* Indonesia bond market closed slightly lower during the final the day of first week in 2017. We view that there might be a shift by investors from long end tenors to shorter tenor ahead of President Elected Trump inauguration. Aside from that, U.S. labour data which was planned to be release post Indonesia bond market close may have kept bond investors to avoid taking any positio

FX

Global

      US added just 156K of nonfarm payrolls in Dec, missing the expectation for 175k addition. However, it was the rise in average hourly earnings to 0.4%m/m that lifted the DXY index back above the 102-figure. While the rebound may not be the end of the current correction, we continue to looks for dips to buy into as we near Trump’s inauguration on Wed.

      CNH saw a sharp reversal last Fri after two days of rally, ahead of the NFP that night as well as the release of the FX reserves last Sat. China reported a drop of U$41.1bn. The drop is less than expected although markets widely expected the Forex reserves to be kept above the key U$3trn mark. Still, the USDCNH is likely to remain supported as we await more data release this week including CPI, PPI tomorrow and monetary data between 10th-15th. Trade numbers for Dec are due on Fri. Expect credit growth to slow as China has been tightening and subdued growth prospect suggest that the dips in the USDCNH are unlikely to be sustained.

      Apart from China’s data barrage, we have Trump sworn in as US President. BOK will meet this Friday and we do not expect an action from them. Still, USDKRW is, in our view, a buy on dips – similar to USDSGD. South Korea has its political challenges along with potential impact from trade protectionism.  Domestic challenges and external headwind could leave the KRW more vulnerable than its regional peers.

Currencies

G7 Currencies

      DXY – Plenty of Fed Speaks This Week. USD index retraced recent losses after average hourly earnings posted its biggest rise (+2.9% y/y) since 2009. USTs were sold off; 10Y UST yield rebounded (last seen at 2.4193). Fed’s Mester said that 3 rate rise this year was her base case scenario, though she did add that her view was above the FoMC consensus mean. DXY was last seen at 102.30 levels. Bearish momentum on daily chart remains intact but stochastics suggests the pace of bearish momentum maybe slowing. Support at 101 (50 DMA, 23.6% fibo retracement of 2016 low to 2017 high). Resistance at 102.55 (21 DMA), 103.80 (recent high). We remain biased for further USD upside and prefer to buy on dips (vs. EUR and JPY – playing the monetary divergence theme). Week ahead brings Fed’s Rosengren, Lockhart speak on Mon; JOLTS Job Openings (Nov) on Tue; Fed’s Lockhart, Evans, Harker, Bullard speak; Import Price Index (Dec) on Thu; Fed’s Yellen, Harker speak; PPI, Retail Sales (Dec); Uni of Mich Sentiment (Jan) on Fri.

      EURUSD – Bias to Lean Against Strength. EUR failed to make much headway above 1.06 overnight as USD strength returned amid stronger than expected wage growth and Fed Mester’s comments.  We continue to watch movements in EU-UST yield differentials which have been driving the EUR direction of late. We had shared that 10Y EU-UST yield spread is typically positively correlated with EUR/USD and further narrowing of yield differentials could lend support to the EUR. We think this is likely to be temporary as ECB remains on easing mode and Fed is expected to tighten further this year (monetary divergence). EUR was last seen at 1.0540 levels. Mild bullish momentum on daily chart remains intact though stochastics suggests a slowdown in bullish momentum. Support at 1.0480 (21 DMA) before 1.0350.  Area of resistance at 1.0620 (50% fibo retracement of Dec high to low) -1.0650 levels (50 DMA). Retain our bias to lean against strength. Week ahead brings Unemployment rate (Nov) on Mon; IP (Nov); ECB Minutes on Thu.

      GBPUSD – Outside Day Reversal (Bearish). GBP’s rally above 1.24-handle was capped at its 50 DMA (last at 1.2430 levels) on Fri; pair turned lower amid the return of USD strength. Last seen at 1.2270 levels. While daily momentum and stochastics indicators are not showing a clear bias, price action shows a bearish outside day reversal on the daily candlestick chart – characterized by a bearish engulfing pattern where the high and low of the session (Fri) exceeded those of the prior trading session (Thu). This reinforced our bias to lean against strength. We had previously identified the key area of resistance at 1.2430 (38.2% fibo retracement of Dec high to low) – 1.2440 (50 DMA). We believe this should continue to hold as a strong level of resistance. Expect stop-buy orders to line up above here. Key support at 1.2210 levels. We maintain our bearish bias on the GBP over the medium term horizon, as much uncertainty remains over the timing of trigger of Article-50, exit plan/ strategies the incumbent government has (how the negotiations with EU will pan out) and the medium term repercussion of these on UK’s outlook and prospects (in terms of growth, trade relationships, London’s status as financial hub, investment/portfolio flows and job creation). We expect GBP to face downside pressure (possibly breaking below 1.20) in 1H 2017 on risk of snap elections, unclear exit strategy before gradually rising into end-2017 as clarity over UK’s future takes hold. Week ahead brings House Prices (Dec) on Mon; Trade, IP, Construction output (Nov) on Wed; BoE Saunders speaks on Fri.

      USDJPY – Upside Capped. USDJPY has rebounded back above the 117-levels amid a re-widening of the yield differentials between 10Y UST and JGB. 10Y UST is back above the 2.40% levels after slipping to 2.34% levels on Fri. Pair was last seen at the 117.30 levels.  Daily momentum and stochastics indicators are still bearish bias. Bullish momentum on weekly chart remains intact though with weekly stochastics still in overbought conditions. In the near term, expect further upside risks to be capped with resistance at 118.60 (year’s high so far). Support at 114.60 levels (23.6% fibo retracement of the run-up from Nov to Dec-Jan double-top at 118.66) before 112.70 (50DMA). 2w01Expect trades in familiar ranges of 116-119 to hold intraday. We need to see further widening of the UST-JGB yield differentials for USDJPY upside to gather momentum. Monetary policy divergence theme is likely to re-emerge after Trump’s inauguration. Quiet week ahead with only current account (Nov) on tap on Thu. Onshore markets are closed for a public holiday today and re-open tomorrow.

      NZDUSD – Sell on Rally; Bearish Engulfing. NZD fell amid USD strength. Our cation for death cross formation (50DMA cutting 200DMA to the downside) still holds. This is typically a bearish signal. We had called for sell on rally towards at 0.7050 (50% fibo retracement of Dec high to low), 0.7080 (50, 200 DMAs) for a move back towards 0.6950, 0.6860 (recent low) objectives. We observed an outside day reversal on the NZD as well. We remained bias to lean against strength. Week ahead brings House Prices (Dec) on Wed; ANZ Commodity Prices (Dec) on Thu.

      AUDUSD – Tactical Upside. Pair is last seen around 0.7320, making a mild recovery from the USD rise last Fri. This pair could risk moving towards the 0.7396-resistance before 0.7470 (50% fibo retracement of the Nov-Dec fall) as daily momentum indicators remain bullish. Support is seen around the 0.73-figure before the next at 0.7245,0.7150. For the rest of the year, we also see upside risks to the AUD as the oversupply of commodities including steel and copper are completely priced in and AUD to respond next to potential lift in infrastructure demand for these key metals. Terms of trade seemed to have bottomed correspondingly and that should be expansionary for the economy. Week ahead has building approvals, Fx reserves (Nov) on Mon, retail sales tomorrow.

USDCAD – Bearish Momentum. USDCAD is on the slide this morning, last seen around 1.3230. With 1.3310 turning from support into resistance, we potential for this pair to go beyond our first target (1.3310) towards the next at 1.3135. Stochs continue to fall from overbough conditions and MACD is increasingly bearish. The labour report was stronger than expected with 81.3K full-time employment added in Dec. Unemployment rate rose still to 6.9% as participation rate rose to 65.8% from 65.6%. Data seems to be turning more sanguine for Canada as oil prices found their foothold. Week ahead has housing starts and Nov building permits tomorrow, existing home sales for Dec on Fri.

Asia ex Japan Currencies

      SGD NEER trades around 0.93% below the implied mid-point of 1.4262 with the top is estimated at 1.3974 and the floor at 1.4550.

      USDSGD – Risks Still Pointing Lower.  USDSGD traded higher, tracking the USDJPY higher as well as the rebound in 10Y UST bond yield. The firmer UST yields is likely to lift domestic rates, particularly the 3-month SOR (currently at 0.932%) higher, increasing the SGD downside pressure. The pullback due to a technical correction (which we had written in our flash note on 3 Jan) appears to seemingly brief. Still, we cannot rule out a further technical pullback towards 1.4260 (23.6% fibo retracement of the Jun low to Dec high) should the pair break below the 1.44-level on a daily close. Resistance remains at the year’s high of 1.4547. Bias remains to buy on dips. Relatively quiet data week ahead with foreign reserves (Dec) on Mon; retail sales (Nov) on Fri.

      AUDSGD – Upside Momentum. AUDSGD is making recovery from its recent drop, last seen around 1.0540 , above the 1.05-barrier. We still look for an eventual move towards 1.10, 1.12 in the medium term. Support at recent lows of 1.035. Bias remains to buy on dip.

      SGDMYR – Range. SGDMYR traded lower amid SGD underperformance. Cross was last seen at 3.1120 levels.  Mild bullish momentum remains intact but weak. Expect 3.0940 – 3.14 range to hold this week.  

      USDMYR – Bearish Momentum Intact. USDMYR remained little changed despite USD strength elsewhere. A few factors may have contributed to MYR relative stability and that includes oil price gains, MYR being sold beyond technical and fundamental, PM Najib’s comments (that he is confident that BNM’s measures will see MYR stabilise in next few days and MYR’s decline caused by factors beyond Malaysia’s control (referring to excessive speculation, offshore market and US fed rate hike). We stress that MYR weakness is temporary and not a reflection of underlying fundamentals. We expect to see some stability returning as oil prices stabilise, commodity prices turnaround and domestic demand continue to remain resilient. In external reserves data released last Fri, import and short-term external covers improved to 8.8 months and 1.3 times (end-Nov 2016: 8.2 months and 1.2 times). Pair was last seen at 4.4780 levels. Bearish momentum on daily chart remains intact. Key support at 4.4690 levels (21 DMA). Break below this on weekly close may see further pullback towards 4.3940 levels (50 DMA). Resistance remains at 4.50, 4.52 levels. Week ahead brings IP on Wed.

      1s USDKRW – Bias Remains to Buy on Dips. 1s USDKRW traded higher, in line with our call to look for opportunity to buy on dips. Move higher came amid broad USD strength.  Pair was last seen at 1204 levels. Mild bearish momentum on daily chart is waning. Remain bias to buy on dips. Next resistance at 1214 levels (recent high). Support at 1195 (21 DMA) before 1184 (23.6% fibo retracement of Sep low to Dec high, upward sloping trend-line support). Week ahead brings BoK meeting on Fri – expect status quo to current policy rate of 1.25%.

      USDCNH – Day 2 of Recovery. The USDCNH has been on the upmove since last Fri and was last seen around 6.8710. We still stick to our view that 7 is a forgone conclusion. This is a matter of when, not if. Support around 6.8569 (38.2% fib retracement of the Sep- Dec rally) may serve as intra-day support. Resistance is seen around 6.9076. USDCNY was fixed 594 pips higher at 6.9262 (vs. previous 6.8668). CNYMYR was fixed at 0.6510, 41 pips higher than the previous 0.6440. Week ahead has CPI, PPI tomorrow and monetary data between 10th-15th. Trade numbers for Dec are due on Fri. Expect credit growth to slow as China has been tightening and subdued growth prospect suggest that the dips in the USDCNH are unlikely to be sustained.

      1m USDINR NDF – Heading Higher. USDINR hovered around 68.30 after a rather whippy week seen. Momentum indicators show increasing upside pressure for this pair. Resistance remains around 68.52 while support is seen at 68.12 before the next at 67.80. Finance Minister Jaitley assured that the demonetization should have “transient” impact on the economy, but the nation will have stronger growth. India sees GDP growth around 7.1% for year ending Mar 2017. Foreigners sold U$6.3mn of equities and bought U$110.7mn of bonds. Week ahead has CPI and industrial production on the 12^th. Trade is released between 13^th-16^th.

      1m USDIDR NDF – Bearish Tilt.  1M NDF trading higher, rebounding from the year’s low of 13326 on 5 Jan amid a firmer USD underpinned by a rebound in UST yields. Upside risks to the 1-month NDF in the next 3-6 months include the potential for even more aggressive Fed hikes in 2017 on expectations of Trump’s planned fiscal stimulus, which could steepen the UST yield curve further, narrowing the yield differentials between US and Indonesia and sparking further fund outflows that would coincide with the end of the tax amnesty program. Also there are risks arising from domestic political tensions (in the run-up to the Jakarta gubernatorial elections in 15 Feb 2017) and growth concerns that should remain supportive of the 1-month NDF. Mitigating some of these upside risks though are the ongoing reform process and fiscal spending on infrastructure projects. Last seen around 13430 levels. Daily momentum and stochastics indicators remain bearish bias. Weekly charts continue to show waning bullish bias with weekly stochastics still turning lower. Risks in the week ahead appear to be on the downside, suggesting further upticks could be capped. Immediate resistance is at 14370 (21 & 50DMAs) ahead of 13580 (50% fibo retracement of the 2016 high to low). Support remains around 13300 (100 & 200 DMAs). Investor sentiments were mixed last week with foreign investors selling USD27.06mn of equities. They had however added IDR1.29tn to their outstanding holding of government debt on 2-5 Jan (latest data available). The JISDOR was fixed lower at 13347 on Fri to end the week from Thu’s 13370.

      1s USDPHP NDF – Rangy. 1s USDPHP is on the uptick in line with broad dollar strength amid a rebound in the UST 10Y yields. Mitigating upside risk to the PHP from expectation that Philippines would be one of the few regional economies to hike its policy rate would be possible earlier-than-expected inflation in the US on possible Trump expansionary fiscal policy plans that should further steepen the UST yield curve and narrow the yield differential in favour of the US could encourage funds outflows and weigh on the PHP. Also, concerns over the protectionist-bent of the incoming Trump administration, the government’s extra-judicial killings, policy flip-flops and the president’s unpredictable temperament should keep the 1-month NDF supported. Pair was last seen around 49.75 levels. Daily momentum indicators remain bearish bias but stochastics is showing tentative signs of turning higher from oversold conditions. This suggests that range-bound trades are likely ahead. Expect range of 49.45 (projected fibo retracement) - 50.05 to hold in the week ahead. It was a good start to the new year for equities with foreign investors purchasing USD32.19mn last week. Quiet week ahead with just trade (Nov) on tap on Tue.

      USDTHB – Range-Bound.  USDTHB is trading firmer after slipping to the year’s low of 35.626 on 6 Jan (Fri) amid a rebound in UST 10Y yields that lifted the USD higher. Pair was last seen around 35.770 levels. Daily momentum and stochastics indicators continue to show bearish bias. Weekly charts show waning bullish momentum and weekly stochastics is showing tentative signs of turning lower from overbought conditions. With risks still to the downside in the near term, further upticks are likely to be capped. Immediate resistance is at 35.845 (21DMA) ahead 35.967 (76.4% fibo retracement of the 2016 high to low). Support is at 36.605 (50DMA). It was a positive start to the new trading year with foreign investors purchasing THB7.08bn and THB1.50bn in equities and government debt last week. Data-quiet week ahead with just foreign reserves (6 Jan) due on Fri.

Rates

Malaysia

      Government bond market concentrated on the recently reopened 3y GII 4/20, which recorded MYR1.1b traded volume for the day. The bond lowered 2bps on the back of better sentiment as USD broadly weakened against Asian currencies, including the MYR. Elsewhere MGS curve saw light buying on the 15y and 20y benchmarks. Market looked to the US NFP last Friday night.

      IRS rates decline slightly by 1-3bps in line with another day of lower regional rates. But trading interest was lukewarm with only small trades done on the 1y at 3.51% and 5y at 3.85%. 3M KLIBOR unchanged at 3.42%.

      Corporates bonds saw better buying again. The momentum was seen in GGs at the belly which tightened 1-5bps and active names include PTPTN, LPPSA, PASB and Danainfra. AAA space was muted; better bidding in the front end and belly but only few names dealt which include Cagamas’18s trading 4bps tighter. AA space was mixed with long end JEPs weaker by 1-2bps, while Kesturi tightened 2-3bps. Market will take cues from the US NFP for some direction. In the primary space, Affin Bank (A3) is planning a MYR6b Subdebt issuance (A1) possibly around month-end.

Singapore

      SGS prices opened higher following the rally in USTs overnight, but profit taking capped the rise in the morning. SGD IRS curve was marked down by 7-8bps initially, but given resilient SGS yields the rates subsequently adjusted higher. Better buying in SGS emerged in the afternoon, keeping prices supported despite intermittent liquidation of long end bonds ahead of the US payrolls report. SGS benchmark yield curve closed 2-5bps lower and SGD IRS closed 3-6bps lower.

      Asian credit market turned quiet at the end of the week, partly due to the anticipation of US NFP. IG spreads mostly unchanged to 1-2bps wider given the UST rally overnight. New SUMIBK dealt around reoffer, while the fixed 10y bond widened 3-5bps in spreads (priced at +110). Buying still seen in sovereigns, though number of profit takers increased and volumes were lighter. Good 2-way interest seen on short end papers by banking names CIMBMK and RHBCMK in the Malaysian space.

 Indonesia

      Indonesia bond market closed slightly lower during the final the day of first week in 2017. We view that there might be a shift by investors from long end tenors to shorter tenor ahead of President Elected Trump inauguration. Aside from that, U.S. labour data which was planned to be release post Indonesia bond market close may have kept bond investors to avoid taking any position. U.S. added 156K jobs in the month of Dec while unemployment rate increase slightly by 0.1% to 4.7%. However, average hourly earnings increase by 0.4% MoM. We see that trading volume may pick up this week as most of the bond investor are effectively back to office after their Christmas and New Year holiday. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.306%, 7.566%, 7.763% and 8.048% while 2y yield moved lower to 7.289%. Trading volume at secondary market was noted thin at government segments amounting Rp10,455 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp1,689 bn with 40x transaction frequency.

      Corporate bond trading traded thin amounting Rp526 bn. BNLI01SBCN2 (Subordinated Shelf Registration I Bank Permata Phase II Year 2012; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp80 bn yielding 8.749%.