FX Insights. Chart Of The Day AUD/SGD: target met, focus on next. Wednesday, 24 February 2016

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1 Quek Ser Leang Lee Sue Ann Global Economics & Markets Research URL: Chart Of The Day AUD/SGD: target met, focus on next. We turned bullish AUD/SGD last Thursday when it was at (see Chart of the Day on 18 Feb) with an immediate target of This was exceeded yesterday with a high of As mentioned previously, a move above would shift the focus to the next key level at is a major resistance and those who are long should look to book partial profit at this level. Overall, the outlook for this pair is still bullish with strong support at but only a move back below would indicate that the bullish phase has ended. 1 P a g e

2 OVERVIEW Oil prices plummeted with the front-month oil contract trading down to roughly USD32/barrel on April WTI and USD33.50/barrel for Brent. The main market-moving piece of news today came in the form of a speech from Saudi oil minister al-naimi. His remarks implied that the Saudi government is committed to a strategy that will not see production cuts. To quote the minister, the Saudi government does not want to embark on a repeat of the events of 1986, which saw Saudi Arabia reduce production in an effort to stabilize prices only to see Saudi producers lose market share while prices ultimately continued on a secular downward path (at least in real terms) over the next 5-10 years. Volatility was also apparent in fixed income markets where the 2-year yield moved back below the 0.75%-mark, with a similar decrease seen in the 10-year yield as it moved back just below 1.75%. US major benchmarks closed lower by over 1% overnight, reversing all of Monday s gains. On the FX front, the dollar index DXY held gains and momentum carried over from Monday s trade but failed to make higher grounds after US consumer confidence fell to the lowest reading since last July. Markets now look ahead to new home sales data on Wednesday, followed by a 5Yr note auction later in the session. There is plenty of Fedspeak due as well, with regional Fed Presidents Lacker, Kaplan, and Bullard all making monetary policy speeches. 24-Feb-16 Summary of Views FX Pairs Spot Outlook Since/ Rate Target Trailing-Stop Support Resistance USD/SGD Neutral 04 Feb S1: S2: R1: R2: EUR/SGD Bearish 23 Feb S1: S2: R1: R2: GBP/SGD Bearish 23 Feb S1: S2: R1: R2: AUD/SGD Bullish 18 Feb S1: S2: R1: R2: JPY/SGD Bullish 09 Feb S1: S2: R1: R2: USD/MYR Bullish 18 Feb S1: S2: R1: R2: USD/THB Neutral 15 Feb S1: S2: R1: R2: USD/CNH *Neutral 24 Feb S1: S2: R1: R2: EUR/USD Neutral 16 Feb S1: S2: R1: R2: GBP/USD Bearish 17 Feb S1: S2: R1: R2: AUD/USD Bullish 23 Feb S1: S2: R1: R2: NZD/USD Neutral 23 Feb S1: S2: R1: R2: USD/JPY Neutral * Shift in outlook. 16 Feb S1: S2: R1: R2: FX Pairs Ranges for 23-Feb-16 Performance* Open High Low Close 1-day 1-week 1-month YTD** USD/SGD % +0.13% -1.57% -0.66% EUR/SGD % -0.92% -0.03% +0.84% GBP/SGD % -1.77% -3.13% -5.47% AUD/SGD % +1.50% +1.93% -1.82% JPY/SGD % +1.94% +3.84% +6.71% USD/MYR % +1.15% -2.23% -2.14% USD/THB % +0.19% -0.52% -0.86% USD/CNH % +0.26% -1.12% -0.51% EUR/USD % -1.11% +1.56% +1.50% GBP/USD % -1.97% -1.60% -4.79% AUD/USD % +1.30% +3.53% -1.29% NZD/USD % +0.94% +2.91% -2.78% USD/JPY % -1.71% -5.22% -6.89% * Percentage difference between the closing price and the last price 1-period ago. ** Percentage difference between the closing price and the last price on 31-Dec P a g e

3 USD/SGD: SGD weakened 0.6% overnight to /USD from late yesterday. Post the 4Q GDP report, SGD hovered at 1.40 level, with the final estimates as expected. This morning, Singapore s 4Q15 GDP report came in at 1.8% y/y as expected, from earlier estimate of 2.0% y/y. For the full year of 2015, Singapore s economy expanded 2.0% as expected, slower than advance estimates of 2.1%. For 2016, Singapore official forecasts are maintained at 1-3%. Meanwhile, following yesterday s release of CPI report, we reiterate our call that the MAS will keep its current policy stance of a modest and gradual appreciation of the SGD NEER unchanged at our estimated pace of 0.5% per annum in its upcoming April 2016 meeting. SGD NEER index hovered around -1.3% below the midpoint early this morning, down from around -0.6% yesterday. Post the 4Q GDP report, the S$ index was little changed in reaction. For now the -0.5% to -1.5% range around the midpoint remains valid and this implies USD/SGD range of to Against our expectations, USD rebounded strongly to retest the Monday s high of The rally appears to have scope to extend higher but any further up-move is expected to struggle near the /15 high seen last week. Support is at followed by Neutral: Downward pressure has eased, caught in a range for now. The downward pressure has eased with the strong recovery yesterday. For now, USD appears to be caught in a range and only a clear move beyond or would lead to a sustained directional move. 3 P a g e

4 EUR/SGD: EUR rebounded without testing the support. The rebound from the low is viewed as part of a consolidation phase and while extension higher will not surprising, any further up-move is not expected to struggle near Support is at and Monday s low of /00 is likely safe for the next 1 to 2 days. Bearish: Likely seen bulk of down-move, but extension to cannot be ruled out just yet. As pointed out yesterday, while the outlook for EUR is deemed as bearish, it is likely that we have seen the bulk of the down-move. That said, another leg lower to cannot be ruled out just yet. Stop-loss remains unchanged at GBP/SGD: The resistance held as expected as GBP dropped sharply from a high of to register a fresh low of While the current weakness in GBP is severely oversold, there is no sign of stabilization just yet and further down-move cannot be ruled out. That said, any move below the low is likely limited to On the upside, resistance is at but only a move above would indicate that a short-term low is in place. Bearish: Expect further weakness towards In line with expectations, GBP continues with its decline to register a fresh low of in overnight trading. There is no change to the target at but the stop-loss has been adjusted lower to from previously. AUD/SGD: While AUD exceeded the target, the subsequent sharp drop from the high of was unexpected and has dented the upward momentum. AUD is likely in a consolidation phase now before moving higher at a later stage. Expected range for today, / Bullish: target met, focus on next. [See Chart of the Day on page 1] JPY/SGD: The sudden burst higher was clearly unexpected as JPY surged to fresh year high of Impulsive upward momentum suggests further up-move will not be surprising but a sustained move above appears unlikely, at least not for today. Only a move back below would indicate that the upward pressure has eased. Bullish: Rally still has room to extend to The resurgent JPY surged and easily exceeded the recommended profit-taking level at The rally appears to have scope to extend higher toward which is the high back in Stop-loss for the bullish view is adjusted higher to from previously. 4 P a g e

5 USD/MYR: Malaysian Government-linked entities are poised to raise billions of ringgit via US-dollar bonds, as appetite for such papers has increased amid hunger for yields and a more bullish outlook on the Malaysian economy, bankers said. Going by one estimate, there could be as much as US$20bn (RM84.22bil) being raised by Malaysian entities, including the Government, Khazanah Nasional Bhd, Petroliam Nasional Bhd, Axiata Group Bhd and Telekom Malaysia Bhd, to name a few. Fitch Ratings has affirmed Malaysia's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A-' and 'A', respectively, with stable outlooks. The stable outlooks reflect Fitch's assessment that the upside and downside risks to the ratings are broadly balanced, the ratings agency said in a statement Tuesday. At the same time, the issue ratings on Malaysia's senior unsecured localcurrency bonds are also affirmed at 'A' while the country ceiling is affirmed at 'A' and the short-term foreign-currency IDR at 'F2'. Today, Malaysia s inflation for January will be released at noon with markets expecting a sharp acceleration to 3.7% y/y (+2.7% in December 2015) mainly on the back of a low base effect and higher cost-related adjustments. Bullish: Target a move to the major resistance. There is not much to add as we continue to hold a bullish view on USD and expect a move to As mentioned in previous update, the upward momentum is not as impulsive as would like and those who are long should look to book some profit near Stop-loss remains unchanged at USD/THB: THB was seen holding relatively unchanged at /USD. Bot Governor Veerathai Santiprabhob said the Thai economy has buffers of strong external position, high foreign reserves and low debt levels to safeguard it from global economic risks. Separately, former PM Thaksin warned Thailand s ruling generals on Tuesday that a prolonged stay in power will only worsen economic hardship in the country and denied long-standing reports he had struck a deal with the military to leave his personal and family interests untouched in exchange for a retreat from politics. Neutral: Daily closing above would shift outlook for USD to bullish. USD traded in a tight 32.72/78 range yesterday. There is no change to our view wherein only a daily closing above would indicate that USD is ready to extend higher in the coming days. For now, this pair is expected to remain underpinned as long as is intact. USD/CNH: RMB fell for the third day with a 0.06% drop to /USD whilst offshore CNH declined 0.10% to late in Asia, for a gain of 0.9% so far in February, after weakening 0.4% in January. This has widened the onshore/offshore to about 80pips, compared to recent gap of just 50pips, and speculative pressures on the RMB may return yet again from its recent slumber. As we had cautioned yesterday morning that the PBoC could take the opportunity of the approaching G20 finance ministers, to demonstrate the flexibility of its currency against the USD, while still keeping the RMB index largely stable. Indeed, the decline in both onshore and offshore FX prices on Tuesday were partly driven by the central parity which was lowered by 0.17% to /USD on Wednesday morning from on Tuesday. The G20 meeting of finance ministers and central bank governors is schedule over Friday and Saturday (26-27 Feb) is said to discuss the recent turmoil in China s markets and ways to bolster a safety net for the global financial system, according to media reports. *Neutral: Bearish phase has ended, in a broad sideway range now. The recent bearish phase has ended as further range trading has resulted in a rapid loss in momentum. The outlook for USD in the next few weeks is neutral and we expect this pair to trade in broad sideway range, likely between and P a g e

6 EUR/USD: In Germany, the headline IFO index fell 1.6pts to in February, which was the lowest reading since December The decline was led by the expectations index which fell 3.5pts to 98.8, which is the lowest reading since December 2012 and consistent with annual GDP growth of 1%. Needless to say by far the steepest decline in confidence came from respondents in the manufacturing sector. Meanwhile in France, the INSEE business confidence index fell 2pts to 100. Rounding out the surveys was a decline in Belgium s business confidence index to a five-month low. Today, the French consumer confidence report will be the main entry of note. As highlighted yesterday, the anticipated extension lower in EUR is not expected to move below the major support in a sustained manner. However, the rebound from the low of has been sluggish and it is too early to expect a robust recovery. From here, allow for a retest of but is expected to hold for a move to Neutral: Daily closing below would shift outlook to bearish. EUR edged below (low of ) but closed higher at As highlighted yesterday, only a daily closing below would indicate further EUR weakness towards the next support at Overall, this pair is expected to remain under pressure unless it can reclaim in the next few days. 6 P a g e

7 GBP/USD: GBP continues to suffer heavily as market participants continue to factor Brexit risk. Meanwhile, the tenor of the remarks made by BoE MPC representatives at the Parliamentary TSC hearing on the February Inflation Report was mixed, but it is clearly evident that some members continue to hold out the hope that interest rate normalisation will start to occur before any prospect of a rate cut. Today, the focus on the economic docket will be on the UK s CBI Distributive Trades Survey Instead of consolidating its recent weakness, GBP continues with its relentless decline by dropping to a fresh low of The lack of a meaningful rebound suggests further downward pressure and another leg lower to /55 will not be surprising. Resistance is at but only a move back above would indicate that a temporary bottom is in place. Bearish: Take profit at There is nothing much to add as GBP continues with its down-move. As mentioned yesterday, shorts should take partial profit at (seeing short-term support at /55). Stop-loss is adjusted lower to from P a g e

8 AUD/USD: Building work continued to moderate last quarter in Australia, suggesting the residential construction sector will be unable to fill the void left by the mining sector. Construction work done fell a seasonally-adjusted 3.6% in the December quarter, after sliding a revised 1.8% in the previous quarter. The sharp decline in activity was led by the engineering sector, where work fell 9.5% over the quarter. The high of was just short of the target indicated at /70 yesterday. The sharp and rapid decline from the high was unexpected and it is likely that an interim short-term top is in place. The current movement is viewed as the early stages of a consolidation phase. For today, expect range trading, likely between and Bullish: Immediate target at /30. We just turned bullish AUD yesterday (see Chart of the Day) and there is no change to the view. As long as is intact, we believe the current AUD strength can extend higher to /30. 8 P a g e

9 NZD/USD: Snapping the significant jump seen on Monday, NZD turned lower on Tuesday amid the sentiment shift towards safety. As we mentioned earlier this week, there is not a huge amount of data until the RBNZ 10 March meeting, so risk-sentiment will continue be the key driver for NZD. The recent pick-up in upward momentum fizzled out quickly as NZD dropped sharply from the late Monday high of While further weakness is not ruled out, a sustained move below is unlikely. Overall, expect sideway trading at these lower levels, likely between and Neutral: In a broad / range. The sharp drop yesterday has greatly diminished the odds for a move above the major resistance. From here, there is no chance to the neutral view and we expect NZD to trade between and in the coming days. 9 P a g e

10 USD/JPY: USD/JPY has dropped below the mark, as the rally in risky assets and oil having come off the boil. Japan EconMin Ishihara said that Japan is not engaged in competitive currency devaluation and Japan shares the understanding that competitive currency devaluation is not desirable. Separately, Japan vice FinMin Sakai said that they will continue to carefully monitor currencies. While downward momentum is patchy due to the choppy trading yesterday, the undertone for USD appears to be weak but at this stage, a sustained move below the support appears unlikely. On the upside, only a move back above would indicate that the short-term weakness has stabilized. Neutral: Daily closing below would shift outlook to bearish. While the short-term pressure is clearly on the downside, we prefer to see a daily closing below before adopting a bearish stance. In the meanwhile, USD is expected to remain under pressure unless it can reclaim 10 P a g e

11 UOB FX & Interest Rate Outlook FX Outlook 1Q16 2Q16 3Q16 4Q16 Rates Outlook 1Q16 2Q16 3Q16 4Q16 EUR/USD EU 0.05% 0.05% 0.05% 0.05% GBP/USD UK 0.50% 0.50% 0.50% 0.75% AUD/USD AU 2.00% 2.00% 2.00% 2.00% NZD/USD NZ 2.50% 2.50% 2.50% 2.50% USD/JPY JP -0.10% -0.10% -0.20% -0.20% USD/SGD SG 1.30% 1.50% 1.65% 1.75% USD/MYR MY 3.25% 3.25% 3.25% 3.25% USD/THB TH 1.50% 1.50% 1.50% 1.50% USD/CNY CN 4.10% 3.85% 3.85% 3.85% USD/IDR 13,500 13,400 13,300 13,200 ID 7.0% 6.75% 6.75% 6.75% USD/PHP PH 4.0% 4.0% 4.0% 4.0% USD/INR IN 6.75% 6.75% 6.75% 6.75% USD/TWD TW 1.50% 1.38% 1.38% 1.38% USD/HKD HK 0.75% 1.00% 1.00% 1.25% USD/KRW KR 1.25% 1.25% 1.25% 1.25% Last updated on 19 Feb 16 US 0.50% 0.75% 0.75% 1.00% Central Bank Meetings 2016 Central Bank Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Federal Reserve (FOMC) European Central Bank (ECB) Bank of England (BOE) Reserve Bank of Australia (RBA) Reserve Bank of New Zealand (RBNZ) Bank of Japan (BOJ) Bank Negara Malaysia (BNM) Bank of Thailand (BOT) Monetary Authority of Singapore (MAS) - TBA TBA - Disclaimer: This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis and are subject to change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction and that the reader is able to assume these risks. This document and its contents are proprietary information and products of UOB Group and may not be reproduced or otherwise. Singapore Company Reg No Z