FX
Global
Overnight US data was mixed. The ADP reported an underwhelming addition
of 179K, well under the consensus of 210K. Trade deficit widened to $47.2bn in
Apr from the Mar’s print was also revised higher to $44.2bn. The Federal
Reserve reported an optimistic outlook across most industries in the Beige Book
released overnight with reports of wage pressures and slight improvement in
employment.
Equities stumbled at first before reversing out losses to end in mild
black. DJI ended flat, S&P at +0.2% and NASDAQ at +0.4%. UST 10yr yields
were rather supported, swiveling around the 2.6% before easing off towards
2.59% in early Asia. Earlier in the European session, the soft PMI
numbers were largely ignored as investors were all focused on ECB
tonight.
Asia is in for a rangy session ahead of ECB rate decision. Most expect
an action-packed night. Apart from Philippine’s CPI, the data docket is again
light for Asia. Elsewhere, there were reports of easing tensions in Thailand
where curfews have been lifted in tourist attraction sites. Farmers are also
getting paid of what there were owed. Just released, HSBC China Services PMI
softened to 50.7 in May from previous 51.4.
G7 Currencies
DXY – Bullish Breakout. The index edged a tad higher and was last seen around 80.630, still
capped by the recent high of 80.681 that has become a barrier. Data releases of
US trade numbers, ADP report and the Beige Book tonight did little to inspire
the greenback. Perhaps moves were tempered by a fair amount of apprehension
over ECB tonight. Expect dips to remain supported with technical support still
seen at 80.381. While MACD provides little insight and index is on the
downtick, price action in the last 48 hours show increasing attraction towards
the 80.681-barrier and we see potential bullish breakout. Next bullish target
is seen at 80.828.
USD/JPY – Flat. USD/JPY took out our resistance at 102.68 to close at
102.75 overnight, but has eased back to hover around 102.64 this morning
following a weaker US trade and ADP data. Intraday MACD forest is seen hugging
close to the zero line still, though the pair is no longer in overbought
conditions. A re-test of 102.68-resistance is likely with a firm break
exposing the next hurdle at 103.00, though the grind higher is likely to be
slow. Ahead of ECB meeting and US NFP, we look for 102.44 to limit downsides
today with 103 guarding topsides.
AUD/USD – Choppy. AUD/USD had another choppy session after the 1Q GDP
release. The pair last printed 0.9277, seemingly resilient ahead of the trade
numbers which disappointed with a small deficit of AUD122mn. At the moment,
choppy price action seems to indicate indecisiveness. We have a tactical
bearish call for the pair to head towards the 0.9154 target given the lack of
bullish follow-through after RBA statement and the GDP. We see
vulnerability in the pair as investors have two more opportunities to sell the
pair – ECB tonight and NFP tomorrow, given AUD weak fundamentals. On the daily
chart, there is also a negative cross-over of the 18-DMA and 40-DMA. We take
that as a bearish signal. Another bearish signal is perhaps the descending
triangle that has formed since its peak in May.
EUR/USD – Event Risk. EUR/USD swings will be dictated by how much easing is
done by ECB tonight. A cut in the refi rate as well as a negative deposit rate
is well priced in. Last seen at the 1.36-figure, we expect this pair to remain
in tight swivels within 1.3586-1.3650 for much of Asian session into European
hours. MACD is now flat, indicating much uncertainty and bets are on both side.
It would take a confluence of forces, i.e. a refi rate cut, negative deposit
rate, and new liquidity adding measures, combined with a sharp push higher in
U.S. yields to get the euro back into a 1.30 to 1.35 range over the next few
days after the ECB policy.
Regional FX
The SGD NEER trades 0.43% above the implied mid-point of 1.2625 with the top end
estimated at 1.2374 and the floor at 1.2877.
USD/SGD – Flattish Momentum. USD/SGD breached our resistance at 1.2583 yesterday
but momentum faded with the pair easing below that level thereafter. This
morning, pair is inching lower, helped by sluggish dollar overnight, and is
currently around 1.2574. Momentum indicators continue to show little
directional clarity this morning. Ahead of ECB meeting and US NFP, pair is
likely to trade range-bound today within the confines of 1.2540-1.2583.
AUD/SGD – – Rangy. Cross is inching lower this morning on the back
of a slight SGD strength. Cross is currently hovering around 1.1660 with
intraday MACD forest still hugging the zero line. With little directional
clarity for the moment, we continue to expect the cross to trade range-bound
between 1.1590-1.1695 today. SGD/MYR – Flat. SGD/MYR is on the slide this morning, hovering around
2.5735 currently. Momentum indicators continue to show little momentum in
either direction today that should keep the cross trading in familiar ranges
again. Relative MYR strength today should weigh on the cross with 2.5665 still
providing support and 2.5771 as resistance.
USD/MYR – Consolidation. USD/MYR ticked lower in tandem with dollar moves and
was last seen around 3.2360. Pair touched a high of 3.2413 yesterday. Bullish
divergence has been 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 expect any dips to be supported by the technical support at 3.2275.
1-month NDF levelled off from Wed’s high and was last sighted around 3.2410. We
see two-way action today within 3.2372-3.2500. The Star reported that SMEs were
given a RM1,000 e-voucher to ensure smooth transition when the GST is
implemented. This e-voucher is meant to purchase or improve their GST-compliant
accounting software. In another article, the press also reported concerns over
the system of restricting fuel subsidies pegged to salaries and vehicle engine
capacity. Many were concerned that the system would be exploited by fuel smugglers.
USD/CNY was fixed higher at 6.1708 (+0.0015), vs. previous 6.1693 (+2.0%
upper band limit: 6.2967; -2.0% lower band limit: 6.0498). CNY/MYR was fixed at
0.5210 (+0.0006). USD/CNY –Firmer in Range. USD/CNY waffled around 6.2540
in spite of the higher fixing. Rangy moves are likely within 6.2462-6.2595 with
some risks to the upside as flagged by the MACD on the 4-hourly chart. From the
press, China may reveal a development plan for the greater Beijing region that
includes Tianjin and Hebei, according to the Economic Information Daily.
1-Year CNY NDFs – Upward Tilt. The 1Y NDF edged higher to around 6.2590 this morning.
Sideway moves remain tilted to the upside with 4-hrly chart showing flat
momentum. The resilient dollar and the flat fixing could remain supportive of
the prices. We expect more consolidation within 6.2485-6.2635 with tilt to the
upside.
USD/CNH – Sideways. Momentum is also rather flat for this pair but price action was a tad
more volatile than that of the NDFs. Pair was last sighted at 6.2564, supported
by the higher fixing. The 6.26-figure is within grasp and CNH is trading in
line with CNY, with only a narrow discount to onshore prices. Dips to remain
supported by 6.2517.
USD/IDR – Still Overbought. USD/IDR came close but failed to breach our stronger
hurdle at 11893 yesterday. The purchase of a net USD77mn in equities yesterday
by foreign funds was insufficient to weigh on the pair. Pair is on the retreat
this morning, hovering around 11869. Intraday MACD continues to indicate bullish
momentum with the pair still in overbought territory. 11750 should limit
downsides today. 11893 continues to act as strong hurdle today, though a firm
break would expose the next barrier at 11950. The 1-month cracked the
11900-level yesterday and is currently just a tad over that level at 11905 this
morning, though this was a moderation from yesterday’s close of 11944. Intraday
MACD has flipped and is now showing bearish momentum. The JISDOR was fixed
higher again for the third straight session at 11810 yesterday from 11806 on
Tue. Indonesia’s presidential-hopeful Jokowi and his running mate Jusuf Kalla
have called for the continuation of the mineral ore export ban in order to move
up the value-chain and for greater self-sufficiency especially in food stuff like
corn and rice.
USD/PHP – Rangy. USD/PHP is edging lower this morning, last sighted around 43.840
currently. Intraday MACD continues to show little momentum in either direction,
suggesting rangy trades ahead. Price action today should see the pair still
trading range-bound between 43.762-44.000 today. 1-month NDF is dipped to 43.84
this morning from yesterday’s close of 43.95 with momentum indicators still
providing little directional clarity. Philippines’ CPI came in
worst-than-expected, rising 4.5% y/y in May, a level not seen since Nov 2011.
Consensus had been expecting a rise of 4.2%. Comments by the central bank
governor following the data release that the room to keep rates steady has
narrowed, suggesting that a rate hike could be around the corner.
USD/THB – Bouncing Higher. USD/THB is bouncing higher again this morning,
hovering around 32.690 currently. Even continued foreign buying yesterday of a
net THB0.68mn and THB6.76bn in equities and government bonds failed to failed
to support the THB. Intraday MACD forest continues to show flattish momentum,
which suggest rangy trade continues to be likely. Topside remains guarded by
32.740 today, with a breach of that level likely to expose the next hurdle at
32.845 while 32.550 should be support today. Thailand’s military rulers are
poised to approve a revised state budget for FY2015 with a deficit of THB250bn,
similar to the current FY.
Rates
Yields on local government bonds ended the session
slightly higher in a subdued and lackluster market. Market opened on the
defensive side in response to the weak MYR and UST performance throughout Asian
trading hours. Sentiment was soft. In late afternoon, sellers emerged. At
market close, the 7-year benchmark MGS traded unchanged while 5 and 10-year benchmark
MGS inched up by 2bps to 3.74% and 4.06% respectively.
IRS slightly traded higher by 1bp after UST yields
shot higher, with the 5-year IRS at its recent high quoting 4.06/4.03% today.
Sluggish bond sentiments didn't add much zest to the IRS market. 3-year IRS
traded at 3.83%. 3M KLIBOR was stable at 3.49%.
In the PDS market, volume picked up with decent amount
done on high grades. Government guaranteed papers were in demand with names
like Govco, SME Bank and Danainfra traded on a wide range of 30-50bps above
MGS. AA3-rated Malakoff 2015 traded at 4.28% giving a
decent 113bps pick up over MGS.
Singapore
The SGS curve traded steeper again amid weak UST
performance during Asian trading hours. However, the recent back up in SGS
yield seemed to have caught the attention of investors with selected issues in
the belly of the curve remained resilient. Despite the drop in UST
overnight, the 5-year and 7-year SGS were pretty much unscathed, whereas the
long end saw yields rising 3-4bps. At market close, the 5-year SGS shed 2bps
while long end yields with 10 years and above in tenors inched up 3-4bps.
Indonesia
Despite, Rupiah declined the most since April on concern a deteriorating
trade balance and increased political tension will spur capital outflows from
the Indonesia’s financial markets, IDR government bond market managed to close
well. There is no panic selling in the street, bid only retreat 20-50bps across
tenors or yield changes higher 3-4bps. 5Y traded at 7.63%, 10y bond
traded back to 8.03%, 15y at 8.48%, 20Y traded at 8.58. Furthermore, yield
closed at 7.62/8.00/8.49/8.58 for 5Y, 10Y, 15Y and 20Y, respectively.
Today, June 4, 2014 until July 5, 2014 is the
beginning of a presidential election campaign. These conditions led to
increased political tensions in Indonesia. Seeing the competition both
presidential candidates (Prabowo Subianto/Hatta Rajasa and Joko Widodo/Jusuf
Kalla) increasingly tight, make the most of both foreign and domestic investors
wait and see for entry into Indonesia's capital markets. As a result,
Indonesia's capital market is still under pressure in the near future.
Rgds,
Maybank FX Research
Global Markets
Maybank
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