The double dissolution that Australia’s PM Turnbull called seems to be a political misfire. This would not be the first political misfire in the Commonwealth (Recall Brexit).

FX

Global

      The double dissolution that Australia’s PM Turnbull called seems to be a political misfire.  This would not be the first political misfire in the Commonwealth (Recall Brexit). Vote counting is not over for Australia’s Federal Election 2016 that took place on Sat (2 Jul). With less than 80% of the votes counted, no party has achieved the minimum number (76) seats to form a government. The Coalition has 67 vs. Labor’s 71. The vote counting will only resume on Tuesday. Prospect of a hung parliament weighed as the fate of Australia’s most prized AAA sovereign rating hang in the balance. We see little chance of a majority parliament now – let alone a Coalition-run majority parliament. AUDUSD slipped from recent highs but remained fairly supported, around 0.7470 at last sight.

      Risk sentiments were slightly soured by the turn of events. Nikkei has slid into mild red as we write. USDJPY waffled around 102.50. GBP and EUR were last seen around 1.33 and 1.11 respectively. While there is little sign of a risk aversion at this point, there is still an underlying sense of caution amid EU contagion risks and much uncertainty surrounding the fate of UK. We see more downside risk for both EUR and GBP.

      The week ahead has US NFP data. Consensus expects +180k for NFP (vs. +38k prior); +0.2% m/m (unchanged from prior) for hourly earnings and 4.8% (vs. 4.7% prior) for unemployment rate. Only a stronger than expected and upward revision on NFP, coupled with upside surprise in hourly earnings could see USD bounce. RBA meets tomorrow. We do not expect a cut but the central bank may reinstate explicit easing bias for a Aug cut. The rest of Asia may see some weakness given the lack of risk appetite. Expect range-plays to dominate. US is out for Independence Day holiday. Indonesia is out for the whole of this week.

Currencies

   G7 Currencies

      DXY – US Markets Closed Today. USD was modestly softer overnight. Risk sentiment remains cautiously supported while UST 10Y yield remains near record lows of 1.44%. Jun ISM data was better than expected. OIS futures continue to price in no fed hike over the next 12 months. DXY was last seen at 95.70 levels. Daily momentum and stochastics indicators continue to indicate a mild bullish bias. Key resistance at 96.50 (200 DMA). Only a break above on daily close basis could see an extension of the rally towards 97.96 (76.4% fibo retracement of 2016 high to low). Support at 95.80 (50% fibo) before 95.20 (100 DMA). Week ahead brings ISM NY (Jun); Durable, Factory Orders (May); Fed’s Dudley speaks on Tue; Trade (May); Fed’s Tarullo speaks; services/composite PMI (Jun); ISM non-mfg (Jun); FOMC minutes on Wed; ADP employment change (Jun) on Thu; NFP; hourly earnings; unemployment rate (Jun) on Fri. US markets closed for holidays on Mon.

      EURUSD – Sell on Rallies. EUR ended the overnight session slightly firmer amid subdued range-trading. Last seen around 1.1130 levels. We retain our call to sell EUR on rallies towards 1.1150 – 1.12 levels for a move back below 1.10-handle. Daily momentum is mild bearish bias. Support at 1.1070 (50% Fibonacci retracement of Dec low to May high), 1.0940 (61.8% fibo), 1.0780 (76.4% fibo). Resistance at 1.1230 (100 DMA). In overnight data, Euro-area, German and French Jun PMIs were a touch firmer. Week ahead brings EC PPI (May); Investor Confidence (Jul) on Mon; Services/composite PMI (Jun); Retail sales (May) on Tue; EC retail PMI (Jun) on Wed; ECB Minutes on Thu; EU sovereign debt to be rated by Moody's on Fri.

      GBPUSD – Still Favor from the Short Side. Comments from BoE’s Carney (last week 30 Jun) that there is a need for GBP to find a new level and the BoE will probably have to ease (monetary) policy over summer continue to weigh on the GBP. Markets pricing of next BoE rate cut in Jul are now at 57% (from 34%) and for Aug at 75% (51%). The broader trend (weekly and monthly momentum indicators) remains bearish and could see a larger decline and we still favour the trade from the short-side as uncertainty on separation remains, but prefer to sell on rallies. Daily momentum remained bearish and GBP could test lower towards 1.30-handle. Resistance at towards 1.3570 (23.7% fibo retracement of that 2 day decline of 1.5018 – 1.3121), 1.3840 (38.2% fibo). Price action suggests a potential bearish flag formation in the making (1.3220 – 1.3570). Break below 1.3220 should see a bigger push lower. Week ahead brings Construction PMI (Jun) on Mon; Service/ Composite PMI (Jun); BoE Financial Stability Report on Tue; IP (May); House Prices (Jun) on Thu; Trade (May) on Fri.

      USDJPY – Bias To Sell Rallies. USDJPY drifted higher post-Brexit on waning global risk aversion on expectations of global central banks actions to stabilize the markets and increasing expectations of further BOJ easing measures. Pair was last seen around 102.55 levels. Daily momentum continues to show waning bearish bias and stochastics climbing higher from oversold levels. Weekly stochastics though are near oversold conditions. Risk of a technical rebound cannot be ruled out. Resistance at 103.77 (38.2% Fibo retracement of May-Jun downswing); 104.77 (21DMA); 105.25 (50% Fibo). Support remains at 101.95 (23.6% Fibo); 99-figure (year’s low). Further reduction in confidence in Abenomics could see a move towards the 95-handle. Week ahead has PMI (Jun) on Tue; BOJ Kuroda speaks on Thu; Trade balance (May), Cash Earning (May) on Fri.

      NZDUSD – Quiet Week Ahead. NZD continues to drift higher amid a soft USD bias. Last seen at 0.7180 levels.  Weekly momentum remains bullish bias. Key resistance at 0.7160 (61.8% fibo retracement of Apr 2015 high to low). Only a break above on weekly close basis could see an extension of the rally towards 0.7360 (76.4% fibo). Failing which, pair could slip back towards 0.7070 (21 DMA), 0.6930 (50% fibo).Week ahead is quiet on data front; brings Government Financial Statement; Business Opinion Survey on Tue.

      AUDUSD – Resilience In Times of Uncertainty. The double dissolution that Australia’s PM Turnbull called seems to be a political misfire. Vote counting is not over for Australia’s Federal Election 2016 that took place on Sat (2 Jul). With less than 80% of the votes counted, no party has achieved the minimum number (76) seats to form a government. The Coalition has 67 vs. Labor’s 71. The vote counting will only resume on Tuesday. Prospect of a hung parliament weighed as the fate of Australia’s most prized AAA sovereign rating hang in the balance. We see little chance of a majority parliament now – let alone a Coalition-run majority parliament. AUD slipped from recent highs but remained fairly supported, around 0.7470 at last sight. The 0.7450-support needs to be broken for bears to gain a footing. Barrier is seen around 0.7154 before the next at 0.7593(23.6% fibonnaci retracement of the Jan-Apr rally). There seems to be a mini head and shoulders formation with a very small uptrend preceding it.  Neckline is seen around 0.7300. Next support at 0.7150. Week ahead has Building Approvals (May) on Mon, RBA Meeting; Retail Sales, trade balance (May) on Tue, RBA Debelle speaks on Wed, FX Reserves (Jun) on Thu.

      USDCAD – Rangy. This pair drifted lower and was last seen around 1.2910, still within the 1.2660-1.3160. Interim support is now seen around 1.2886 (50-DMA). Week ahead has RBC Canadian manufacturing index for Jun. Jun labour report is due on Fri. Consensus expects unemployment rate to inch up to 7.0% from previous 6.9%. Net change in employment is estimated to be around 6.5K vs. previous 13.8k.

Asia ex Japan Currencies

      The SGD NEER trades 1.11% above the implied mid-point of 1.3610. The top is estimate at 1.3340 and the floor at 1.3879.

      USDSGD – Trade Range.  USDSGD remains on the slide this morning as concerns about Brexit dissipates. A report about PBOC targeting the 6.80 levels provided some excitement yesterday but the rally in the USDSGD was not sustained. As that event showed, the pair remains guided by external events. Last seen around 1.3454 levels, pair is showing very mild bullish bias, though stochastics is showing no strong bias at the moment. Trade the range within 1.34-1.35 intraday. Support at 1.34-handle (50% Fibo of the 2014-2016 upswing). Resistance at 1.35-handle (21DMA).

      AUDSGD – Still Choppy. AUDSGD hovered around 1.0070, retaining a bid tone this morning in spite of the political disarray in Australia. AUD and SGD bulls continue their tug of war, resulting in little directional bias. MACD shows little directional bias with stochastics climbing lower. Barrier is still seen at 1.0128 (200DMA). Moves have should remain choppy ahead as the Australian federal elections could drag on with a hung parliament. Support is seen at 0.9900 (76.4% Fibonacci retracement of the Feb-Apr rally) before 0.9720.

      SGDMYR – Bearish Momentum. SGDMYR slipped amid MYR outperformance; last seen around 2.97 levels. Daily momentum is mild bearish bias. We reiterate our bias to lean against strength. Next support at 2.9720 (50 DMA) before 2.9570 (38.2% fibo, 100 DMA). Resistance at 3.0150 (21 DMA), before 3.0480 (trend-line resistance from the highs of Nov and Jan) and 3.0640 (76.4% fibo retracement of Oct high to Apr low).

      USDMYR– Mild Bearish Bias. USDMYR remained soft amid oil price gains and supported risk sentiment. May trade surplus narrowed as imports rebounded while exports fell. USDMYR was last seen at 3.9960 levels. Momentum remains bearish bias. Next support at 3.9850 (23.6% fibo retracement of 2016 high to low). A break below could see further unwinding towards 3.95 levels. Resistance at 4.04 (100 DMA), 4.0760 (21 DMA). Expect FX liquidity to remain poor this week, with US out for holidays today and MY goes on holidays from Mon onwards. Week ahead brings Jun FX reserves (Tue).

      1s USDKRW NDF – Range-Bound. 1s KRW rebounded off 1145-lows in NY amid mild USD strength. Last seen at 1150 levels. Daily momentum is mild bearish bias. See range of 1142 – 1155 intra-day. Week ahead is relatively quiet in terms of data flow – 2Q FDI (Mon) and Jun FX Reserves (Tue). Bloomberg reported that Finance Minister and FSC Chairman to attend parliamentary hearing today on Economic issues – the latter previously mentioned it was necessary to maintain a market stabilisation system to respond to economic uncertainties. 

      USDCNH – Mildly Firmer. The USDCNH has been rather choppy in the past few days – almost like a normal currency. Last seen around 6.6750. Officials clarified that there was no intervention on Thu. Barrier at 6.6820 remains intact. Risk-on mood does not seem to rub off on USDCNH. Continue to expect elevated trades with support around 6.6560. USDCNY was fixed 24 pips lower at 6.6472 (vs. previous 6.6496). CNYMYR was fixed 18 pips lower at 0.5995 (vs. previous 0.6012). We continue to expect PBOC to use adhoc measures like pledged supplementary lending, medium term lending facility and standing lending facility to supply credit to the targeted sectors that require more liquidity support. Post-Brexit fears may build case for broad based RRR cuts but doing so may generate flows to assets that are prone to bubbles (real estate in the tier-one property sectors), undo deleveraging efforts in the economy and unhinge the CNY. Week ahead has China’s Caixin services are due today followed by FX reserves for Jun on Thu and then CPI and PPI for Jun this Sun.

      SGDCNH – Grinding Higher. SGDCNH remained elevated, last seen around 4.9630. Risk recovery has swung the SGDCNH back on the uptrend. Momentum indicators are now showing a mild increase in bullish bias and stochastics at overbought levels. With our multiple resistance levels taken out, new barrier is at 4.9895 levels. Any dips should meet support at 4.9420 before 4.9290.

      MYRCNH – Whippy. This cross whippy this morning, last seen around 1.6720 levels. Barrier is at 1.6800 (76.4% Fibonacci retracement of the 2015 sell-off, close towards Apr high) before 1.7155. Support is seen at 1.63-handle (21DMA) before the 1.6191 (100DMA). 

      1s USDINR NDF – Still In Range. The 1M NDF was last seen around 67.60. NDF has lost most of its bullish bias and stochastic remains on the slide. The barrier is at 68.22 (61.8% Fibonacci retracement of the Feb-Apr downswing) before the next at 68.68 (76.4% Fibo). Support is seen at 67.62 (21DMA). Outflows may take a pause now. Investors sold USD219.1mn of equity and sold USD79.4mn of debt on 30 Jun.  Week ahead has no tier one data of note.

      1s USDIDR NDF – Closed For Holidays The Whole Week. 1M NDF should see quiet trades ahead as onshore markets are out the whole week for the Ramadan holidays. 1M NDF was last seen around 13120 levels. Daily momentum remains bearish bias and stochastics is fast approaching oversold condtions, suggesting risk is still to the downside. Support is seen at 13100 levels (1 Jul low). A break of the 13100-levels could see the pair re-test the year’s low at 12295. Immediate resistance is at 13245 (23.6% Fibo retracement of the May-Jun downswing); 13360 on Fri from 13180 on Thu. Improving risk appetite saw foreign investors purchased USD449.53mn in equities last week and they had also added IDR0.80tn to their outstanding holding of government debt on 27-30 Jun (latest data available). Headline inflation inched slightly higher by 3.45% y/y in Jun from 3.33% in May, driven by the fasting month effect. Core inflation ticked higher to 3.49% in Jun from 3.41% in May, driven by the rise in transport cost ahead of the Ramadan holidays.

      1s USDPHP NDF – Upside Risk.  1M NDF climbed higher above the 47-figure towards the end of the week but has since slipped back below that level. Markets will be watching the next moves by the new administration on the economic front. The news from this front appears positive with the new Speaker (from President Duterte’s camp) pushing for Congress to lift restrictive economic provisions (on foreign ownership of land, natural resources, public utilities, media and advertising) in the 1987 Constitution that has so far hampered foreign investment. This should be PHP positive. 1s NDF was last seen around 46.96 levels. Momentum indicators remain bullish bias but waning with stochastics still showing tentative signs of falling from overbought levels. Further dips should find support around 46.87 (38.2% Fibo retracement of the Jan-Mar downswing); 46.75 (50 & 100DMA). Note that the 50DMA has just cut the 100DMA from below, suggesting upside risk technically. Any rebounds should meet resistance at 47.20 (50% Fibo); 47.50 (61.8% Fibo). Risk sentiment remained supported with foreign funds purchasing USD124.99mn in equities last week. Week ahead has Jun CPI on Tue; Jun FX reserves on Thu.

      USDTHB – Bearish Tilt.  1M NDF has been on the downswing for the past week post-Brexit as global risk aversion waned on expectations of global cerntral banks moves to support the markets. Pair was last seen around 35.090 levels. Daily momentum is now showing very mild bearish bias and stochastics is at oversold conditions. This suggests the potential for a rebound ahead. Support is seen around 34.720 (year’s low). Upticks should meet resistance around 35.370 (38.2% Fibo retracement of the Jan-Mar downswing). Positive risk sentiment last week saw foreign investors buying THB7.18bn and THB42.46bn in equities and government debt. Week ahead has 30 Jun FX reserves on Fri.

Rates

Malaysia

      Local government bonds rallied further as global bond yields reach multiple year lows. MGS yields lowered 2-9bps across the curve with foreign names accumulating long duration bonds while locals took profit.

      MYR IRS rates remained firmed even though MGS rallied. Nothing was reported to have dealt in the market. 3M KLIBOR was unchanged at 3.65%.

      PDS market was quiet in spite of the rally in MGS. Front end Cagamas and GG papers at the belly traded range bound (+1bp/-1bp). In AAA space, Plus 30s and 31s traded 2bps tighter, but Plus 32s widened 1bp. AA curve generally widened at the belly while liquidity remains thin in this curve. We suggest to stay better buyers in the 7y and 10y sections of the GG and AAA curves.

Singapore

      Buying interest mainly from foreign flows drove SGS yields further downwards, ending -5bps to -10bps from previous close. Some sporadic profit taking by a few names was also seen. Safe haven theme and low funding rates continue to support SGS prices.

      In Asian credit market, liquidity was rather thin with HK market out. However, sovereign bonds remained well bid as market seemed to lack papers and with no upcoming new supply. INDON sovereigns generally traded in a range (+0.25/-0.25points). EUR denominated INDON bonds did well, taken 0.5-1pt higher. Elsewhere, there was not much trading.

Indonesia

      The government successfully controlled prices fluctuation, especially for raw food products, by market intervention (operation). As a result, the country’s inflation increased 0.66% MoM (3.45% YoY) in Jun-16. On the note of a stabilized inflation rate and expectation of repatriation of fund due to tax amnesty, Indonesia bond market closed higher during Friday trading ahead of the long Eid Al Fitr holiday. The yield of FR0073 passed lower compared to our expectation of 7.6% which we published during our weekly report on June 20th. IGS market will be closed this week and reopened on 11 Jul 2016. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.092%, 7.288%, 7.475% and 7.527% while 2y yield shifts higher to 7.158%. Trading volume at secondary market was seen heavy at government segments amounting Rp17,223 bn with FR0069 as the most tradable bond. FR0069 total trading volume amounting Rp3,508 bn with 50x transaction frequency and closed at 101.78 yielding 7.152%.

      Corporate bond trading traded heavy amounting Rp806 bn. BTPN03ACN1 (Shelf Registration III Bank BTPN Phase I Year 2016; A serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp240 bn yielding 7.447%.