Risk Sentiment Whets Appetite For USDAsians; But FOMC Beckons

      The weeks ahead could be positive for the AxJs against the USD as risk appetite gets whetted by expectations of further easing measures (including the possibility of perpetual bonds, i.e., helicopter money, floated by ex-Fed Chair Bernanke) by the BOJ at the end of the month together with another round of fiscal stimulus of up to JPY20tn by the Abe government. This comes amid improving risk appetite that could keep risk-proxy FX like the KRW and MYR and even the PHP supported against the USD ahead. However, the climb in the Asians against the USD could be tempered by potential dollar strength as market re-price expectations of Fed rate hike leading to USD strength especially in the lead up to the FOMC meeting on 28 Jul.

      In this risk-supported environment even amid potential dollar strength, we think that the USDPHP have scope to fall further within the two weeks before FOMC. The USDPHP could fall towards the 46.410 levels. The pair is still falling towards oversold conditions. We need to see the USDPHP break below 100DMA support-level at 46.610 levels for a move towards 46.410. The combination of further easing measures by BOJ together with the re-pricing of Fed fund hike expectations could lift the USDJPY back above the 106-levels. A break of the upper bound of the trend channel at 106-level could see increasing momentum towards first objective at 107.25 levels before 108.50 levels (100DMA). Spot ref at 105.60 and stop-loss at 103.30 (21DMA).

      Quiet week ahead for the AxJs with just BI and BOJ meeting to watch out for. BI will meet on 21 Jul (Thu) and even after cutting the policy rate by 100bp so far this year, there is still the possibility of another 25bp rate cut as insurance against Brexit concerns and to also provide a further boost to domestic spending and lending. A week later (28-29 Jul) is the BOJ’s turn to decide on policy and we expect the central bank to ease policy further (expansion of the monetary base to JPY100tn from JPY80tn, increase in ETF purchases to JPY10tn from JPY3tn and cutting interest rate further to -0.3%). Helicopter money is not expected for now. Aside from central bank meetings, we also have Korea’s 2Q GDP on tap on 26 Jul.