FX
The yen rally continued well beyond Asian hours and
tested the 108-level against the USD as risk appetite deteriorated further,
taking the AUD and NZD along with it. DJI was down 1%, dragged by financials
and softer commodity prices led by copper which fell 3%. This morning, MYR and
KRW saw retraced from their recent gains, down -0.7% and -0.8% respectively.
China saw a slight rise in foreign reserves to
U$3.21trn from previous U$3.20trn. While some argued that the foreign reserves
actually fell due to valuation, PBOC released a statement saying that the
inclusion of SDR will help reduce valuation changes. The SDR-denominated forex
reserves as of end of Mar is at SDR 2.28trn. Also worth noting was the fact
that the RMB index has fallen below the 98-figure along with the decline in the
dollar index yesterday. We continue to see some upside risks in the dollar and
that could signal upside risks to the RMB index, but relatively milder upside
risk to the USDCNY.
The day docket remains pretty empty for Asia. Onshore
markets in India have closed for the weekend. Beyond Asia, UK has industrial
production, manufacturing production and trade balance for Feb due today. At
home, MAS announced that its monetary policy statement will be released on 14th
of Apr.
Currencies
G7 Currencies
DXY – Risk of Technical
Rebound. USD was a touch firmer against most risk proxy, commodity-linked currencies
(i.e. AUD, CAD, AXJs) but fell against JPY. Risk sentiment was weaker with
declines seen in equity, oil, and copper prices. Implied probability from Fed
fund futures shows zero probability of a Fed move in Apr; and only 15.7%
probability of a Fed move in Jun. Markets are just pricing in about 22bps hike
over the next 12 months – which could be a risk in under-pricing Fed’s rate
hike. This could mean that UST yields may have to rise further and USD could
see less weakness (this scenario will pan out when markets re-adjust
expectation on any hints of change in Fed language or closer to the Jun FOMC
meeting). We continue to hold to our house view of 2 hikes in 2016 – one
hike in Jun and another in Dec. Daily momentum remains bearish bias but
MACD suggests some signs of bullish divergence. Retracement could re-visit
21DMA (now at 95.30). Support at 94 levels before 92.50.
EURUSD – Bias to Buy
on Dips. EUR saw a brief move higher towards 1.1454
levels yesterday before falling below the 1.14-handle. ECB minutes indicated
that members still see scope for further rate cuts if need be. EUR fell to a
low of 1.1338. Last seen at 1.1370 levels this morning. Bullish momentum on
daily chart remains intact (though waning) while stochastics are entering
overbought conditions and showing early signs of turning lower. Not surprised
of a technical pullback. Support at 1.1250-60 levels (21 DMA). We remain bias
to buy on dips targeting a move towards 1.15, 1.18. Week remaining brings
France industrial production for Feb on Fri.
GBPUSD – Heavy Data Release Today. GBP remained
soft amid a night of little data release. Last seen around 1.4060 levels. We
reiterate that Brexit concerns should continue to weigh on the currency until
referendum. We expect 1m and 2m vols to play catch up with 3m vols. Retain our
bias to sell GBP on rally ahead of Referendum (23 Jun). Daily momentum and
stochastics indicators have turned bearish. Support at 1.4030 (23.6% fibo
retracement of Feb high to low) before 1.3830 (Feb low). Resistance at 1.4150
(38.2% fibo), 1.4250 (50% fibo). Day ahead brings Feb industrial production,
manufacturing production and trade balance.
USDJPY – Sell on Rally. USDJPY
tumbled to fresh 18-month lows of 107.67 overnight amid waning risk sentiment
(most bourses in US and Europe closed in negative territories) and narrowing
yield differential between 2Y UST and JGB (fell from 110bps in Mar to 96bps
yesterday). MoF officials’ comments this morning – that there are speculative
moves in JPY market - subsequently saw a mild rebound in USDJPY. Pair was last
seen at 108.70 levels. Monthly, weekly, daily momentum indicators remain
bearish bias. Next support at 106.70 levels (76.4% fibo retracement of 2014-low
to 2015-high) before 101. Resistance at 110.40 (61.8% fibo). We are cautious of
potential intervention risk but likely to only slow the pace of JPY
appreciation rather than to counter the trend. Still favor selling on rallies
towards 109.70 levels.
NZDUSD – Confined within
the Trend Channel. NZD fell amid
softer risk appetite - tracking the declines in risk proxies (i.e. copper, oil,
equity, AUD). Pair was last at 0.6790 levels and remains confined to the upward
sloping trend channel of 0.6680 (lower bound) – 0.70 (upper bound). Momentum
and stochastics are indicating early signs of bearish bias. Next level to watch
on the downside at 0.6760 (21 DMA) before 0.6680 (100 DMA, lower bound of the
trend channel). Resistance at 0.6930 (50% fibo retracement of Apr 2015 high to
low). No key data for release today.
AUDUSD – Deeper Pullbacks Likely. The pair was attracted to the 0.75-figure again and hovered thereabouts
as we write in Asia. Prices were dragged by the fall in copper prices overnight.
Stock piles increased 2.8% on the London Metal Exchange. On the charts, the
pair could move lower towards the 0.7430 (near Mar low) ahead of the next at
0.7340. Beyond the near-term, interim resistance at 0.7723 (recent high) before
the next at 0.7850 (76.4% Fibonacci retracement of the May-Jan sell off).
USDCAD – Bullish Bets. Pair closed above the 21-DMA for the first time since
Jan and was last seen around 1.3135. Support is seen at 1.2978 (61.8% Fibonacci
retracement of the May-Jan upmove). Momentum and stochastics are
increasingly bullish. We still prefer tactical long towards the 1.33-figure
(near 200-DMA) before the 1.3460 (last Oct high) which could potentially form a
head and shoulders formation. Housing starts for Mar and labour report for Mar are
due tonight. Consensus expects a softer print for Mar at 190K vs. previous
212.6K. Unemployment rate is expected to steady at 7.3% with an average 10K
jobs added last month.
Asia ex Japan
Currencies
The SGD NEER trades 0.14% above the
implied mid-point of 1.3544. The top end is estimated at 1.3274 and the floor
at 1.3815.
USDSGD – Upside Risk. MAS will release semi-annual monetary
policy statement and decision on 14 Apr. USDSGD rebounded amid broad USD
strength against AXJs. Pair was last seen at 1.3530 levels. Daily momentum is
mild bullish. Could see a potential move higher intra-day. Resistance at 1.36
levels (21 DMA). Support remains at 1.34.
AUDSGD – Upside Potential. AUDSGD was drawn towards the 1.0120-support (200-DMA)
before inching higher towards the 1.0175 as we write. This cross has ticked
higher though bias seems to be to the downside on the momentum indicators.
These are taken as shallow retracements before our ultimate target at 1.0540 to
be reached.
SGDMYR – Still Cautious
of Short Squeeze. In line with
our caution, SGDMYR rebounded amid renewed MYR weakness (off the back of softer
oil prices). Last seen around 2.9130 levels. We reiterate our observation - a
dragonfly doji seen on Monday’s candlestick. This is typically a bullish
formation. Daily momentum remains bearish (but waning momentum); stochastics is
showing signs of rising from oversold conditions. We reiterate our caution that
the pair may see a retracement towards 2.9140 (23.6% fibo retracement of 2016
high to low), 2.95 (50% fibo, 21 DMA).
USDMYR – Upside Risk in the Short
Term. USDMYR gapped higher in the open amid
softer oil price, renewed USD strength and slightly weaker risk sentiment.
Market talks of technical adjustment in equity markets as nothing much has
really changed in terms of macroeconomic conditions. Pair was last seen at
3.9420 levels. Bearish momentum is waning and stochastics is showing signs of
rising from oversold conditions. Retracement could revisit 3.9520 (23.6% fibo
retracement of Feb-high to Apr low), 4-figure (21 DMA). We remain bearish bias
in the medium term but caution for short squeeze in the interim. On foreign
reserves data – our Economists noted External reserves as at 31 Mar 2016 increased to USD97.0b from
USD96.1b on 15 Mar 2016 and USD95.6b at end-Feb 2016. But it fell in Ringgit
terms to MYR381.6b from MYR412.3b due to quarterly FX revaluation loss as MYR
appreciated against USD. The latest tally is equivalent to 8.0 months of
retained imports, lowest since Sep 2015 and 1.1 times of short-term external
debt. Year-to-date, external reserves increased by +1.8% from USD95.3b at
end-2015.
1s USDKRW NDF – Still
Cautioning for Upside Risk. 1s USDKRW NDF inched higher amid softer risk sentiment (as oil prices
fell) and renewed USD strength against AXJs and risk proxies. Pair was last at
1161 levels. We reiterate our technical observation - there was a dragonfly
doji candlestick formed last Thu. And that signals a turning point (to the
upside). Subsequent price action has confirmed the move higher. Daily momentum
has turned mild bullish and stochastics is rising from oversold levels. Further
upside could come. Next resistance at 1168 (61.8% Fibo retracement of Oct low
to Feb high). Support at 1150 (76.4% fibo) before 1136 (previous low).
USDCNH – The 98 breaks. The
pair inched higher and was last seen around 6.4900. We
continue to observe that PBOC uses the DXY index and the RMB index to guide the
USDCNY. The 98-level broke for the RMB index. We continue to see some
upside risks in the dollar and that could signal upside risks to the RMB index,
but relatively milder upside risk to the USDCNY. USD/CNY was fixed 47 pips lower at 6.4707 (vs. previous 6.4754). CNY/MYR
was fixed 49 pips lower at 0.5985 (vs. previous 0.6026). China saw a slight rise in foreign reserves to U$3.21trn from previous
U$3.20trn. While some argued that the foreign reserves actually fell due to
valuation, PBOC released a statement saying that the inclusion of SDR will help
reduce valuation changes. The SDR-denominated forex reserves as of end of Mar
is at SDR 2.28trn.
SGDCNY – Upside Bias. This cross closed lower at 4.7795. Support is seen at the 21-DMA at
4.7629. Uptrend is still intact though bullish momentum is waning. No bias is
seen in the near-term for now. Two-way trades likely within 4.7500-4.8200.
1s USDINR NDF – Retracements. Pair edged above the 21-DMA and hovered around 67.00
as we write. MACD forest remains bullish on the daily chart at this point and
bullish divergence seems to be playing out. Retracements towards the 67-figure
could be unfolding. The next barrier was seen at 100-DMA at 67.50 seems to have
deterred aggressive bulls. Weekly momentum is still bearish. The 200-DMA at
66.20 is a key support for this pair. Week ahead has trade for
Mar, due anytime from Fri onwards. Foreign investors sold USD77.3mn of equities
and sold USD40.4mn of debt right after the rate cut. We viewed the rate cut as
bullish for the bonds. Most of the inflows for the first quarter were via
equity markets and we expect the debt market to support the rupee in this
quarter. Onshore markets are closed today.
USDIDR – Capped. USDIDR softened from its open this morning and was
last seen around 13188 as we write. Daily charts show waning bullish momentum
and stochastics bearish bias. This suggests that further upside moves could be
capped. Resistance
is seen around 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing)
ahead of 13315 (31 Mar high). Support remains around the 13000-handle; 12984
(2016 low). The JISDOR was fixed lower at 13197 on Thu from 13223 Wed. We
anticipate a slightly higher fixing today. Risks sentiments were positive with
foreign funds buying a net USD51.6mn in equities on Thu. They had also added a
net USD0.6mn of debt on t6 Apr. Bank Indonesia flags that impact on growth and
CPI has to be seen before next cut, signaling pause.
USDPHP – Tilting Higher. USDPHP edged higher this morning, tracking the USDAsians broadly
higher this morning and last seen around 46.23. Daily momentum is showing mild
bullish bias and stochastics is tentatively showing signs of turning higher. With
risks titled slightly to the upside, look for 46.410 (23.6%
Fibo retracement of the Jan-Mar downswing) as next resistance. Support remains
around this year’s low of 45.900. Risk appetite eased with
foreign investors selling a net USD8.6mn of equities yesterday.
Rates
Malaysia
§ In govvy market, the 7y MGII 7/23 auction recorded a strong bid/cover of
2.686x with an average yield of 3.932%. Post-auction the bond inched 1bp lower.
Next auction to watch is the 20y reopening MGS 5/35 which we anticipate to be
MYR2b. Current levels quoted are wide ranging 4.33/23% and the bond has not
seen trades recently. Foreign reserves rose to USD97b end-Mar 2016 from
USD96.1b mid-Mar.
§ There was bidding interest in IRS but nothing dealt in the market. Rates
largely unchanged and 3M KLIBOR remained at 3.70%.
§ MYR PDS market was fairly quiet. In AAA space, front end Cagamas notes
tightened up to 2bps, with Caga 19s trading at 3.93% (G+42bps/ Z+29bps), and
Manjung 17s dealt at 3.83% (G+33bps/Z+19bps). Both look a tad tight. MACB 22,
which has lagged the rally in AAA, tightened 12bps to 4.25% (G+58bps/Z+38bps).
While it could move in further over the coming days, some premium for credit
risk is required. On the other hand, Rantau 19s widened to 4.03%. In GG space,
Prasa 41s were seen tightening 2bps to 4.90% (G+42bps/Z+62bps). Some crosses
took place in the AA space. KLK is looking to raise MYR500m for a 10y
indicative tenor by month-end.
Singapore
§ SGS still saw slight selling bias, but bids did emerge as USDSGD and
forwards inched lower, coupled with a less hawkish US Fed. Most primary dealers
stayed on the sidelines. Yields ended flat to higher by 1-2bps, while SGD IRS
rates were up by 1bp. SGS should stay supported if USDSGD remains subdued.
§ Asian credits continued to do well, with TMBTB 21s tightening 11bps
without any catalyst. EM sovereign cash space saw PHILIP belly papers (30s-32s)
outperform moving 1-1.5pts higher, while INDON lagged behind moving up by only
10-15cents. Mizuho’s new TLAC held on to previous day’s gains.
Indonesia
§ Indonesia bond market closed higher yesterday. Central bank published
Indonesia FX reserve position as end Mar 16 which amounted $107.5 bn and was
higher compared to Feb 16 position amounted $104.5 bn. The increase was
attributable to foreign exchange receipts, primarily from the issuance of
government global sukuk and auction of Bank Indonesia foreign exchange bills,
which are more than outweighed the use of foreign exchange for government
foreign debt payments. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield
stood at 7.304%, 7.536%, 7.894% and 7.899% while 2y yield shifts down to 7.435%. Trading volume at
secondary market was seen heavy at government segments amounting Rp21,207 bn
with SR008 as the most tradable bond. SR008 total trading volume amounting Rp7,517 bn
with 3,959x transaction frequency and closed at 101.357 yielding 7.780%.
§ Corporate bond trading traded thin amounting Rp400 bn. BNLI01SBCN2
(Shelf registration subordinated I Bank Permata Phase
II Year 2012; Rating: idAA+) was the top actively traded corporate
bond with total trading volume amounted Rp85
bn yielding 8.632%.
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