Maybank FX Tech Weekly - 20 Jul 2015

       For the week ahead the data calendar is relatively light. We continue to monitor implementation risks associated with Greece’s new bailout. RBNZ meets on Thu. A 25bps cut to bring OCR down to 3% appears largely priced in. We think there is room for RBNZ to surprise with a 50bps cut as prolonged weakness in dairy prices, falling CPI/PPI inflation have serious ramifications on the economy. We remain bearish on the NZD but suggest looking for better levels to go short.  Overall net short position (CFTC latest weekly as of 14 Jul) for NZD has reached another unprecedented record rising to US$1.1bn (from US$0.7 bn). This could suggest some risk of short squeeze, given one-sided positioning.

       On USD, we continue to reiterate our long-held view for the first rate hike (25bps) in Sep as data continues to suggest that growth path remains intact, and that the pace of tightening will be gradual, given that Fed will take into consideration domestic growth and external environment – China rebalancing risk, Greek crisis and USD strength into consideration. On other majors, we continue to favor buying GBP on dips against SGD around 2.11 levels. We remain bearish on AUD on falling iron ore prices, falling ToT, low capex. Focus on RBA minutes on Tue; CPI on Wed. We are cautious of potential upside squeeze, possibly towards 0.7540/50 levels. Remain better sellers on rally.

       On Asians, against a backdrop of our house view for the Fed to begin tightening in Sep and further downside pressure on the EUR, we continue to favor buying USD/AXJs, especially against THB, SGD and KRW (see note). We also see further downside pressure on SGDCNY towards 4.4560 levels on CNY stability while SGD is expected to face further weakness (see note).

       With risk of Grexit diminishing, ECB raising ELA to Greek banks this week, conclusion of P5+1 nuclear deal with Iran, China 2Q GDP still hovering around 7% levels, Fed Chair Yellen’s semi-annual testimony last week restoring confidence that a rate hike in the coming months look certain and BoE Carney’s recent comments of rate hike interpreted as hawkish, some degree of clarity and stability have somewhat returned to markets. As of 17th Jul weekly close, MSCI world equities was up more than 2% while Shanghai equities gained 17% from its Jul-lows. USD was broadly higher, up nearly 2% for last week and nearly 5% since Jun lows. Euro resumed its move lower towards 1.08-lows. 

       Other key data we are watching for the week includes UK BoE Minutes; RBA Governor Stevens speaks; US Jun existing home sales (Wed); US Jun CFNAI; EC Jul consumer confidence; UK Jun retail sales; Jun trade; Singapore Jun CPI inflation; Malaysia FX reserves (Thu); US Jun home sales; US, JP, China, EC, GE, FR Jul flash PMIs; Singapore Jun industrial production; Philippines May trade (Fri).