(Erratum) Maybank GM Daily - 22 Jun 2016

FX

Global

      Caution remained the key message of Fed Yellen at her testimony to the Senate Banking Panel last night.  She clearly prefers to err on the side of caution as she expressly wants to “ensure economy on good path before raising rate”. Low inflation provides the Fed some time “watch developments”. The Fed also desires “stronger job gains”.  During the Q&A, Fed Yellen also noted that “Brexit” would “usher in a period of uncertainty”, that US has had disappointing low productivity growth due to sub-par investment growth. Fed Fund Futures show that the implied probability of a rate hike in Jul actually inched higher to 10% and a hike by Jan 2017 also rose to 50% from previous 48%, suggesting some optimism on the US economy and signs of dissipating fears of Brexit.

      The DXY index bounced after Asian hours and held gains into Yellen’s testimony. This morning saw most G10 majors trade on the front foot. The same cannot be said of Asia which was a mixed bag. CNH and THB lagged the rest with the former weakened by commercial dollar demand. On the other end, MYR and KRW remained strong, in line with what we have expected as fears of a Brexit dissipate. 

      The day ahead have part 2 of Yellen’s testimony, this time to the house financial services panel. Existing home sales are due. Expect more caution and potential thin liquidity as traders steer to the sidelines ahead of the UK referendum. USDAXJs to remain supported on dips. In the meantime, AUDUSD formed a mini double top. First target at 0.7280 before the next at 0.7150.

Currencies

G7 Currencies

      DXY – Sideways. There were little surprises in Yellen’s testimony to the Senate Banking panel overnight. She did not give comments much different from her post-FOMC press conference last week. She did not sound as dovish as fellow Fed colleague Bullard’s comments last week – where he turned dovish; expected only 1 hike through 2018 and did not give any longer-run rate. DXY rebounded; last seen at 94.10 levels. Daily momentum and stochastics indicators are indicating mild bearish bias. Next support at 93.50 before 92 levels. Resistance at 94.90 (21 DMA), 95.65 (100 DMA, downward sloping trend-line resistance from Feb and May) and 96.50 (200 DMA). Week remaining brings Fed Yellen testify on monetary policy to House Financial Service; Existing Home Sales (May) on Wed; New Home Sales (May); Chicago Fed Nat Activity Index (May); PMI-Mfg (Jun P); New Home Sales (May) on Thu; Fed's Kaplan Speaks; Durable Goods Orders (May P); Univ. of Mich. Sent. (Jun F) on Fri.

      EURUSD – Watch Support at 1.1230. ECB Draghi said that ECB is prepared to respond to market reaction in the event of Brexit event and that more stimulus will be available if need be. EUR fell 1 big figure after those comments. Last seen around 1.1240 levels. Daily momentum is flat; not indicative of a clear bias. Support remains at 1.1230 (21 & 100 DMAs). Break below this support could see a move towards 1.1150 (trend-line support from Dec to Feb lows) before 1.11 (200 DMA). Resistance at 1.13 (50 DMA), 1.1360 (23.6% fibo retracement of Dec low to May high), 1.1450 levels before 1.15. Week remaining brings Consumer Confidence (Jun A) on Wed; EC Markit PMI-mfg (Jun P) on Thu.

      GBPUSD – Watch 200 DMA. GBP saw another run-up towards 5-month high of 1.4783 overnight as GBP shorts continue to unwind in fear of lack of liquidity providers, higher margin requirement into referendum day. We highlighted that some banks have sent out memos to clients advising against taking GBP orders (since end of last week); some retail FX brokers have also raised margin requirements starting today; while some GBP option desks have also ceased quoting (since end Mon) till further notice. Fear for lack of liquidity providers and possible slippages on stop-loss orders (during referendum day) triggered some of the GBP shorts positioning. We are now just 2-3days away from the vote and results (expect voting outcome to start coming in from 7-8am SG/KL time with the national declaration of full results expected around mid-day SG/KL time). There will be a final TV debate on TV4 (UK) later today. Expect liquidity to thin further; and poor liquidity has the ability to see amplified moves in GBP. Pair was last at 1.4670 levels. Daily momentum and stochastics are now indicating a bullish bias. Next resistance at 1.4680 (200 DMA), 1.4880 (50% fibo retracement of Jun high to Mar low). Support at 1.4460 (50 DMA), 1.4350 (100 DMA, 23.6% fibo). Week remaining bring EU referendum (voting on Thu; results on Fri). It remains our long-standing view that UK is expected to vote to remain in EU. And we expect sentiment to be restored, IPO/M&A deals to come back in the pipeline and lend further strength to GBP. We remain better buyers on GBP dips.

      USDJPY – Range Ahead Of UK Vote. USDJPY is holding steady this morning after climbing back above the 105-levels overnight amid a firmer dollar. Pair continues to trade in a tight range within 103.50-105.30, though risks are bias to the downside given the UK vote just round the corner with polls results still too close to determine the outcome. The 5Y yield has slipped lower to -0.23% though the 20Y yield is higher at +0.21%. Nikkei futures are lower this morning, suggesting potential for further downside moves intraday. Still, watch out for further jawboning by the government and BOJ.  Yesterday, the Finance Minister started the ball rolling, warning of possible intervention in currency markets after due consideration. Pair was last seen around 104.75 levels. Bearish momentum remains intact though there are signs of waning, and stochastics is showing tentative signs of climbing higher from oversold levels. In the event of a Brexit vote, flight to safe-havens could see the pair breach the key 100-figure towards the 90 levels (76.4% Fibo). A Bremain scenario - our base scenario - could swing the pair towards the first barrier at 105.55 (May low) and then to 107.50 (21DMA). For a true bullish reversal, markets need to be more optimistic on PM Abe and BOJ Kuroda on fiscal and monetary packages. Week ahead has BOJ Kiuchi speak on tomrrow; BOJ Nakaso on Fri.

      NZDUSD – Range. NZD surged towards 0.7170 levels but move was short-lived as NZD eased lower. Last seen around 0.7130 levels. Bullish momentum on daily chart remains intact. Stochastics is near overbought conditions. Resistance remains at 0.7130 (61.8% fibo). A break above this level (on daily close basis) puts next resistance at 0.7360 (76.4% fibo). Support at 0.6930 (50% fibo retracement of May-2015 high to Aug-2015 low). Expect the pair to trade in recent range of 0.7050 – 0.72. Week remaining brings Mfg PMI (May); Consumer Confidence (Jun) on Fri.

      AUDUSD – Double Topped. AUDUSD risks falling towards the 0.7280 (200-DMA) after forming a double top overnight around 0.75. MACD shows a weak bullish momentum and stochastics is falling from overbought conditions. Next target around 0.7145. Week ahead RBA Ellis Panel Participation, RBA Debelle Remarks at Sydney on Thu.

      USDCAD – Two-Way Swivels. USDCAD was stuck around 1.2800. The looney was underpinned by the bounce in oil prices. WTI joined Brent at the USD50-handle. Daily stochastics are still in oversold conditions and MACD forest is at the zero level, suggesting room for two-way moves. The 1.2530-1.3460 range still holds with the 50-DMA at 1.2856 still acting as a pivot point.  Strong support is still seen at 1.2660 before year low of 1.2460. Apr retail sales are due today – the only data of note this week. Consensus expects a rebound to 0.8%m/m from the previous -1.0%.

Asia ex Japan Currencies

      The SGD NEER trades 1.17% above the implied mid-point of 1.3593. The top is estimated at 1.3324 and the floor at 1.3861.

      USDSGD - Lacking Directional Conviction.  USDSGD ended yesterday with a doji – signalling a lack of conviction in either direction. This morning the pair is little changed as the market turns cautious ahead of the UK referendum tomorrow. Fed Chair Yellen’s testimony yesterday provided little new insights and appears a tad dovish and more of the same is likely in today’s testimony before the House. Pair was last seen around 1.3430 levels. Bearish momentum remains intact but with signs of waning, while stochastics remained at oversold conditions. This suggests a potential bounce ahead for this pair. Any, retracement is likely to be capped around 1.3610 (23.6% Fibo retracement of Jan-Mar downswing, 50DMA); ahead of 1.3700 (100DMA). Key support remains around the 1.34-handle with a break here exposing the next at the year's low of 1.3350. Expect a largely rangy week with potential for whippy action on Fri when the results of the UK referendum will be known.  Week ahead has May CPI (Thu); May industrial production (Fri).

      SGDMYR – Bias to Lean against Strength. SGDMYR fell amid Ringgit outperformance (on supported oil prices and Brexit fears abating). Cross remains well within its trend channel; last seen around 3.0070 levels. Daily momentum is showing signs of turning mild bearish while stochastics is at overbought conditions. We remain bias to lean against strength. Resistance remains at 3.0480 (trend-line resistance from the highs of Nov and Jan) before 3.0640 (76.4% fibo retracement of Oct high to Apr low). Support at 2.99 (50% fibo), 2.9570 (38.2% fibo, 100 DMA).

      USDMYR– 4.0250 – 4.07 Range. Onshore markets are closed for Nuzul Al-quran holiday. 1s UDSDMYR NDF fell yesterday amid supported oil prices. But move did not see follow-through this morning as risk sentiment switches to some cautious-ness while USD rebounded. Pair was last seen around 4.0410 levels. With FoMC event risk out of the way, eyes remain fixated on development arising out of EU referendum (results to be known on 24 Jun during Asia time). We believe risk sentiment is likely to remain cautious as such, keeping the pair sticky on the downside. Support comes in at 4.0250 (50 DMA). Resistance at 4.07 (38.2% fibo retracement of 2016 high to low) before 4.1435 (50% fibo) and 4.1750 levels (200 DMA).

      1s USDKRW NDF – Watch Support at 1150. Move lower failed to test below 1153 support as USD rebounded this morning.  1s KRW was last seen around 1155 levels. Focus this week on the outcome of UK’s vote on EU referendum (results to be known on 24 Jun during Asia time). We expect the UK event to result in global sentiment being cautious and USDKRW to trade in wider range of 1150 – 1180, in absence of clear bias in the lead up. More clarity should be restored post-referendum results. We think in an environment of falling yields globally, no impetus from Fed to hike yet, and assuming a Bremain outcome, we think USDKRW could drift lower as sentiment recover. Break below 1150 should see next support at 1130. Data to be released In the fortnight ahead includes Jul business survey indicators (29 Jun); May IP (30 Jun); Jun PMI, CPI, trade as well as May current account balance (1 Jul).

      USDCNH – Softening with the dollar. USDCNH remains considerably elevated even as the USD index slips, last seen around 6.5960. Sentiments are likely to remain cautious and there are still plenty of bearish bets on CNH. Barrier remains at 6.6181 while dips to meet support at 6.5779 (21-DMA).

      SGDCNH – Uptrend. SGD remained strong against the CNH, extending its uptrend. Stochastics in overbought levels but trend shows no signs of reversing. Next barrier is seen around 4.9151 before 4.9420. Pullbacks to meet support at 4.8827 before 4.8400.

      1s USDINR NDF – RBI Defends. While spot prices closed at 67.49. The 1M NDF rose around 68-figure at last sight. Bulls need to break above the 68.18-barrier before heading towards the next at 68.3656 before 69.43 comes into view. The recently announced departure of Governor RBI is likely to keep the USDINR on an uptrend. The big 70-figure seems much closer now than before. The 100-DMA has become a support at 67.4784. Expect RBI to be in the FX market to temper the USDINR upmove. Outflows have started. Investors sold USD78.3mn of equity and USD342.7mn of debt on 20 Jun. There is no tier-one data due.

      1s USDIDR NDF – Upside Risks. 1s NDF is bouncing higher this morning amid a firmer dollar as well as market nervousness ahead of the UK referendum tomorrow. 1s NDF was last seen around 13330 levels. Daily momentum continues to be bearish bias but waning and stochastics is still climbing higher from oversold levels.  Ahead of the UK referendum, cautious trades within the current range trading of 13240-13500 are likely. Immediate resistance is at 13370 (100DMA) ahead of 13470 (38.2% Fibo retracement of the Jan-Mar downswing). Strong support remains at 13290 (23.6% Fibo) with a break here exposing the next at 13150 before the 13000-figure (year’s low). The JISDOR was fixed higher at 13286 yesterday from 13260 on Mon. Risk sentiments recovered yesterday with foreign funds buying a net USD25.08mn in equities. They had also removed IDR0.61tn from their outstanding holding of debt on 20 Jun (latest data available).

      1s USDPHP NDF – Bullish Bias.  1s USDPHP NDF continues its bounce ahead amid a firmer dollar and cautious trades ahead of the UK referendum and BSP meeting tomorrow. Our long standing view remains for a Bremain outcome while we do not expect the BSP to move ahead of the UK referendum and given the recent completion of the transition to an interest rate corridor framework.  Pair was last seen around 46.50 levels. Daily momentum remains mildly bullish bias and stochastics continues to climb higher. This suggests the potential for further upside pressure on the pair intraday. Barrier remains at 46.70 (38.2% Fibo retracement of Jan-Mar downswing; 50DMA). Support at 45.90 (double-bottom) which should provide firm support in the interim. Pair should continue to trade range within 45.30-45.60 intraday. Risk sentiment remained supported with foreign funds buying USD22.90mn in equities yesterday. The PSEi hit a new 1-year high of 7767.23 yesterday. Remaining week has BSP meeting on tomorrow; imports, Apr trade balance on Fri. 

      USDTHB - Range With Upside Tilt.  USDTHB is tad firmer this morning amid a firmer dollar and cautiousness ahead of the BoT meeting later today and UK referendum tomorrow. Pair though remains in range trading within 35.000-35.370 for the past week or so. Last seen around 35.250 levels, pair has lost most of its bearish momentum, and stochastics is climbing higher from oversold levels. Pair should continue to take its cues from external events ahead - UK referendum - as well as the BoT meeting this Wed. We do not expect any changes to BoT given that rates are already near historic lows and for monetary policy to play a complementary role to fiscal policies, which should do the heavy-lifting of supporting the economy. Expect 35.000-35.370 range to hold intraday. Risk appetite was softer yesterday with foreign funds selling THB0.14bn in equities and purchasing THB1.6bn in government debt. BoT benchmark interest rate is on tap today and May customs trade, 17 Jun foreign reserves on Fri.

Rates

Malaysia

      MGS felt better bid throughout the day as MYR strengthened against the USD, with local bonds at the front end and belly of the curve being snapped up. Activity mostly centered on the 5y benchmark MGS 11/21 with MYR741m volume traded in total. All eyes turn to the UK referendum results on Friday morning.

      Bullish sentiment in bond and MYR drove the local IRS curve lower by 1-3bps in a flattening move. But still nothing was traded in the market. 3M KLIBOR remained at 3.65%.

      Although market was relatively more focused on govvies, slight pickup in secondary PDS trading on keen bidding interest for front end AAAs, and belly and long end GGs. Front end AAAs tightened 1-2bps, while at the long end Plus traded unchanged. In GG space, Dana 34 tightened 1bp while bids tightened 2bps for Prasa and PASB 10y bonds. Prasa 2/26 was given at 4.37% (G+52bps/Z+40bps) early on, though later some buying interest came in for PASB 6/26 at the same level. We think the bonds offer some value, but players prefer to square positions ahead of the Brexit vote. AA curve stayed the same with crosses at the long end. JEPs tightened 1bp and TBEI 28 tightened 2bps.

Singapore

      Relief buying in SGS as market recovered from the selloff seen in the past few days, driven by intermittent buying from interbank players and lower USDSGD, forwards. SGS yield curve ended 3-5bps lower. Gains at the short end was capped by new supply as the issuance size for off-the-run SGS 10/19 reopening was announced at SGD1.8b. SGD IRS moved in line with SGS closing 3-4bps down.

      In Asian credit market, INDON space 0.25-0.50cents better especially for off-the-run laggards with the long end outperforming. MALAY space was rather quiet as onshore seemed to be better sellers, and PETMK unchanged from previous close which had rallied 12bps from last week on short covering. At London open, there was strong buying with IGs tightening 2-7bps across sectors. In China space, outperformers include 10y O&G SOEs (-5bps) and some tech names like HUAWEI (-6bps) and JD.com (-12 bps).

Indonesia

      Indonesia bond market closed lower during the day as the result of the auction was relatively decent. Countdown to brexit vote may have hinder IGS prices appreciation during the day however the rising issue on brexit was seen since last week. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.581%, 7.715%, 7.890% and 7.884% while 2y yield shifts higher to 7.198%. Trading volume at secondary market was seen heavy at government segments amounting Rp18,161 bn with FR0073 as the most tradable bond. FR0073 total trading volume amounting Rp6,753 bn with 210x transaction frequency and closed at 107.44 yielding 7.890%.

      Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp17.53 tn bids versus its target issuance of Rp12.00 tn or oversubscribed by 1.46x. Incoming bids during the auction was noted dropped significantly by approx. 58.6% compared to the last conventional auction, two weeks ago and was lower by approx. 30.4% compared to YTD average incoming bids during conventional auction amounting Rp25.17 tn respectively. However, DMO only awarded Rp12.90 tn bids for its 7mo, 5y, 15y and 20y bonds. Incoming bids were mostly clustered on the FR0073 series. 7mo SPN was sold at a weighted average yield (WAY) of 6.00579%, 5y FR0053 was sold at 7.46981%, 15y FR0073 was sold at 7.90953% while 20y FR0072 was sold at 7.91964%. No series bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.13X – 2.32X. Till the date of this report, Indonesian government has raised approx. Rp113.25 tn worth of debt through bond auction which represents 106.8% of the 2Q 16 target of Rp106.00 tn.

      Corporate bond trading traded heavy amounting Rp1,113 bn. BBIA01SB (Subordinated I Bank UOB Indonesia Year 2014; Rating: AA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp567 bn.