US stocks closed in red last Fri as “Brexit” fears continued to weigh.

FX

Global

      US stocks closed in red last Fri as “Brexit” fears continued to weigh. Markets continue to see “Remain” as the more favourable outcome.   The first poll post-Jo Cox’s murder has seen a slight lead by the “Remain” camp. That lifted the GBP/USD to levels around the 1.46-figure at last sight. Elsewhere, RBI Rajan announced his return to academia (in a staff letter) after his term ends on 4 Sep. That could place the rupee under renewed pressure as markets focus on the succession of a Governor that investors have had much confidence in. Even so, expect FX intervention to limit the rupee’s volatility as they had garnered much FX reserves in recent months.

      The EU referendum is a key risk event in the week ahead and the current calm is likely tentative. Rumours are that there could be a cancellation/postponement of the event. Regardless, our base case is for UK to choose to remain in the EU. Should that be the outcome, the current short GBP positioning suggests that there is likely mega unwinding – 500-700pips post-Bremain over 1-3 weeks. However, should UK choose to exit. GBP could potentially test below its multi-year low of 1.3503 levels (Jan 2009) and beyond 1.33 levels (2standard deviations from our in-house fair value estimate of 1.58) as markets react to uncertainty. Refer to our report All Eyes on Referendum 23 Jun for more details. The national declaration of full results should be 6-7 am UK time on 24 Jun (1-2 pm SG/KL time).

      The current sense of caution is likely to keep USDAXJs to remain supported on dips. Consolidation should dominate for much of next week before potential volatile moves on Fri. BSP and BOT are not expected to move. A pick up in price pressures in the Philippines and recent shift to the interest rate corridor should see BSP on an extended pause in rate action. On the other hand, BOT is likely to keep rates at historical low of 1.50% and allow the fiscal policy to do the heavy-lifting in the economy. Singapore has CPI and industrial production due on Thu and Fri respectively. Technical indicators suggest the SGDMYR could extend its uptrend. Apart from SGDMYR, we also identify seemingly resilient uptrends in JPYMYR and USDPHP on the charts notwithstanding the key event risk ahead.

Currencies

G7 Currencies

      DXY – Sideways. Dollar index gapped lower in the open amid Fed Bullard’s comments that he sees only 1 rate hike through 2018, and he did not provide any estimate for longer-run Fed fund rate. Note that he was considered as more optimistic (amongst other Fed officials) on US outlook.  OIS futures are still not pricing in any (25bps) rate hike over the next 12 months. Dollar index was last seen at 93.66 levels. Daily momentum is not providing a clear indication. Next support at 93.50 before 92 levels. Resistance at 94.90 (21 DMA), 95.65 (100 DMA, downward sloping trend-line resistance from Feb and May) and 96.50 (200 DMA). Week ahead brings Yellen testimony on Monetary Policy to Senate Banking Panel on Tue; Existing Home Sales (May) on Wed; New Home Sales (May); Chicago Fed Nat Activity Index (May); PMI-Mfg (Jun P); New Home Sales (May) on Thu; Fed's Kaplan Speaks; Durable Goods Orders (May P); Univ. of Mich. Sent. (Jun F) on Fri.

       EURUSD – Upside Risk Intra-day. EUR firmed amid broad USD weakness and tracking the gains in GBP. Last seen around 1.1350 levels. Daily momentum is showing tentative signs of upside risk. Resistance at 1.13 (50 DMA), 1.1360 (23.6% fibo retracement of Dec low to May high), 1.1450 levels before 1.15. Support remains at 1.1230 (21 & 100 DMAs). Week ahead brings EC Construction output (Apr); ECB Yves Mersch speaks; EC ZEW Survey (Jun) on Tue; Consumer Confidence (Jun A) on Wed; EC Markit PMI-mfg (Jun P) on Thu.

       GBPUSD – Referendum Debate Restarted. GBP saw a continuation of its rally this morning, rising as high as 1.4614 (intra-day high), from 1.42 levels (last Fri). Referendum debate suspension was lifted yesterday. Recent polls post-MP Jo Cox’s unfortunate death saw opinion polls swinging in favour of Remain (Survation polls). We reiterate that polls remain fickle. It remains our long-standing view that UK is expected to vote to remain in EU. And we expect sentiment to be restored, IPO/M&A deals to come back in the pipeline and lend further strength to GBP. We remain better buyers on GBP dips. But in the lead-up to Referendum day (23 Jun) and results day (24 Jun), we continue to caution for choppy moves (2-way direction) amid poor liquidity conditions amplifying GBP movements. GBP was last seen around 1.4570 levels. Bearish momentum on daily chart shows signs of waning while stochastics has risen from oversold conditions. Next resistance at 1.4690 (200 DMA), 1.4880 (50% fibo retracement of Jun high to Mar low). Support at 1.4350 (100 DMA, 23.6% fibo). Week ahead brings May public finances data, CBI trends orders/ selling prices (Tue); EU referendum (voting on Thu; results on Fri).

    USDJPY – Dictated By Risk Events. USDJPY sank to a record low of 103.55 following the BOJ’s decision to keep policy unchanged amid soft global risk appetite. Since then, pair has rebounded slightly as risk appetite picked up on increasing expectations of a Bremain after the murder of the British lawmaker. Trade data just released also showed a trade deficit in May of JPY40.7bn vs. expectations of JPY70bn surplus after exports fell for the eight consecutive month by 11.3% y/y (cons.: -10%) and imports slipped by 13.8%. This could also be adding further downward pressure on the JPY this morning. With risks off the table for now, the 20Y yields has bounced back to positive territory to +0.18%, though the 5Y remains in negative territory at -0.24%. Nikkei futures are higher this morning, suggesting possible further upside to  the pair intraday. Pair was last seen around 104.75 levels. Bearish momentum is gaining, and we see potential for the pair to reach 101-figure (50% Fibo retracement of the 2012-2015 rally). We still look for a move by BOJ in Jul after the Upper House elections on 10 Jul. Before that happens, we have the EU referendum and that is a key event risk that could swing the pair. A Bremain scenario on the other hand could swing the pair towards the first barrier at 105.55 (May low) and then to 107.80 (21DMA). However a true bullish reversal might need markets to turn more optimistic on PM Abe and BOJ Kuroda on fiscal and monetary packages. Week ahead has BOJ Kiuchi speak on Thu; BOJ Nakaso on Thu.

       NZDUSD – 70 – 72 Cents Range. NZD firmed, tracking gains in other high-beta currencies. In data released this morning 2Q Westpac Consumer confidence was weaker than prior. NZD was last seen around 0.7085 levels. Bullish momentum on daily chart remains intact but showing signs of waning. Stochastics is falling from overbought conditions. Resistance at 0.7130 (61.8% fibo) before 0.7360 (76.4% fibo). Support at 0.6930 (50% fibo retracement of May-2015 high to Aug-2015 low). Expect the pair to trade in recent range of 0.70 – 0.72. Week ahead brings Finance Minister Speaks on Wed; Mfg PMI (May); Consumer Confidence (Jun) on Fri.

       AUDUSD – 50-DMA Eyed. AUDUSD is back to test the 50-DMA as we write, last seen around 0.7440. Despite the upmove this morning, MACD still shows waning bullish momentum and stochastics is falling from overbought conditions. Only RSI indicates further room for upside. Break above the 50-DMA on daily close basis could see an extension towards 0.76 levels (23.6% fibo). Failing that would risk decline towards the 0.7267 (200-DMA) beyond support at 0.7328 (50% Fibonacci retracement of the 2016 rally) give way. Week ahead brings RBA Debelle Speech on Mon; RBA Jun Minutes, RBA’s Heath Speech in Sydney on Tue; RBA Ellis Panel Participation, RBA Debelle Remarks at Sydney on Thu.

       USDCAD – Two-Way Swivels. USDCAD extends its fall from last Fri and was last seen around 1.2850. The looney was underpinned by the bounce in oil prices. Daily stochastics are still in oversold conditions and MACD  forest is at the zero level, suggesting room for two-way moves. The 1.2530-1.3460 range still holds with the 50-DMA at 1.2856 still acting as a pivot point.  Strong support is still seen at 1.2660 before year low of 1.2460. Apr manufacturing sales rose more than expected by 1.0%y/y. May CPI came in softer than expected at 0.4%m/m, albeit still quickening from previous 0.3%. Year-on-year, price pressure has eased from 1.7% to 1.5%.  Core inflation rose to 0.3%m/m from previous 0.2%. Year-on-year, it has eased to 2.1% from previous 2.2%. 

Asia ex Japan Currencies

      The SGD NEER trades 1.21% above the implied mid-point of 1.3606.  We estimate the top at 1.3337 and the floor at 1.3875.

       USDSGD – Capped.  USDSGD had a choppy week, much like the rest of the FX market, weighed by the weak USD and JPY strength. Momentum suggests bearish bias and oversold conditions. This suggests a bounce may be in store for this pair. However, retracement may be on a short-leash and multiple barriers are seen at 1.3610 (23.6% Fibo retracement of Jan-Mar downswing); 1.3650 (21DMA) ahead of 1.3710 (100DMA). With risks still to the downside, support is seen around 1.34-handle before the year’s low of 1.3350. Expect a largely rangy week with potential for whippy action on Fri (UK referedun).   Week ahead has May CPI (Thu); May industrial production (Fri).

       AUDSGD – Risks on Both Sides. AUDSGD bounced to parity at last sight. MACD is slight bullish momentum although Stochastics continue to fall from overbought conditions. We still see some potential for further pullbacks. Support at 0.9900 before 0.9700. Barrier around 1.0120 is strong.

       SGDMYR – Little Momentum. SGDMYR was a touch softer this morning. Cross remains well within its trend channel; last seen around 3.0320 levels. There are little cues from momentum indicators for now while stochastics is at overbought conditions. We remain bias to lean against strength. Resistance remains at 3.0480 (trend-line resistance from the highs of Nov and Jan) before 3.0640 (76.4% fibo retracement of Oct high to Apr low). Support at 2.99 (50% fibo), 2.9570 (38.2% fibo, 100 DMA).

       USDMYR– 4.07 – 4.10 Range Intra-day. USDMYR was a touch softer this morning, tracking broad USD weakness (following GBP’s 1.4% rally this morning as Brexit worries slowly eases for now) while oil prices remain broadly stable. Pair was last seen at 4.0800 levels. Daily momentum is not providing an clear bias. Support was last at 4.0720 (38.2% fibo retracement of 2016 high to low) before 4.0540 (100 DMA). Resistance at 4.0970 (21 DMA), 4.1420 (50% fibo retracement of 2016 high to low) before 4.18 levels (200 DMA). Support at 4.0720 (38.2% fibo). Expect 4.07 – 4.10 range intra-day. Week ahead brings Jun FX reserves (Tue).

       1s USDKRW NDF – Range. 1s USDKRW NDF gapped in the open tracking the decline in USD and easing worries over Brexit (as opinion polls swung in favour of Remain again). Pair was last seen at 1165 levels.  Daily momentum is not indicative of a clear bias. Support at 1160, 1153 levels (23.6% fibo retracement of 2016 high to low). Resistance at 1176 (21, 200 DMAs), 1180 (100 DMA), 1185 (50% fibo retracement of 2016 high to low). Near term support at 1171 (38.2% fibo). Expect 1160 – 1172 range intra-day.

       USDCNH – Softening with the dollar. USDCNH remains considerably elevated even as the USD index slips, last seen around 6.5880. Sentiments are likely to remain cautious and there are still plenty of bearish bets on CNH. Barrier remains at 6.6181 while dips to meet support at 6.5779 (21-DMA). USDCNY was fixed 87pips lower at 6.5708 (vs. previous 6.5795). CNYMYR was fixed 16 pips lower at 0.6198 (vs. previous 0.6214). The week ahead has no key data due. Eyes are on the EU referendum and a vote to remain could see risk appetite revived.

       SGDCNH – Uptrend. SGDCNH edged even higher this morning, buoyed by CNH weakness and was last seen around 4.8670. Trend is up. Stochastics in overbought levels but trend shows no signs of reversing. Next barrier is seen around 4.9151. Pullbacks to meet support at 4.8827 before 4.8400.

       1s USDINR NDF – Bullish. The 1M NDF rallied to around 67.97 at last sight. The recently announced departure of Governor RBI is likely to keep the USDINR on an uptrend. The big 70-figure seems much closer now than before. The 100-DMA has become a support at 67.4784. Barrier is seen at 68.3656 (23.6% Fibonacci retracement aof the Oct-Feb rally). Expect RBI to be in the FX market to temper the USDINR upmove. Equities and debt market will be eyed. Foreign investors sold USD16.1mn of equity and USD50.2mn of debt on 16 Jun. There are no tier-one data due.

       1s USDIDR NDF – Range. 1s NDF had been on the upmove towards 13500-levels for most of last week on waning risk appetite before turning lower towards the end of the week. 1s NDF continues to slip lower towards 13300 levels this morning as risk appetite improves on growing expectations that the UK will vote to remain in the EU later this week. We could see further inflows as a result like we did last week where foreign investors bought USD73.98mn in equities last week. They had however removed IDR1.20tn from their outstanding holding of debt on 13-16 Jun (latest data available). Moves in the weerk ahead continues to be guided by external events particularly the UK referendum on 23 Jun. 1s NDF was last seen around 13315 levels. Momentum continues to show waning bearish bias and stochastics continues to rise from oversold levels. Support nearby is at 13290 (23.6% Fibo retracement of the Jan-Mar downswing) before the 13000-figure (year’s low). Barrier at 13470 (38.2% Fibo). We expect range within 13240-13500 to hold ahead. The JISDOR was fixed higher at 13358 on Fri from 13327 on Thu.

       1s USDPHP NDF – Upside Bias.  1s USDPHP NDF is edging lower after climbing higher for most of last week amid waning global risk appetite. Risk events will dominate this week with BSP meeting on Thu and UK referendum outcome on Fri. We do not expect the BSP to move ahead of the UK referendum and given the transition to an interest rate corridor. Last seen around 46.38 levels, 1s NDF has lost most of its bearish momentum and is beginning to show mild bullish momentum and stochastics continues to climb higher. This suggests that further downside ahead could be limited. Support remains at 45.90 (double-bottom) which should provide firm support in the interim. Upticks should meet resistance at 46.56 (50DMA) ahead of 46.750 (50% Fibo retracement of Jan-Mar downswing, 10DMA). Improving risk appetite towards the end of the week saw foreign funds buying USD10.42mn in equities last week. Week ahead has BSP meeting on Thu; imports, Apr trade balance on Fri. current trading range of 45.3045.60.

       USDTHB –  Still Range.  USDTHB is softer to start the week amid  a softer dollar and improving risk appetite on expectations that the UK will vote to remain in the UK. Pair was last seen around 35.200 levels. Daily chart shows bearish momentum still intact but waning and stochastics is tentatively climbing higher from oversold levels. Pair should continue to take its cues from external events ahead – UK referendum – as well as the BoT meeting this Wed. We do not expect any changes to BoT given that rates are already near historic lows and the preference of the central bank is for fiscal policies to do the heavy-lifting of supporting the economy. Expect range trading within 35.000-35.370 to hold the week ahead. Risk-supported sentiments saw foreign funds buying THB0.12bn and THB9.68bn in equities and government debt last week. Week ahead brings BoT benchmark interest rate on Wed; May customs trade, 17 Jun foreign reserves on Fri.

Rates

Malaysia

      Lackluster local government bond market amid lighter volumes with yields ending the week sideways. We expect market to stay quiet ahead of the UK referendum.

       IRS market was largely muted with the rate curve ending a tad higher on weaker bonds. There were no trades reported throughout the day. 3M KLIBOR stayed unchanged at 3.65%.

       Quiet day in the local PDS segment. AAAs traded unchanged at the belly with Rantau 22 being given at 4.20%, but the front end saw Caga 18 tightening 3bps. GG space saw bids tightened 2-3bps. AA curve largely traded unchanged to 1bp wider with IPPs like JEP and TBEI exchanging hands. In primary, Islamic Development Bank is looking to sell up to MYR400m Sukuk Wakalah rated AAA by MARC via its funding vehicle Tadamun Services Bhd.

Singapore

      SGS weakened on further selling as UST retraced from its high overnight. Players were defensive, ceding to the selling pressure with yields jumping up as high as +15bps. Some bottom fishers later came in pushing prices off intraday lows. Yields ended 9-10bps higher from the 5y onwards with the curve bear steepening. SGD IRS mirrored the move, closing 1-4bps higher. Swap spreads narrowed by another 5-6bps.

       Asian credit market saw end buyers slowing down before UK’s referendum as there was no big buying but small selling seen in secondary. Lower UST overnight brought some adjustments to spreads which were better by 2-3bps in the IG space. Outperformers include CITPAC 21, HRAM 26 and SDBC 26 which tightened by up to 6bps, while the new SDBC 19 was down 7bps from re-offer spreads. EM sovereigns slightly lower in price tracking the UST move.

Indonesia

      Indonesia bond market closed lower during the final day of last week amid central bank decided to ease monetary policy. We may guess that the hike of IGS prices may have been hindered by the rising issue of Brexit. Nevertheless, we remain to see that IGS remains to be attractive and reiterate our call on FR0073 series. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.444%, 7.588%, 7.863% and 7.834% while 2y yield shifts down to 7.215%. Trading volume at secondary market was seen thin at government segments amounting Rp8,685 bn with PBS009 as the most tradable bond. PBS009 total trading volume amounting Rp1,352 bn with 14x transaction frequency and closed at 100.58 yielding 7.351%.

       Corporate bond trading traded heavy amounting Rp638 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 Rp115 bn.