Maybank GM Daily - 4 June 2014

FX

Global

       The CPI estimate for May of the Eurozone came in softer at 0.5%y/y compared to the previous 0.7%.  That did not aid EUR bears much as EUR/USD saw a short squeeze to a high of 1.3648 before easing back. Pair is nonetheless, still within range as investors await ECB. Two ECB officials warned that Draghi’s likely signal for interest rate cut this week may not be the final one (BBG).

      New York had a weak start and remained rather anemic for the rest of the session. This was in anticipation of a softer factory orders in Apr.  The print at 0.7%m/m was a deceleration from the previously revised 1.5%, beat consensus. Equity indices ended in small red. USTs did not have a field day though as 10-year yields came within striking distance of the 2.6% before easing off a touch under.

      Data calendar in Asia is light apart from Australia’s GDP. Market players are likely to lie in wait at the sidelines for the next string of US economic data due tonight. Apart from the ADP employment report, trade numbers are also due along with the release of the Beige Book.  These could set the tone for NFP on Fri.

      Perhaps apprehension over ECB tomorrow could temper moves today. We expect the decision by ECB to be more closely watched compared to the monetary decision by BOE. The latter is not expected to do much. The session today should see EUR in range, DXY supported and USD/AXJs on the backfoot.

G7 Currencies

      DXY – Firm. The index kept within the range on Mon and hovered sideways, last seen at 80.577. We expect the recent high of 80.681 to remain a barrier. Any swings should be triggered by data releases including US trade numbers, ADP report as well as the Beige Book tonight. Expect dips to remain supported with technical support still seen at 80.381. Next bullish target is seen at 80.828. Fed Bank of Kansas City President George (non-voter) urged the Fed to allow a “passive runoff” of the balance sheet before the liftoff in interest rate. The rise in main rate should be gradual thereafter.

      USD/JPY – Still Overbought. USD/JPY hit a high not seen since 2 May around 102.59 this morning, helped partially by rising US yields and dollar strength. Pair is currently sighted around 102.55, though momentum remains flattish as indicated by intraday MACD and with the pair still in overbought conditions.  Still a move towards our resistance at 102.68 is a possibility, though the grind higher could be slow. A firm break of that level would expose the next hurdle at 103.00. Otherwise, we continue to look for the pair to trade within a tighter range of 102.30-102.68 today.

      AUD/USD – Flat. AUD/USD softened overnight on dollar resilience and was last seen around 0.9260, ahead of the GDP release. RBA left cash rate unchanged at 2.5% and we note a slightly more sanguine assessment of the global economy as well as growth within. Nonetheless, resource sector investment spending “is set to decline significantly” and the central bank highlighted emerging signs of improvement in investment intentions in other sectors. The statement lifted the currency higher before AUD/USD eases off as investors digest the rather neutral tone. Pair is not showing much momentum on the 4-hourly MACD and we reckon that the pair could remain in consolidative mode within 0.9209-0.9320. 1Q GDP came in at 1.1%q/q quickening from the previous 0.8%q/q. Year-on-year, growth picked pace to 3.5% from the previous 2.7%. AUD/USD was lifted to a high of 0.9299 before retreating to around 0.9280. Choppy trades are likely to continue within 0.9209-0.9320.

      EUR/USD – Zigzag. EUR/USD was engaged in choppy trade for much of Tue and traded lower into Asia after a short squeeze. The pair was last seen at around 1.3614. The short squeeze received little follow-through, leaving market players likely frustrated. As ECB looms near, we expect more sideway gyrations in the pairing within 1.3586-1.3670.  MACD is slightly bullish. We look for Draghi to give a dovish statement after the widely expected rate action on Thu, in order to provide the EUR a more lasting drag.

Regional FX

      The SGD NEER trades 0.29% above the implied mid-point of 1.2617. We estimate the top end at 1.2365 and the floor at 1.2868.

      USD/SGD – Upside Risks. USD/SGD took out our resistance at 1.2569 this morning and is currently hovering around 1.2579. Despite the upswing, momentum indicators continue to show little momentum in either direction today and with the pair just a tad off overbought conditions. Pair could face upside pressure ahead of the ECB meeting tomorrow with a firm break of immediate resistance at 1.2583 exposing the next hurdle at 1.2596. 1.2540 should continue to provide support today. Singapore’s May PMI data print disappointed yesterday with overall PMI moderating to 50.8 in May (though still in expansion mode) and electronics PMI little changed from Apr at 50.4. Market had been expecting an uptick of 51.3 and 50.8 respectively.

      AUD/SGD – Consolidative Mode.  Cross is on the uptick this morning, currently trading around 1.1645. Intraday MACD forest is currently hugging the zero line and we expect the cross to remain in consolidation mode within a tighter 1.1590-1.1695 range today.  SGD/MYR – Range-bound. SGD/MYR attempted but failed to break out of the current trading range of 2.5665/2.5721. Cross is currently wobbling, hovering around 2.5710 this morning. With directional clarity still lacking at this point, we look for the cross to trade range-bound with a wider 2.5564-2.5571 range today.  

      USD/MYR – Higher. USD/MYR edged higher this morning and was seen at 3.2340.  Bullish divergence is playing out, inspired by the resilient dollar and rise in the UST yields that are likely to dampen sentiments in the local domestic bond markets. We look for pairing to reach the next barrier at 3.2390 today. Support is seen at 3.2160. 1-month NDF traded higher overnight and has broken the 3.2372-barrier. RSI flags near overbought conditions though MACD is still bullish.  We expect prices have gentler grind towards next resistance at 3.2464. In local news, The Start reported that PM Najib could reshuffle the Cabinet before the start of Ramadan. At least two new ministers are expected to join and three serving ministers may be affected. Changes are likely to include MCA President Datuk Seri Liow Tiong Lai and Gerakan President Datuk Mah Siew Keong.

      USD/CNY was fixed lower at 6.1693 (-0.0017), vs. previous 6.1710 (+2.0% upper band limit: 6.2952; -2.0% lower band limit: 6.0483). CNY/MYR was fixed at 0.5203 (+0.0006). USD/CNY –Firmer in Range. USD/CNY bounced higher in the latter half of the Tue session and remained rather buoyant around 6.2530 despite the lower fixing. MACD on the 4-hourly chart indicates higher more bullish momentum and we expect prices to remain elevated with barrier seen at 6.2622. Support is seen around 6.2510 ahead of 6.2413. From the press, PBOC watchers assured that the credit crunch in Jun last year will not be happen this year as the central bank remain supportive of growth at the moment. 

      1-Year CNY NDFs – Steady. The 1Y NDF swivelled around 6.2570for much of the intra-day trades on Tue, extending sideway moves. 4-hrly chart shows flat momentum and we expect more consolidation within 6.2485-6.2635 with a likely tilt to the upside.

      USD/CNH – Flat. Momentum is also rather flat for this pair which was last sighted around the 6.25-figure. CNH now trades at a premium to CNY foreshadowing another period of stability in the FX region.  Support is still seen at 6.2474 while topsides are guarded now by 6.2564.

      USD/IDR – Temporary Relief. USD/IDR is seeing some relief this morning after gapping higher at the opening over the past two sessions. Still, the pair remains above the 11800-level at around 11806 with bullish momentum waning slightly while remaining in overbought conditions. A reversal of the sell-off in equities yesterday by foreign funds to a tune of a net USD21.36mn should provide support for the IDR today. 11750 should be supportive today while immediate resistance remains at 11831. A firm break of this level would expose the stronger hurdle at 11893 (19 Feb high). Since hitting a high not seen since 14 Feb of 11885 yesterday, the 1-month has eased to trade lower around 11854 currently with four-hourly MACD now showing bearish momentum. The JISDOR was fixed higher at 11806 yesterday from 11740 on Mon. Indonesia is planning to rise power tariffs for non-listed companies by 11.57% starting Jul with the plan increase taking place gradually over two months, while those for households could rise by 5.7-10.43% depending on power usage. This proposal is pending approval by parliament.

      USD/PHP – Consolidation. USD/PHP is edging higher this morning underpinned by dollar strength. Pair is currently hovering around 43.880, though our four-hourly MACD forest is indicating little directional clarity this morning. Still lacking directional impetus, pair should remain in consolidative trades within a tighter 43.762-44.000 range today. 1-month NDF is wobbling this morning, currently little changed from yesterday’s close at 43.930 with little momentum in either direction as indicated by intraday MACD.

      USD/THB – Rebounding. USD/THB beat a hasty retreat yesterday to close at 32.620 on the back of the junta’s plans to kick-start the economy and consumer confidence rising for the first time in 14 months in May, taking out several support levels on its way down. Also supporting the THB was the purchase by foreign funds of a net THB3.1bn and THB1.6bn in equities and government bonds yesterday. This morning, pair is edging higher again, likely on the back of dollar strength. Pair is currently sighted around 32.674 with intraday MACD forest showing flattish momentum. Still, lingering positive sentiments should cap upside today with the new hurdle seen at 32.740 today. 32.550 should be support today.

Rates

Malaysia

      Yields on local government bonds ended the session higher in a rather defensive market. Market was rangebound ahead of the ECB policy meeting and US nonfarm payroll, but buying was seen on off-the-run MGS maturing in 2017 and 2018. Market lacked the impetus to move either direction but yields edged up after sellers emerged in late afternoon. At market close, 3 and 7-year benchmark MGS ended 1bp higher at 3.49% and 3.94% respectively.

      MYR rates shifted higher and steeper, probably reacting to the lack of MGS buying momentum and higher UST yields. 5-year IRS dealt at 4.04%. At market close the IRS curve ended 1-2bps higher. 3M KLIBOR added another 1bp to 3.49%.

      In the PDS market, volume on the short end picked up. Market is biased toward the short duration bracket. Sime Darby 2016 traded at 3.77-3.79% range and Imtiaz 2016 changed hands at 4.28%. The pressure to sell remained, particularly on the short to belly of the curve.

Singapore

      The SGS curve ended steeper in reaction to the softness in US Treasuries.  Dip buying however was noted especially in short squeezed issues. At market close, yields on 10 to 30-year SGS ended 3-5bps higher while the 2 and 5-year SGS stayed flat. We recommend staying on the defensive side leading up to the ECB meeting and US nonfarm payrolls later this week.

Indonesia

      IDR Government bond market trade at range today given Indonesia’s rupiah fell to the weakest level since February on concern the largest trade deficit in nine months will weigh on the current account. IDR 10y bond touched the lowest at 7.99% and 15y at 8.45% before back to 8.03% and 8.46%, respectively at the end of trading session. Furthermore, yield closed at 7.62/7.96/8.46/8.58 for 5Y, 10Y, 15Y and 20Y, respectively. 

      Indonesian government held a series of sukuk auctions today and received a total of Rp4.22 tn bids versus its target issuance of Rp1.50 tn or oversubscribed by 2.81x. However, only Rp0.89 tn bids were accepted for its 6-mo, 6-yr and 30-yr bond. Incoming bid during the auction today was noted higher by 37.91% at today’s auction compared to May 20th, 2014 sukuk auction amounting Rp3.06 tn and were mostly clustered at the 6-mo SPN-S amid strengthened bond price at the secondary market . The 6-mo SPN-S04122014 was sold at a weighted average yield of 5.75%, 6-yr PBS006 at 8.15208% while 30-yr PBS005 was sold at 9.09906%. Bid-to-cover ratio on today’s auction came in at 1.14X – 9.90X. No series were rejected in the sukuk auction today.

Rgds,

Maybank FX Research

Global Markets

Maybank