Maybank GM Daily - 23 Jun 2016

FX

Global

      Markets continue to watch the UK polls of the upcoming referendum. GBP swung towards mid-1.48 before tapering off after a Comres phone poll conducted for ITV/Daily mail indicated a Remain lead of 54% to 46% after accounting for those who are undecided. With markets now pricing in a Remain outcome of the referendum, many speculate a “flight to quality” should the Leave camp make a surprise win. Expect safe havens like USD, CHF and JPY to strengthen in this scenario and risk assets to be dumped first.

      While FX swings are dictated by opinion polls, other financial assets show more signs of caution. Oil slipped from the USD50-handle, in tandem with the NY stocks as investors start to become defensive ahead of key event risk. Investors brace for volatility in the next 24 hours. Expect a holding pattern for most of Asia session and into London and NY hours. Bond yields have inched lower, another sign of investors hedging for a Brexit scenario even as odds show that the probability of that happening has decreased.

      Asian currencies had some interesting swings yesterday with USDCNY completely reversing out its upswing on Tue by late Asia on Wed. Some reports of onshore banks buying the yuan floated around but there was really nothing concrete that could explain the USDCNY fall. USDCNH followed suit soon after. Elsewhere, BOT has left its one-day bond repo rate unchanged at 1.50%. Assistant Governor Jaturong Jantarangs said growth is in line with projections and inflation is drifting back to the target band. Expect Asian currencies to find anchor from the stronger yuan but a sense of cautiousness could continue to keep USD/AxJs retreats supported.

Currencies

G7 Currencies

      DXY – Mild Bearish Bias; Focus on EU Referendum Results. Not much of a surprise in Yellen’s testimony on monetary policy to House Financial Services committee overnight. She repeated that Fed is not considering negative rates; rates to gradually rise if economy progresses. UST 10Y yield is back above 1.7% (from low of 1.57% on 16 Jun).  Dollar index remain soft; last seen at 93.60 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 New Home Sales (May); Chicago Fed Nat Activity Index (May); PMI-Mfg (Jun P) on Thu; Fed's Kaplan Speaks; Durable Goods Orders (May P); Univ. of Mich. Sent. (Jun F) on Fri.

       EURUSD – Support at 1.1230 Held Firm. EUR rose, tracking the rise in GBP to 2016 high as Brexit fears slowly abate (as seen from opinion polls and betting odds). Last seen around 1.1330 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 EC Markit PMI-mfg (Jun P) on Thu.

       GBPUSD – All Eyes on Referendum Outcome. The much anticipated event is finally here with results expected to be known within the next 24 hours (SG/KL time). Voting is expected to close at 10pm UK time later. First reporting of results are expected to be known around 12am - 1am UK time (7 - 8am SG/KL time on 24 Jun), with majority of the reporting likely to be released around 3 – 4 am UK time (10 – 11 am SG/ KL time on 24 Jun). The estimated time for the national declaration should be around 6 - 7am UK time on 24 Jun (1 – 2 pm SG/KL time on 24 Jun). Recent polls including Yougov puts Remain ahead of Leave (51% to 49%). FT poll of polls (results of last 7 opinion polls) puts the Remain camp ahead of Leave camp as well (47% – 45%). Betting odds implied only 25% chance of Exit. Overnight, GBP saw another run-up towards fresh 2016-high of 1.4844 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 banks warning about slippages on FX orders; some retail FX brokers have also raised margin requirements starting yesterday; 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) should continue to keep GBP supported in Asia until voting starts in UK (some 5-hours away). We expect liquidity to thin further and caution that razor-thin liquidity can amplify GBP moves. GBP was last at 1.4810 levels. Daily momentum and stochastics are now indicating a bullish bias. Next resistance at 1.4880 (50% fibo retracement of Jun high to Mar low). Support at 1.4680 (200 DMA), 1.4460 (50 DMA), 1.4350 (100 DMA, 23.6% fibo). 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. We reiterate our recent analysis/projection that a Bremain outcome could see gains by as much as 3% for KRW, CNH, INR (vs the USD) amongst the Asians. GBP could test 6% to the upside (from last traded). The above assumes a Bremain win by large margin (>60%). We caution that a bremain (by slim margin) could trigger second round of volatility as a slim win could put PM David Cameron’s political career at risk (and could result in sell GBP on rally).

       USDJPY – Awaiting UK’s Decision. USDJPY remained in range trading ahead of the UK referendum later today, even as it climbs higher this morning. Polls in the UK remain too close to call and that is keeping markets cautious ahead. The 5Y and 20Y yields held steady at -0.23% and +0.21% respectively. Nikkei futures are higher this morning, suggesting potential for the pair to move higher intraday. Pair was last seen around 104.70 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 107.00 (21DMA). For a true bullish reversal, markets need to be more optimistic on PM Abe and BOJ Kuroda on fiscal and monetary packages. Until then, choppy trades within 103.50-105.30 to hold intraday. We have BOJ Kiuchi speaking this morning and BOJ Nakaso on Fri. BOJ governor will be in Switzerland attending the BIS meeting when the UK referendum results are announced.

       NZDUSD – EU Referendum Results to Drive Sentiment. NZD continued to push through fresh-2016 high, driven by GBP moves. Last seen around 0.7165 levels. Bullish momentum on daily chart remains intact while stochastics is near overbought conditions. Resistance at 0.7360 (76.4% fibo). Support at 0.7070, 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 – Retesting barrier at 0.75. AUDUSD was last seen around 0.7515. Swings of risk appetite could dictate the AUD for now. Barrier at 0.75 is being tested and eye a daily close (or two in this case of event risk) for further bullish cues. 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 is still stuck around the 1.28-figure, bound by oil moves which are in turn dictated by risk sentiments ahead of the UK referendum. Daily stochastics has risen from 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 came in firmer than expected at 0.9%m/m.

Asia ex Japan Currencies

      The SGD NEER trades 1.42% above the implied mid-point of 1.3553. We estimate the top at 1.3285 and the floor at 1.3820.

       USDSGD – Still Bearish Bias.  USDSGD remained pressured lower amid softer dollar overnight and rising expectations that the British would vote to remain in the EU even though the polls remain too close to call. Pair is edging close to the year low’s of 1.3352, last seen around 1.3370 levels. Bearish momentum remains intact, while stochastics remains at oversold conditions. This suggests a potential bounce ahead for this pair. With the key support at the 1.34-handle taken out overnight, next support is at 1.3350 (year’s low), and if taken out, at 1.3285 (18 Jun 2015 low). Barrier is at our previous support-turned resistance level at 1.34-handle and then at 1.3450. May CPI is on tap later today while May industrial production is due tomorrow.  In the news, the MAS has announced that it will include CNY-denominated financial investments in its official reserves from Jun. This was due to the growing acceptance of CNY assets among global institutional investors in vote of confidence in “the steady and calibrated liberalisation of China’s financial markets”. This decision follows the IMF’s move to include the CNY in the SDR basket with effect from 1 Oct. The impact on the SGD is likely to be minimal, if any, unless the outlook for the CNY changes.

       AUDSGD - Bulls Inspired By Risk. A Bremain scenario is more likely now and that has inspired AUD SGD bulls. Still upmove could be capped by barrier at 1.0124 but perhaps it would take volatility to break that barrier. Support is seen at 0.9909 before 0.9720

       SGDMYR – Bias to Lean against Strength. SGDMYR remains on a backfoot amid Ringgit outperformance Cross was last seen around 3.0050 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). Break below 200 DMA can expose the cross to further downside pressure towards 2.9570 (38.2% fibo, 100 DMA).

       USDMYR– Bearish Bias. Onshore markets returned today. USDMYR onshore spot saw a follow-through lower from offshore moves. Onshore spot fell in the open; last seen around 4.0190 levels. Move was due to USD weakness and supported sentiment as Brexit risks abated. 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). A break below this puts 3.9850 (23.6% fibo retracement of 2016 high to low) in sight. Resistance at 4.07 (38.2% fibo retracement of 2016 high to low) before 4.1435 (50% fibo). We shared before and reiterated here that a bremain outcome (by large win) could see the MYR gaining by as much as 2% (vs. the USD) from last traded level.

       1s USDKRW NDF – Watch Support at 1150. 1s KRW traded to the soft side amid support risk sentiment (as Brexit fears abate). Pair was last seen around 1151 levels. Focus remains on the outcome of UK’s vote on EU referendum (results to be known on 24 Jun during Asia time). We expect a choppy session overnight before greater 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 recovers. Break below 1150 should see next support at 1130. We shared before and reiterated here that a bremain outcome (by large win) could see the KRW gaining by as much as 2.5% (vs. the USD) from last traded level. 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 – Drifting Lower. USDCNH reversed out Tue’s rally and was last seen around 6.5820. 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). USDCNY was fixed 277 pips lower at 6.5658 (vs. previous 6.5935). CNYMYR was fixed 3pips lower at 0.6115 (vs. previous 0.6112). Singapore MAS announced Wednesday that it will include yuan financial investments as part of its official foreign reserves from Jun 2016 onwards, recognizing the “steady and calibrated” liberalization of China’s financial markets. Separately, PBOC may allow foreign companies to trade on domestic stock exchanges via depository receipts (China Business News). “Qualified foreign firms” could issue these yuan- denominated certificates that represent a number of shares to domestic investors. In other news, China Construction Bank has opened the first yuan clearing bank in South America.

       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 Governor Appointment Eyed. Spot prices slipped to close at 67.48. The 1M NDF also eased from its recent highs to levels around 67.82. This pair is rejected at the 68.18-barrier and a double top has formed. Risk appetite seems to have improved, favouring the bears now. Pullbacks towards the support at 67.4850 could happen before the next at 67.00. Barrier is seen at 68.3656 before 69.43 comes into view. The pullback may be due to the fact that BJP has shown support for its Chief Economic Adviser Arvind Subramanian who has been attacked by Member of Parliament Swarmy Subramanian. The government might have realized that politicking could undermine investors’ confidence after vicious comments by Swarmy had succeeded in getting RBI Governor Rajan off the job. Meanwhile, local press cited “top sources in the finance ministry” that the new RBI Governor will be appointed before the next session of Parliament begins. The monsoon session is scheduled to start on 25 Jul. “Deputy Governors” are preferred according to the sources quoted. That puts Deputy Governor Urjit Patel, former Deputy Governors Subir GOkarn and Rakesh Mohan at the top of the list. Outflows have started. Investors bought USD62.4mn of equity and sold USD247.4mn of debt on 21 Jun. There is no tier-one data due this week.

       1s USDIDR NDF – Range. 1s NDF is whippy this morning amid a softer dollar overnight and market caution ahead of the UK referendum today. Pair though remains in range-bound trades within 13240-13500. According to the Finance Minister, the outcome of the UK referendum will have a limited impact on Indonesia and even if there did, the impact would be temporary, though he admitted that “less volatility will be good for financial markets”. Earlier, the BI had commented that there was no need for special preparations ahead of the UK referendum as “prudent policy framework and standard operating procedures are in place”. 1s NDF was last seen around 13300 levels. Daily momentum continues to be bearish bias but waning and stochastics is is now showing little directional bias. For now, the 100DMA at 13370 should cap upside Immediate resistance is at 13370 (100DMA) ahead of 13410 (50DMA); 13470 (38.2% Fibo retracement of the Jan-Mar downswing). Support at 13290 (23.6% Fibo) continues to be tested but has held firm with a break here exposing the next at 13150 before the 13000-figure (year’s low). The JISDOR was fixed higher at 13298 yesterday from 13286 on Tue. Risk sentiments soured yesterday with foreign funds selling USD9.35mn in equities. They had however added IDR0.05tn to their outstanding holding of debt on 21 Jun (latest data available).

       1s USDPHP NDF – Uptrend.  1s USDPHP NDF continues its bounce higher even as the dollar softened overnight. Uncertainty ahead of the UK referendum could possibly be supporting the pair. Our long standing view is for a Bremain outcome. BSP meets later today and we expect the BSP to stand pat ahead of the UK referendum and given the recent completion of the transition to an interest rate corridor framework.  Pair was last seen around 46.60 levels. Daily momentum remains mildly bullish bias and stochastics is fast approaching overbought levels. Further upticks should meet barrier at 46.70 (38.2% Fibo retracement of Jan-Mar downswing; 50DMA); 46.80 (100DMA). Support at 46.12 before 45.90 (double-bottom) which should provide firm support in the interim. Risk sentiment continued to be supported with foreign funds buying USD24.31mn 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 – Still Range.  USDTHB is whippy this morning amid the softer dollar overnight and uncertainty ahead of the UK referendum. Concerns about Brexit with recent polls showing the direction of the vote too close to call could be sparking risk-off like it did yesterday. Risk appetite had deteriorated yesterday with foreign funds selling THB0.12bn and THB10.29bn in equities and government debt. Further portfolio outflows today could put the THB under pressure intraday. Yesterday’s BoT meeting did not surprise. The BoT left its one day repo rate unchanged at 1.5% as we had expected with market reaction muted as focused remain squarely on the UK referendum today. The central bank remained reluctant to ease policy despite benign inflation and sluggish growth as its preference continues to be for fiscal policy to do the heavy-lifting of supporting the economy with monetary policy playing a complementary role. Moreover, given global risks including Brexit, preserving the policy space would be more prudent. Last seen around 35.180 levels, momentum remains bearish bias but is waning, and stochastics is showing no strong bias for now. Still, pair is likely to remain in range trading within 35.000-35.370 ahead. 17 Jun foreign reserves is due tomorrow.

Rates

Indonesia

      Indonesia bond market closed higher yesterday. Easing brexit concern along with Fed Yellen cautious message and declining IGS prices may be a legit reason to explain IGS prices moving higher. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.440%, 7.580%, 7.870% and 7.897% while 2y yield shifts higher to 7.198%. Trading volume at secondary market was seen moderate at government segments amounting Rp12,292 bn with FR0073 as the most tradable bond. FR0073 total trading volume amounting Rp5,284 bn with 196x transaction frequency and closed at 107.63 yielding 7.870%.

       Corporate bond trading traded heavy amounting Rp910 bn. BBRI01ACN3 (Shelf registration I Bank BRI Phase III Year 2016; A serial bond; Rating: idAAA was the top actively traded corporate bond with total trading volume amounted Rp100 bn yielding 7.044.