FX
Dec ADP came in a tad softer than expected at 153K vs. the consensus of
175K. That data gave another excuse to sell the USD as market players continue
to digest the Minutes of the Dec meeting that was released the day before. Even
as risk to growth has increased, there is still a lot of uncertainty about the
timing, size and composition of any future fiscal… initiatives. Equities also
made modest retreats overnight as investors look for better evidence for
further rally in the risk assets. Eyes are definitely on the NFP data and a
disappointing print may bring the USD lower.
The absence of USD strength allows Asian currencies room for breather
with CNH leading the way. As we have noted yesterday, the spike in offshore
rates have squeezed yuan betters out of their positions. The unwinding of long
USDCNH positions saw the pair broke the key 6.80 support. Some say it is made
ahead of Trump’s inauguration and his threat of labeling China a currency
manipulator and slapping import tariffs of 45%. We think it is an
opportune time simply because there is a USD correction and China wants to
prevent yuan depreciation expectations from snowballing. Asia FX are fringe
beneficiaries from the yuan rally. We continue to expect USDAsians to drift
lower today, ahead of the NFP tonight.
Data calendar is (again) light in the region with only Malaysia’s CPI
and India’s advanced estimate of GDP due. Beyond Asia, the Eurozone release
consumer confidence and the US has its Dec NFP on the tap.
Currencies
G7 Currencies
DXY – NFP on
Tap Today. USD index correction lower continues overnight. 10Y UST yields remain
on the downtick; last seen at 2.34% while ADP employment numbers disappointed
overnight. Focus today on NFP data - a weaker print may extend the USD
correction lower. Expect the markets to be relatively range-bound today ahead
of the payroll release (930pm SG/KL time). DXY was last seen at 101.40 levels.
Next support at 101 (50 DMA, 23.6% fibo retracement of 2016 low to 2017 high)
before 99.3 levels (38.2% fibo). Resistance at 102.50 (21 DMA), 103.80 (recent
high). Day ahead brings NFP, unemployment rate, average hourly earnings, trade,
durable goods order on Fri.
EURUSD – Temporary Correction. EUR rebounded as high as
1.0615 overnight amid USD weakness and narrowing of EU-UST yield differentials
(-211bps vs. -235bps late-Dec). 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. The recent uptick on inflation had led
to calls for ECB to begin taper bond purchases. We wish to caution against
entertaining such thoughts based on 1 data point. To recap, ECB had expected
inflation to pick up in coming months (as of their previous ECB press
conferences) and this uptick (even for the next few months) should not be
perceived as a surprise because the upticks are well within the ECB’s forecast
and the officials have taken this into consideration in extending their bond
purchase for 2017. We expect monetary policy divergence theme to intensify
again, leading to EUR downside pressure. EUR was last seen at 1.0590 levels.
Mild bullish momentum on daily chart remains intact. Daily close above 1.0490
(21 DMA) could see an extended move higher towards 1.0640 -50 levels (23.6%
fibo retracement of 2016 high to low). Support at 1.0350. Retain our bias to
lean against strength. Day ahead brings retail sales, consumer confidence on
Fri.
GBPUSD – Bias to Lean Against Strength. GBP
rebounded above 1.24-handle amid better than expected services PMI data and USD
weakness. Last seen at 1.24 levels. Daily momentum has turned mild bullish
while stochastics is also rising. Technical signals continue to suggest that
GBP may trade higher but key area of resistance at 1.2430 (38.2% fibo
retracement of Dec high to low) – 1.2450 (50 DMA) needs to be broken (on weekly
close) for rally to extend. Next resistance at 1.2490 (50% fibo). Support
remains at 1.2210 levels. We maintain our bearish bias on the GBP over the
medium term horizon (6-9 months), 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.
USDJPY – Downside
Pressure Remains. USDJPY slipped to a low
not seen since mid-Dec to the 115-levels amid a pullback in the UST 10Y yield,
which dipped to a low of 2.3425 this morning. Pair is rebounding mildly
currently amid likely on profit taking activities and a mild bump up in the UST
10Y yield (last seen hovering around the 2.36% levels). Pair was last seen at
the 115.50 levels. Daily momentum indicators and stochastics remain
bearish bias. Bullish momentum on weekly chart remains intact with weekly
stochastics still in overbought conditions. With our support level at 116 taken
out overnight, new support is seen at 113 levels (61.8% fibo retracement of the
2016 high to low). Any rebound should meet resistance at 116.30 levels. Bias
remains to buy on dips.
NZDUSD – Sell on Rally. NZD continued to trade higher amid broad USD decline overnight. Last
seen at 0.7015 levels. While daily momentum and stochastics indicators do
suggest some upside risks, we caution that the death cross formation (50DMA
cutting 200DMA to the downside) is typically a bearish signal. Key resistance
at 0.7050 (50% fibo retracement of Dec high to low) before 0.7080 (50, 200
DMAs). Bias to sell on rally towards those levels looking for a move lower
towards 0.6950 ()23.6% fibo), 0.6860 (recent low).
AUDUSD – Bullish Momentum. Pair is last seen around 0.7335 and eyes are on the US
NFP for further USD cues. With momentum indicators bullish, this pair
could risk moving towards the 0.7396-resistance before 0.7470 (50% Fibonacci
retracement of the Nov-Dec fall). 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. Trade (Nov) came in at
surplus of A$1.243bn, a surprise improvement from the expected A$550m deficit,
underpinned by the surge in exports of iron ore and coal.
USDCAD – Next target at 1.3135 eyed. USDCAD remains on the downdrift, weighed by the
combination of firm oil prices and USD retreat. Our call (made on 3 Jan) was
based on a double top formation formed on the 28 Dec. Strong upticks in oil
prices and potential correction in the USD adds conviction to our view. We
chose to short USDCAD at this level (1.3433 on 3 Jan) towards first target at
1.3310 before the next at 1.3135. Stoploss at 1.3600. That should
give a rather good risk reward ratio of ~1:4. Stochs flag overbought
conditions. Dec labour report is due tonight. In news, BoC announced a pilot
project on bond buybacks that could start on 17 Jan. Maximum repo amount will
range between C$500mn and C$2bn.
Asia ex Japan Currencies
SGD NEER trades around 0.72% below
the implied mid-point of 1.4201 with the top estimated at 1.3915 and the floor
at 1.4487.
USDSGD – Downside Risks. USDSGD is rebounding mildly, possibly on profit-taking activities,
after slipping pass the 1.43 levels overnight amid a softer USD and pullback in
the UST 10Y yield. The softer UST yields so far is likely to lessen upside
pressure on domestic rates with 3-month SOR having slipped back below the 1.0%
levels to 0.95% yesterday. In turn, this is likely to cap any upside pressure
on the pair. Pair was last seen around 1.4310 levels. Bearish momentum on the
daily chart remains intact while stochastics continues to fall from overbought
levels. Further extension of the technical pullback could see the pair move
towards 1.4260 (23.6% fibo retracement of 2016 low to high). Further upticks
are likely to meet resistance at 1.4420 (21DMA). Bias remains to buy on dips.
AUDSGD – Barrier at 1.05.
AUDSGD is in consolidation after a drop in the last
two weeks of Dec. Barrier to watch is at 1.05 still and this cross
is definitely too close for comfort there, last printed 1.0497. Downside risks
beckons if the barrier at 1.05 holds. Otherwise, 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 – Mild Bullish Momentum. SGDMYR was largely unchanged from yesterday’s
gapped-up level. Last seen at 3.13 levels. Daily momentum is now showing mild
bullish bias while stochastics continues to rise from near-oversold conditions.
Technical signals suggest potential upside risks in the near term. Next
resistance at 3.14. Support at 3.0850 (50 DMA).
USDMYR – A Drift Lower. USDMYR traded lower, tracking the rest of USD/AXJs
lower but MYR gains remained muted so far relative to other AXJs. Pair was last
seen at 4.4770 levels. Mild bearish momentum (for USDMYR) on daily chart
remains intact while stochastics is falling from overbought conditions. Could
see a drift lower towards next support at 4.4670 (21 DMA). Resistance at 4.50
levels. Day ahead brings trade data on Fri.
1s USDKRW – Look for Opportunity to Buy on Dips. 1s
USDKRW continued to trade lower. Overnight low was 1181 (met our next
objective) before turning higher this morning. Last seen at 1188 levels. Daily
momentum remains mild bearish while stochastics is falling. Support remains at
1184 (23.6% fibo retracement of Sep low to Dec high, upward sloping trend-line
support), 1176 (50 DMA). Bias to buy on dips. Resistance at 1214 levels (recent
high).
USDCNH –
An Anchor For USDAsians. The USDCNH has been on the precipitous slide last
night and broke the key 6.80-figure yesterday. This morning, the pair has crept
up again. Bearish momentum still on the charts so upticks are unlikely to be
aggressive. Barrier is seen around 6.8160 (50% Fibonacci retracement of the
Sep-Dec run-up, before the next at 6.8569 (38.2% fib). Support is at 6.7749. We
still think 7 is a forgone conclusion although squeezing yuan speculators
before yuan betters get ahead of themselves is a good idea before Chinese New
Year. The past few days have seen good opportunities for corporates to
arbitrage the offshore-onshore gap and we are likely witnessing the unwinding
of those arbitrage trades today, pushing the offshore currency weaker. The
fixing is a clear signal from PBOC that they do not favour speculation and has
allowed the offshore-onshore gap to narrow its spread by half. USDCNY was
fixed 639 pips lower at 6.8668 (vs. previous 6.9307). CNYMYR was fixed at
0.6510, 41 pips higher than the previous 0.6469. Week ahead has foreign reserves this Sat.
1m USDINR NDF – Slammed
Lower With USD. USDINR drifted lower around 68.00, weighed by the USD
retreat overnight. Momentum indicators show little bias for this pair and
prices may remain within the 67.50-68.60 range. Resistance remains around 68.52
while support is seen at 67.80. Feb 1 is the day of budget delivery. State
elections will start 4 Feb. Results on 11 Mar. India is due to release
its GDP estimate for 1Q. Foreigners sold U$100mn of equities and U$69.9mn of
bonds.
1m USDIDR NDF – Range-Bound. 1M NDF slipped below the 13400-levels overnight to a 13326 amid a
softer USD underpinned by a pullback in the UST 10Y yield. Since then, the UST
10Y yield has been grinding higher, lifting the 1-month NDF along with it.
Risks in the next 3-6 months though remain on the upside as there is 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 13390 levels. Daily momentum indicators are still bearish bias with
daily stochastics still falling from overbought conditions. Weekly charts
continue to show waning bullish bias with weekly stochastics turning lower.
With the 1-month NDF likely to take its cue from external events, including US
NFP later tonight, look for the pair to trade range-bound within 13300 (100
& 200 DMAs) - 13470 (21DMA) intraday. A break in either direction could see
the pair trade in a wider 13225-13580 range ahead. Foreign investors sold
USD5.76mn of equities yesterday. They had however added around IDR0.25tn to
their outstanding holding of government debt on 4 Jan (latest data available).
The JISDOR was fixed lower again at 13370 yesterday from Wed’s 13478.
1s USDPHP NDF – Capped. 1s USDPHP is trading bid after slipping lower for the
past two sessions amid a rebound in the USD. Risk remains to the upside in the
medium term given possibly 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
49.60 levels. Daily momentum indicators and stochastics remain bearish bias.
With risks in the near term to the downside, further upside is likely to be
capped. Resistance remains at 49.75 ahead of 50.05. Support is at 49.00
(projected fibo retracement). Foreign reserves (Dec) later today. Risk
sentiments remained supported with foreign investors purchasing USD14.69mn of
equities yesterday.
USDTHB – Capped. USDTHB is bouncing mildly higher this morning
amid a slightly firmer USD. Last seen around 35.725 levels. Daily momentum
indicators and stochastics are bearish bias. Weekly charts continue to show
bullish momentum, though weekly stochastics is showing tentative signs of
falling from overbought conditions. With risks in the near term to the
downside, further upticks are likely to be capped. Immediate resistance is at
35.840 ahead of 35.970 (76.4% fibo retracement of the 2016 high to low). Any
slippages are likely to find support around 36.590 (50DMA). Foreign reserves
(30 Dec) is on tap today. Sentiments were mixed with foreign funds buying
THB2.93bn in equities but selling THB0.41bn in government debt yesterday.
Rates
Malaysia
Malaysian government bonds traded mixed with buying
seen at the front end and the belly of the curve. 3y GII 4/20 retap auction saw
tepid demand mostly from local accounts and reported a bid/cover of 1.789x.
After the auction, the yield dipped 3bps lower from the auction average to
3.66%.
MYR IRS rates fell in tandem with regional rates with
the curve shifting 1-5bps lower. But only a small trade on the 5y IRS at 3.86%
was reported. 3M KLIBOR still at 3.42%.
In corporate bonds, bids remained firm but no offers
were seen. There was better buying of GGs at the belly which tightened 2-4bps
on Danainfra curve. AA curve was relatively unchanged at the long end, while
the front end tightened 2-3bps with UEM and UMW being dealt. The belly also
performed well as JEP’24 tightened 5bps. Despite tighter bids, fast money
investors are still not keen to add duration and real money investors will
likely sit out until the next primary issuance.
Singapore
SGS opened higher in prices as USTs rose overnight.
Broad-based decline in USD pulled USDSGD lower and pushed short dated forwards
to the left, which in turn drove SGD IRS rates down. SGS trading was light
early on with some selling into price strength, but the continued rise in UST
and fall in USDSGD later triggered more buying. Yields dropped as much as
8-10bps before settling at 4-6bps lower as the rise in UST eased and USD
recovered slightly. SGD IRS curve also closed 4-6bps lower.
Asian credits had a good rally, with sovereigns such
as INDON and PHILIP moving 1-2pts higher in cash price and tighter CDS levels.
There was also demand for Malaysian names, with keen interest for long end
MALAYS and PETMK, on the back of short covering. New NAB bond opened 2-3bps
tighter in spreads alongside the rally in UST and Aoyuan settled around
0.5-0.7pts higher in cash. SUMIBK opened books for 2y, 5y and 10y USD papers.
Indonesia
Indonesia bond prices continue its hike amid several
Fed members was noted to be rather hawkish on the recent Fed Minutes release.
The IGS price hike also occurs ahead of U.S. labour data release today post
market close. Domestically, there were minimum market sentiments. Higher
demand, missing supply may cause such price hike. However, the month of Jan
have always been good to Indonesia bond prices as the 10y yield have decline at
least 7 time over the past 10 year with yield declining ranging from 0.091% to
0.685%. Hence we see that the 10y IGS yield this month may close at least near
to 7.65% at the end of Jan 17. 5-yr, 10-yr, 15-yr and 20-yr benchmark series
yield stood at 7.362%, 7.534%, 7.697% and 8.010% while 2y yield moved lower to
7.289%. Trading volume at secondary market was noted thin at government
segments amounting Rp11,627 bn with FR0059 as the most tradable bond. FR0059
total trading volume amounting Rp2,353 bn with 119x transaction frequency.
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