Maybank GM Daily - 17 Jun 2016

FX

Global

      The Asian session on Thu was pretty action packed. USDJPY started its descent in early Asia and gained momentum when BOJ left its stimulus package unchanged. The pair touched fresh low of 103.55 since Aug 2014 before drifting back above the 104-handle. Towards the end of Asia, BI took the opportunity of a Fed rate pause to cut rates unexpectedly by 25bps to 6.50%, citing growth concerns. 1M USDIDR NDF edged higher after the decision. SNB and BOE also convened for rate decision. They did not move. BOE reiterated that Brexit could “affect economy and push pound down sharply”. 

      European equity markets ended in red as Brexit fears were heightened. However, calm was seemingly restored after the EU referendum campaign was suspended due to a murder of a pro-“Bremain” UK Labor lawmaker.  GBP took a dive before making a sharp reversal towards the 1.43-figure.

      Day ahead should see USDAXJs in consolidation amid the current calm. Singapore’s NODX came in stronger than expected at 11.6%y/y vs. previous -1.6%, underpinned by strong gold and prefab shipment. Beyond Asia, ECB Draghi and Coeure will speak. US has housing starts and buildings permits due. Beyond this weekend, Fed Yellen’s testimony will be eyed but we suspect that she will not give fresh cues after her last post FOMC press conference.

Currencies

G7 Currencies

      DXY – Range; Little Cues from Momentum. Overnight data was mixed - CPI inflation was below market expectation while Philly Fed Mfg index and NAHB housing index was better than expected. OIS futures are now not even implying any (25bps) rate hike over the next 12 months. Dollar index reversed gains overnight. Last seen at 94.42 levels. Daily momentum is not providing a clear indication while stochastics is rising at modest pace. Resistance at 94.90 (21 DMA), 95.65 (100 DMA, downward sloping trend-line resistance from Feb and May) and 96.50 (200 DMA). Next support at 93.50 before 92 levels. Week remaining brings housing starts, building permits (May) on Fri.

       EURUSD – 1.11 – 1.13 Range. It was a night of 2 halves with EUR initially falling before rebounding into the close. Last seen around 1.1260 levels. Daily momentum is not indicating a clear bias while stochastics is falling. Support remains at 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 EC current Account (Apr); ECB Draghi, Coeure speak on Fri. We continue to caution that developments in UK on referendum issues will continue to have a bearing on EUR.

       GBPUSD – Referendum Campaign Suspended. It was unfortunate that Labor MP Jo Cox (Bremain supporter) was killed yesterday in relation to EU referendum. GBP fell to lows of 1.4013. News of temporary suspension of EU referendum campaigns for both camps saw a surge back above the 1.42-handle. There were also rumors that UK government is considering suspending the referendum. GBP was last seen around 1.4260 levels. Bearish momentum on daily chart remains intact (though showing early signs of waning) while stochastics is near oversold conditions. Next support at 1.4080 before 1.3840 (2016 low). Resistance at 1.4350 (100 DMA) and 1.4420 (50 DMA). We continue to caution for choppy moves (2-way direction) in the lead-up to referendum day (23 Jun) amid poor liquidity conditions amplifying GBP movements. But we reiterate our stand that GBP remains a buy on dips towards 1.40 levels. For more details, please refer to our FX Insight sent yesterday.

    USDJPY – Temporary Relief? USDJPY tested a low of 103.55 yesterday after the BOJ held off adding to its already ultra-loose monetary policy yesterday. While unmentioned, it was risks of Brexit that could spur further safe-haven flows into Japan and weigh on the USDJPY that led the BOJ to keep its ammunition dry for now. Our base case is this for the BOJ to move in Jul. The downmoves in the pair was reinforced by weak risk sentiments due to Brexit concerns that sparked further safe-haven flows. Pair has since rebounded back towards the 105 levels as global risk aversion waned after campaigning for the UK referendum was suspended following the murder of a UK Labour member of parliament. With risks off the table for now, JGB 5Y and 20Y yields have rebounded from their record lows of -0.300% and -0.205% to -0.272% and -0.185% respectively. Nikkei futures have also rebounded which suggests possible upside pressure on the pair intraday. Pair was last seen around 104.70 levels. Daily charts continue to show bearish bias intact and stochastics remaining at oversold conditions. New low of the year at 103.55 should provide support for now ahead of 107.25 (38.2% Fibo). A break below that should expose the next support at 101.50 levels (50% Fibo retracement of the 2012 low to 2015 high). Our previous support level at 105.55 is now new resistance level for the pair.

       NZDUSD – Inching Higher. NZD initially fell below 0.70 overnight tracking losses in commodities and risk proxies before rebounding into the close. Last seen around 0.7060 levels. Bullish momentum on daily chart remains intact but showing signs of waning. Stochastics is nearing overbought conditions. Resistance at 0.7130 (61.8% fibo) before 0.7360 (76.4% fibo). Support at 0.6930 (50% fibo retracement of May-2015 high to Aug-2015 low). In data released this morning - May Mfg PMI was better than prior (57.1 vs. 56.5

       AUDUSD – 50-DMA hard to break. AUDUSD was last seen around 0.7390 after another choppy session. Pair hovers within the 0.7270-0.7440 range. Bullish momentum on daily chart continues to decelerate and stochastics are falling from overbought conditions. The 50-DMA continues to act as a barrier for the pair. Break above this on daily close basis could see an extension towards 0.76 levels (23.6% fibo). Pair risk decline towards the 0.7267 (200-DMA) and a break there exposes the support at 0.7149 (May low). Bulls seem to be running out of momentum and risks seem to be on the downside.

       USDCAD – Consolidation. USDCAD touched a high of 1.3085 before reversing sharply to levels around 1.2900. Daily stochastics rise from oversold conditions and MACD  forest continued to show waning bearish conditions. The 1.2530-1.3460 range still holds with the 50-DMA at 1.2859, still a pivot point.  Strong support is still seen at 1.2660 before year low of 1.2460.

Asia ex Japan Currencies

      The SGD NEER trades 1.29% above the implied mid-point of 1.3650.  We estimate the top at 1.3381 and the floor at 1.3920.

       USDSGD – Bearish Bias.  USDSGD remained below the 1.35-handle, helped by easing risk appetite following the murder of a UK Labour politician overnight with campaigning for the UK referendum was suspended as a result. Also helping was the strong rebound in NODX in May, which rose 11.6% y/y from Apr’s -7.9% due largely to an increase in non-electronic shipments of prefabricated buildings and gold. Non-oil retain imports expanded by SGD1.6bn to SGD5.1bn in May from SGD3.5bn in Apr.  However, non-oil re-exports fell 2.8% y/y in May from Apr’s 3.0%.  Still Brexit concerns are likely to return to the forefront and the current dips could be an opportunity to accumulate. Pair was last seen around 1.3478 levels. Daily momentum shows bearish bias remains intact but is waning. Stochastics remains at oversold conditions. Support nearby remains at 1.3450 (trend-line support from Apr to Jun lows) before 1.3405 (50% Fibo retracement of the 2014 low to 2016 high). Resistance still at 1.3610 (50DMA), 1.3650 levels (21 DMA), 1.3720 (100DMA).

       AUDSGD – Two-Way Risks. AUDSGD slipped overnight and hovered around 0.9970 as we write. Risks are to the downside, according to momentum indicators. Support is seen at 0.9900, before the 0.9846 and then at 0.9717 (year low). Less likely upside extensions should be capped at 1.0124 (200-DMA).

       SGDMYR – Divergence. SGDMYR inched higher amid SGD outperformance while MYR underperformed off the back of softer oil prices. Cross remains well within its trend channel; last seen around 3.0370 levels. There are little cues from momentum indicators. Could potentially see markets trading 3 – 3.05 range in the next few days. Some technical levels to watch - 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– Range. USDMYR rose amid softer oil prices. Pair was last seen at 4.0950 levels. Bearish momentum on daily chart remains intact (but waning). Stochastics shows signs of rising. Resistance at 4.0970 (21 DMA), 4.1420 (50% fibo retracement of 2016 high to low) before 4.18 levels (200 DMA). Support at 4.0720 (38.2% fibo). Expect 4.07 – 4.10 range intra-day. Bloomberg reported (Wed) that BNM to adopt transaction methodology in the way USDMYR spot is fixed; BNM to lengthen official closing hour to 6pm from 5pm currently. The new methodology is expected to be more transparent and better reflects underlying trades during the day. Our Economists shared that the change in computation is to increase transparency and adopt global best practice. The fixing mechanism change is NOT a policy rate for exchange rate like OPR is for interest rates.  It is reference rate used for setting swap rates, the board rates for banks’ TT and money changers, FX rate for trade/business contracts etc, much like BLR / Base Rate is used to determine loan rates and whose computation is already market-based. As far as BNM’s exchange rate policy is concerned, nothing’s changed.  To recap, BNM’s exchange rate policy is officially and essentially 1) monitoring MYR against a basket of currencies since the de-pegging from USD back in July 2005, and 2) any intervention by BNM in FX market is to smooth MYR volatility not targeting particular level of exchange rate.

       1s USDKRW NDF – Range. 1s USDKRW NDF fell overnight following news that EU referendum campaigns are suspended (following the murder of pro-EU MP). This lent support to sentiment. Pair was last seen at 1169 levels (vs. high of 1179 overnight).  Bearish momentum on daily chart is waning while stochastics is showing signs of rising from oversold conditions. Expect range of 1165 (50 DMA) – 1180 (100 DMA) to hold for now. Some technical levels to watch – support at 1153 levels (23.6% fibo retracement of 2016 high to low); resistance at 1185 (50% fibo retracement of 2016 high to low).

       USDCNH – Softening with the dollar. USDCNH hovered around 6.5915 as we write. Cautious risk sentiments are likely to keep this pair supported on dips. Barrier remains at 6.6181 while dips to meet support at 6.5779 (21-DMA). USDCNY was fixed 56 pips higher at 6.5795 (vs. previous 6.5739). CNYMYR was fixed 14 pips higher at 0.6214 (vs. previous 0.6200).  At home, China officials warn of over investment in robotics (21^st Century Business Herald).

       SGDCNH – Elevated. SGDCNH remained elevated around 4.8900. Trend is still up but momentum indicators are waning.  Stochastics in overbought levels. Barrier at 4.8813 being tested. Further upmove should meet barrier at 4.9151. Pullbacks could meet support at 4.8400 before 4.8074 (23.6% Fibonacci retracement of the Jan-May rally).

       1s USDINR NDF – Bullish. The 1M NDF hovered around 67.60 at last sight.  Pair pivots around the 100-DMA, still. Barrier remains at 67.7072 (38.2% Fibonacci retracement of the Oct-Feb rally). Support is now seen at 67.1750 (50% Fibo, near 50,200-DMA) before the next at 66.25 (year’s low).  Foreign investors sold USD12.0mn of equity and bought USD35.7mn of debt on 15 Jun. May trade deficit widened to U$6.27bn from previous U$4.8bn. India’s current account came in at a small deficit of U$0.30bn vs. expectations for a U$1.8bn surplus for Q1.

       1s USDIDR NDF – Waning Bearish Tilt. 1s USDIDR NDF slipped lower this morning on waning global risk aversion as campaigning in the UK referendum was suspended following the murder of a Labour member of parliament. This helped to take the edge of yesterday’s decision by BI to cut its reference rate and future benchmark rate – the 7-day reverse repo rate – by 25bp each to 6.50% and 5.25% respectively. The central bank took advantage of the US Fed’s decision not to hike its fund rate and relative stability in the USDIDR to cut rates to spur growth amid benign domestic inflationary pressures. 1s NDF was last seen around 13393 levels. Daily chart continues to show waning bearish momentum and stochastics tentative signs of climb from oversold levels. We continue to expect range trading within 13240-13500 to hold for now. Support remains at 13290 (23.6% Fibo retracement of the Jan-Mar downswing). Immediate resistance at 13470 (38.2% Fibo) ahead of 13530 (21DMA). The JISDOR was fixed lower at 13327 yesterday from 13398 on Wed. Foreign funds purchased USD0.64mn in equities yesterday and they had removed IDR2.99tn from their outstanding holding of debt on 15 Jun (latest data available).

       1s USDPHP NDF – Limited Downside.  1s USDPHP NDF is edging slightly lower this morning, tracking the USD/AXJs broadly lower. Though risk aversion has waned due to the suspension of campaigning in the UK referendum due to the murder of a Labour member of parliament, risks could still rebound as the referendum approaches. Last seen around 46.46 levels, 1s NDF is now exhibiting mild bullish momentum and stochastics continues to climb from oversold conditions, suggesting limited downside is likely ahead. Support remains at 45.90 (double-bottom) which should provide firm support in the interim. Any rebounds should resistance at 46.65 (50DMA), 47-levels (100DMA). Risk appetite improved with foreign investors buying USD7.39mn in equities yesterday.

       USDTHB –  Edging Lower Within Range.  USDTHB is softer this morning as risk appetite waned as concerns about Brexit receded. Pair though continues to trade well-within its current range of 35.000-35.370. Pair was last seen around 35.270 levels. Daily chart shows waning bearish momentum and stochastics is showing tentative signs of rising from oversold levels. Current range of 35.000-35.370 should hold intraday on cautious sentiments ahead of the UK referendum on 23 Jun. Support is at 35.120 (23.6% Fibo retracement of the Jan-Mar downswing). Resistance is at 35.370 (38.2% Fibo). Risk sentiments deteriorated yesterday with foreign funds selling THB0.97bn in equities and selling THB0.60bn in government debt. 10 Jun foreign reserves is on tap today.

Rates

Malaysia

      Post dovish FOMC statement, MYR government bonds opened 1-3bps lower in yield. But the buying momentum slowed down as Brexit worries still lingered. Trading was mostly in the 10y MGII 9/26 again with the bond ending -1bp. In MGS, the 5y benchmark closed -2bps from previous level.

       In a quiet market, MYR IRS felt better offered on the back of the dovish Fed. There were no trades reported, with the curve mostly ending 1-4bps lower. 3M KLIBOR remained the same at 3.65%.

       PDS felt better bid in the morning, but risk-off sentiment crept in after the BOJ maintained its policy rate. Caga 20s tightened 1bp from previous level to 3.96% (G+47bps/Z+29bps). Plus papers on a weaker note at the long end as it widened about 2bps. GGs saw better bidding at the front end and belly, with the latter tightening 2bps. New PASB 23s tightened 2bps intraday and Prasa 26s tightened 1bp to 4.40%. AA curve saw better buying of Jimah East papers in the 13y-15y bucket as the curve traded 1-2bps tighter.

Singapore

      SGS still saw keen selling interest despite the overnight rally in UST post-FOMC. Some buying was seen in the afternoon when SGD IRS curve fell further, but the rally was short lived overwhelmed by profit taking interest. SGS benchmark curve lowered 3-6bps, underperforming the UST and SGD IRS, which was down 6-9bps. Swap spreads narrowed.

       Asian credit market cheapened 3-5bps as dovish FOMC minutes led to a rush buying in UST which in turn pushed spreads wider for risky assets. EM cash bond was mixed, with prices 10-20cts higher from the belly to the long end. ACGB 10y AUD bond fell to 1.995%, below the 2% floor for the first time. To note, the 10y SGS/ACGB spread is at zero while FX AUD/SGD is at 1.00.

Indonesia

      Indonesia bond market closed higher during the day. The hike of IGS prices was mainly contribute by unchanged FFR post FOMC meeting and expectation of only one hike this year instead of two hike. During the, Indonesia central bank decided ease it monetary policy by cutting its reference rate by 25bps to 6.25%. The move was post market close and therefore market would react to this move today. Front end tenor yields are expected to move lower more compared to long end tenors. We remain to be optimist on Indonesia bond market. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.444%, 7.577%, 7.854% and 7.824% while 2y yield shifts up to 7.303%. Trading volume at secondary market was seen thin at government segments amounting Rp8,111 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp1,753 bn with 120x transaction frequency and closed at 105.600 yielding 7.577%.

       Corporate bond trading traded heavy amounting Rp1,064 bn. WSKT02CN1 (Shelf registration II Waskita Karya Phase I Year 2016; Rating: idA-) was the top actively traded corporate bond with total trading volume amounted Rp195 bn yielding 9.242%.