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

FX

Global

      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.

       Corporate bond trading traded heavy amounting Rp985 bn. GIAA01CN1 (Shelf Registration I Garuda Indonesia Phase I Year 2013; Rating: BBB+(idn)) was the top actively traded corporate bond with total trading volume amounted Rp98 bn yielding 8.384%.