan-Apr rally) which is rather close to the 50,100 DMA. Pressure is to the downside. Even so, we suspect some flight to Australia’s AAA bonds could temper bearish moves. 200-DMA is the key support around 0.7286 now. May private sector credit is due on Thu. The 2016 Federal Elections is eyed on Sat and opinion polls show that the race is still tight with only a marginal lead by the Coalition. A Labor party win could put Australia’s AAA rating at risk as they are likely to allow greater deficit in the next four years before its projected balance budget by 2020/2021. On the other hand, the Coalition Party pledged to improve the budget bottom line by $1.1bn over the next four years by “cracking welfare loopholes”.

      USDCAD – Firm, Still Within Range. USDCAD was still capped by the 100-DMA and was last seen around 1.3066. Overnight oil gains had this pair backing off from the resistance level. Support is seen around 1.2880. Stochastics indicate more room for upside and that is insync with a mildly positive MACD. Beyond this lies the 200-DMA at 1.3329 which is near the 38.2% Fibonacci retracement of the Jan-May sell off. Oil prices have been pretty resilient and that has given some support to the CAD. Apr GDP is due this Thu. Consensus expects a mild print of 0.1%m/m vs previous -0.2%. Year-on-year, growth should quicken to 1.4% from previous 1.1%.

Asia ex Japan Currencies

      The SGD NEER trades 0.97% above the implied mid-point of 1.3661 with the top estimated at 1.3391 and the floor at 1.3932

      USDSGD - Buy On Dips Still.  USDSGD remains a tad softer this morning as global risk aversion waned on expectations that central banks would take action to limit the impact of Brexit. Still, choppy trades are likely ahead as markets continue to digest the possible impact of Brexit. Pair remained below the 1.36-handle and was last seen around 1.3530 levels. Daily momentum and stochastics continue to point to mild upside risk. We remain bias to buy on dips around 1.3480 levels, looking for a move towards 1.3640 (61.8% Fibo retracement of the May-Jun downswing); 1.3680 (100DMA) before 1.3720 (76.4% Fibo retracement).

      AUDSGD - Choppy. AUDSGD hovered around parity. MACD shows little directional bias with stoch almost entering overbought conditions. Barrier is still seen at 1.0124 before 1.0221. Moves have been choppy and will still be. Support is seen at 0.9900 (76.4% Fibonacci retracement of the Jan-Apr rally) before 0.9720.

      SGDMYR – Slight Bearish Momentum. SGDMYR slipped amid MYR outperformance; last seen around 3.0020 levels. Daily momentum is mild bearish bias. We reiterate our slight bias to lean against strength. Resistance at 3.0150 (21 DMA), before 3.0480 (trend-line resistance from the highs of Nov and Jan) and 3.0640 (76.4% fibo retracement of Oct high to Apr low). Support at 2.9980 (200 DMA), 2.99 (50% fibo), before 2.9570 (38.2% fibo, 100 DMA).

      USDMYR– Range-Bound 4.04 – 4.08 Intra-day. USDMYR fell on good inflows into Ringgit bonds while cautious sentiment abated overnight. Rising expectation for BNM to cut OPR in Jul could well keep the flows coming in for MYR bonds (should sentiment continues to stabilise) and this should weigh on USDMYR. Pair was last seen at 4.0600 levels. Support at 4.04 (50 DMA) before 3.9850 (23.6% fibo retracement of 2016 high to low). Resistance at 4.0830 (21 DMA) before 4.1430 (50% fibo) and 4.17 (200 DMA). Week remaining brings Jun PMI and May trade data (Fri).

      1s USDKRW NDF – Range-Bound. 1s KRW fell on announcement of fiscal package yesterday (to address Brexit fears and complement corporate restructuring plans) and the easing of cautious risk sentiment overnight (US equities up more than 1.5% while KOSPI was last seen up 1% on the day). Last seen around 1168 levels. Downside could be shallow towards 1162 levels. Bias to buy on dips for a move towards 1175 (200 DMA). Daily momentum still show some mild upside risk. Week remaining brings May IP (Thu); Jun PMI, CPI, trade as well as May current account balance (Fri). The government yesterday announced KRW20tn of fiscal stimulus package including KRW10tn of extra budget while BoK was said to provide more than KRW3tn of short term liquidity this week via OMO, following Brexit event.

      USDCNH – Softer. USDCNH has been drifting lower this morning and was stuck around 6.6780. Next barrier at 6.6820 could still be tested while dips to meet support at 6.6181 (before the 21-DMA at 6.5919). We do not rule out moves towards 6.70 as what we have anticipated in a case of a Brexit. USDCNY was fixed 204 pips lower at 6.6324 (vs. previous 6.5528).. CNYMYR was fixed 2 pips lower at 0.6155 (vs. previous 0.6153). Week ahead has industrial profits for May today, BOP current account balance for 1Q on Thu and then PMI-mfg, non-mfg and Caixin’s PMI-mfg on Fri. We continue to expect PBOC to use adhoc measures like pledged supplementary lending, medium term lending facility and standing lending facility to supply credit to the targeted sectors that require more liquidity support. Post-Brexit fears may build case for broad based RRR cuts but doing so may generate flows to assets that are prone to bubbles (real estate in the tier-one property sectors), undo deleveraging efforts in the economy and unhinge the CNY. The local press (Economic Information Daily) said that China would release more measures such as easing market access and raising financial support for private companies in 2H to boost private investment.

      SGDCNH – Uptrend Resume On Risk Recovery? Expect Further Upside To Be A Grind. SGDCNH rebounded yesterday and was still elevated this morning, last seen around 4.9326. Risk recovery has swung the SGDCNH back on the uptrend but momentum indicators suggest upside might be limited. Momentum indicates waning bullish momentum however. Stochastics are also in overbought levels so we prefer to lean against its strength. Barrier is still seen around 4.9151 before 4.9420. Pullbacks to meet support at 4.8827 before 4.8400. Both have been tested before. 50-DMA is the next support at 4.8205 to watch.

      MYRCNH – Still In Uptrend. This cross waffled around 1.6430 after a rally yesterday. Support is still seen at 1.6152 (100-DMA) before the 1.5987 (the lower bound of the upward sloping trend channel).  Barrier is tentatively at Fri high of 1.6649 before the next at 1.6800 (76.4% Fibonacci retracement of the 2015 sell-off, close towards Apr high) before 1.7155.

      1s USDINR NDF – Upside pressure. The 1M NDF hovered around 68.20, underpinned by importers month-end dollar demand. The barrier at 68.3656 (23.6% Fibonacci retracement of the Oct-Feb 2015 rally) is still intact before the next at 69.43. Support is seen at 67.4850. Outflows may take a pause now. Investors sold USD10.2mn of equity and bought USD25.4mn of debt on 25 Jun. No tier one data due expect PMI-mfg for Jun on Fri. RBI Governor Rajan advised to stay “on the path of sound domestic policies and structural reforms to achieve sustainable growth”.

      1s USDIDR NDF – Upside Capped. After sliding lower towards the 13200 levels yesterday on news that the passage of the tax amnesty bill and reversing most of its gains following Brexit, 1s USDIDR NDF is a tad firmer this morning on possible profit-taking activities. It is worth recapping that market view the tax amnesty bill positively as it would not only onshore funds that have been parked overseas that could be used for capital investment’s domestically, but that could also solve some of the government revenue shortfall, decreasing fiscal risk. This should provide the government with the funds it would require to fund its infrastructure programmes should its tax amnesty plan goes ahead without a hitch. This in turn is expected to encourage greater portfolio inflows and FDIs into the economy. The tax amnesty law is IDR-positive. 1s NDF was last seen around 13240 levels. Daily momentum is now bearish bias again with stochastics showing tentative signs of turning lower. With risk now tilted to the downside, further upside could be capped. Resistance is around 13280 (23.6% Fibo retracement of the Jan-Mar downswing); 13360 (100DMA). New support is at 13110 levels (23 Jun low); 13000-figure (year’s low on 17 Mar). Expect 13000-13400 range to hold intraday. The JISDOR was fixed lower at 13256 yesterday from 13495 on Mon. Investors turned positive yesterday with foreign funds buying USD51.61mn in equities yesterday. Week ahead has Jun Nikkei PMI Mfg, Jun CPI (Fri).

      1s USDPHP NDF - Limited Downside.  1s USDPHP NDF is back below the 47-figure, helped by continued foreign inflows into equities and government bonds. This was even after foreign funds appeared to have taken profit yesterday, selling USD3.13mn of equities. Still, this downtick could be temporary as risk aversion could re-emerge and drag the 1s NDF higher. 1s NDF was last seen around 46.95 levels. Momentum indicators continue to show bullish bias intact with stochastics still at overbought levels. This suggests further downside could be limited. New support is at 46.870 (38.2% Fibo retracement of the Jan-Mar downswing); 46.750 (50 & 100DMAs). Rebound should meet resistance around 47.470 (61.8% Fibo). Expect range trades within 46.750-47.400 to hold intraday and we favour buying on dips. We have the inauguration of president-elect Rodrigo Duterte, who starts his term of office at 12 noon tomorrow.

      USDTHB - Range.  USDTHB is on the mild rebound after sliding lower for the past two sessions, possibly on profit-taking activities. Last seen around 35.240 levels, pair has lost most of its bearish momentum, though stochastics remains on a gradual climb higher. This suggests that the pair’s climb higher remains a slow grind. Resistance is at 35.370 (38.2% retracement of the Jan-Mar downswing). Support at 35.120 (23.6% Fibo). Expect range within 35.100-35.500 to hold intraday as markets digest Brexit risks. Risk sentiment turned positive yesterday with foreign investors buying THB1.92bn and THB18.03bn in equities and government debt yesterday, which weighed on the pair yesterday. Remaining week has 24 Jun foreign reserves, May trade, May current account (Thu); Jun CPI (Fri). Onshore markets are closed on tomorrow for the mid-year holiday (bank holiday) though government offices remain open.

Rates

Malaysia

      Heavy buying in Malaysian govvies as the UK’s downgrade spurred further buying in regional govvies. MGS yield curve lowered 2-7bps and MGII yield curve lowered 2-4bps from previous day, with good volumes in both spaces. Players turn to Wednesday’s auction of 30y MGS 3/46 retap. Still no trades done on WI, last quoted at 4.63/60%.

      MYR IRS rates dropped sharply amid the strong buying in MGS, possibly due to foreigners cutting paid positions. 5y IRS was dealt at 3.60% and 3.58%, while 3M KILBOR stayed at 3.65%.

      With the rally in MGS, PDS trading volume was significantly higher. The GG curve was active on names like PASB, Prasa and Dana, with the long end rallying 3-5bps, especially the 10y. The front end also rallied 3-4bps with PASB 21s closing at 3.90% (G+50bps/Z+30bps). AAA space saw bids tighten 2-3bps but lacked offers. Front end bonds dominated trading in the space, moving 1-2bps tighter. AA space also saw a pick-up in volume but levels were unchanged to 1bp tighter. Most flows were still crosses.

Singapore

      SGS saw buying at the open but softened when UST retreated from the highs, prompting some profit taking in govvies. After the SGS 10/19 auction result slightly tailed, market sentiment worsened with bonds getting sold off further and SGD IRS getting paid up. SGS yield curve rose 3-5bps higher, while SGD IRS curve ended -1bp to +2bps. Swap spreads narrowed again by 3-4bps.

      In Asian credit, hunt for yield was the theme as risky assets in selected markets rallied, including INDON sovereigns which were up by 0.75cents to 1point. Australian corporates traded 1-2bps tighter following the rally in AGBs. Japan TLACs also tightened by the same magnitude. China credits traded on a weaker note closing 2-5bps wider, while elsewhere in Asia remained unchanged. Malaysian corporates were muted, but saw better buyers when London opened. Investors seem to be underinvested and may be biased towards buying sovereigns and high quality credits given the uncertainty after Brexit.

Indonesia

      Indonesia bond market closed higher towards the end of June. The hike was supported by legislative passing the Tax Amnesty bill. Taxpayers who declare their assets and repatriate them will pay tax rates between 2% - 10% depending on how quickly the taxpayer declare their assets and repatriate them while taxpayers which just declare their asset without repatriate the asset will pay tax rate between 4% - 10% depending on how quickly the taxpayer declare their assets. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.400%, 7.523%, 7.767% and 7.817% while 2y yield shifts lower to 7.213%. Trading volume at secondary market was seen heavy at government segments amounting Rp15,074 bn with FR0073 as the most tradable bond. FR0073 total trading volume amounting Rp3,298 bn with 125x transaction frequency and closed at 108.57 yielding 7.767%.

      Indonesian government conducted their sukuk auctions yesterday and received incoming bids of Rp7.80 tn bids versus its target issuance of Rp4.00 tn or oversubscribed by 1.95x. However, DMO only awarded Rp5.01 tn bids for its 1.6y, 4y and 16y bonds. Incoming bids were mostly clustered on the PBS009 and PBS012 series. 1.6y PBS009 was sold at a weighted average yield (WAY) of 5.35983%, 4y PBS006 was sold at 7.75603% while 16y PBS012 was sold at 8.26090%. SPN-S and PBS011 series bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.00X – 2.35X.

      Corporate bond trading traded heavy amounting Rp985 bn. SMFP03ACN5 (Shelf Registration III Sarana Multigriya Finansial Phase V Year 2016; A serial bond; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp226 bn yielding 7.598%.