Maybank FX Tech Weekly - 5 Jun 2015

       For the week ahead market is likely to take cues from the US NFP tonight. Consensus is looking for +223k print for May NFP (unchanged from previous read); +0.2% m/m (vs. +0.1% prior) in average hourly earnings. Given recent upbeat tone of US economic data, US initial claims (4-week moving average) at 15-year lows, and the subsequent move out from harsh winter conditions, we believe the pace of hiring has already started to pick up. A strong number (above 12-month average of +254k) may have the impetus to push the USD higher. We continue to see heightened volatility in FX markets in the run up to the FOMC until the 30 June Greek payment deadline. We continue to see value to buy EUR and USD against ASEANs on dips. USD/MYR likely to face upward pressure while downside pressure on the NZD is expected to remain.

       Markets remained highly volatile amid an eventful week. ECB President Draghi acknowledged that QE has been successful to raise inflation expectation and took the opportunity during the ECB meeting (3 Jun) to raise 2015 inflation expectation from flat to 0.3% while Euro-area May CPI greeted markets with an upside surprise. European bonds tumbled with 10Y Bund yields soaring to near 1% (4 Jun). Yields later eased after Greek PM Tsipras rejected the EU group proposal and IMF gave Greece the green light to bundle its repayment obligation (EUR1.5bn) due to the IMF this month and make one lump sum payment on 30th Jun. Separately the IMF made a surprise call (4 Jun) urging the Fed to delay its first rate hike till 2016. The basis for this unusual call was relating more to financial instability, rather than for economic reasons. FX markets had their fair share of action, with EUR/USD rallying from 1.0890 to 1.1380 ahead of a Greek resolution (which remains to be seen). Our EUR/ASEAN index has also gained more than 3% for the week. SGD/MYR was one of the big movers, venturing into uncharted territories (2.7566 high on 5 Jun) amid MYR weakness and resilient SGD. 

       Main focus for the week ahead is on the China monthly (May) data dump, which begins with trade data on Mon; CPI, PPI inflation on Tue; activity data (retail sales, industrial production, FAI) on Thu. Monetary data will be released sometime between 10 – 15 Jun. We expect inflation and activity data to be muted; credit growth to be slightly higher. For central bank meetings, the BoK and RBNZ meet on Thu. We expect the BoK to continue to adopt a wait-and-see approach and keep base rate unchanged at 1.75% and expect the RBNZ to cut OCR by 25bps to 3.25%, against a backdrop of checking all of RBNZ’s criteria for future easing – 15Y low inflation with risk of slipping into negative territories, benign wage inflation, low levels of dairy prices for longer. Other data we are also watching for the week includes JP 1Q GDP (Mon); 1Q Euro-area GDP (Tue); UK Apr industrial, manufacturing production, JP Apr machine orders; RBA Stevens speaks (Wed); US May retail sales; AU May employment change; Malaysia Apr Industrial, manufacturing production (Thu); US May PPI; Euro-area Apr PPI; UK Apr construction output (Fri).