FX Insights. Chart Of The Day USD/SGD: Bearish; to take partial profit at Wednesday, 24 May 2017

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Kathlyn White
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1 Quek Ser Leang Lee Sue Ann Global Economics & Markets Research URL: Chart Of The Day USD/SGD: Bearish; to take partial profit at The overnight recovery was stronger than expected as USD edged above the strong short-term resistance just a while ago (high of ). While this level is still comfortably below the stop-loss for our bearish view (see Chart of the Day update on 18 May, spot at ) at , downward momentum has been dented. That said, unless is breached, another push lower towards could not be ruled out just yet even though this pair has to move back below within these few days or the odds for extension lower would diminished quickly. In view of the waning downward momentum, those who are short should look to take partial profit at P a g e

2 OVERVIEW The tone on Wall Street was slightly positive, as markets kept an eye on Trump's first trip overseas since taking office. The president met with Palestinian President Mahmoud Abbas and also met with Israeli Prime Minister Benjamin Netanyahu. The U.S. president will be in Europe for the rest of his trip. But traditional safe havens caught a bid. The benchmark 10-year note yield fell to around 2.28% from its highest levels near 2.62% as market participants prepared for the possibility that tax reform may not come as soon as previously thought. Oil prices inched up in volatile trades as expectations of an extension to OPECled supply cuts and projections for another drop in US crude inventories overshadowed a White House proposal to sell half the country's petroleum reserves. The dollar continues to remain firm, having rebounded from 6-1/2-month lows against its major peers. Markets are awaiting the release of minutes from the Fed's for its last meeting on Wednesday in the US for details on the probability of a rate hike in June. More information from the Fed on how it intends to unwind its balance sheet is also expected. The Fed s Kaplan, Brainard and Kashkari have scheduled speaking engagements. On the data front, April s existing home sales report will also be released. Another potentially market-moving upcoming event is the OPEC meeting on Thursday that will be led by Saudi Arabia. Oil prices have been rising on optimism over hopes that will be OPEC-led output cuts will be extended with non-opec key producer Russia also in the pact. 2 P a g e

3 24-May-17 Summary of Views FX Pairs Spot Outlook Since/ Rate Target Trailing-Stop Support Resistance USD/SGD Bearish 18 May S1: S2: R1: R2: EUR/SGD Bullish 23 May S1: S2: R1: R2: GBP/SGD Neutral 12 May S1: S2: R1: R2: AUD/SGD Neutral 02 May S1: S2: R1: R2: JPY/SGD Neutral 22 May S1: S2: R1: R2: USD/MYR Bearish 26 Apr S1: S2: R1: R2: USD/THB Bearish 16 May S1: S2: R1: R2: USD/CNH Bearish 17 May S1: S2: R1: R2: CNH/SGD Bearish 22 May S1: S2: R1: R2: EUR/USD Bullish 17 May S1: S2: R1: R2: GBP/USD Neutral 04 May S1: S2: R1: R2: AUD/USD Bullish 23 May S1: S2: R1: R2: NZD/USD Bullish 23 May S1: S2: R1: R2: USD/JPY *Neutral * Shift in outlook. 24 May S1: S2: R1: R2: FX Pairs Ranges for 23-May-17 Performance* Open High Low Close 1-day 1-week 1-month YTD** USD/SGD % -0.32% -0.17% -4.15% EUR/SGD % +0.56% +2.73% +2.57% GBP/SGD % -0.00% +1.13% +1.33% AUD/SGD % +0.29% -1.37% -0.15% JPY/SGD % +0.85% -1.96% +0.86% USD/MYR % -0.64% -2.41% -4.29% USD/THB % -0.08% +0.26% -3.85% USD/CNH % +0.07% -0.06% -1.35% EUR/USD % +0.90% +2.89% +7.09% GBP/USD % +0.30% +1.27% +5.74% AUD/USD % +0.68% -1.21% +4.11% NZD/USD % +1.84% -0.07% +1.18% USD/JPY % -1.18% +1.84% -4.98% * 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

USD/SGD: 1.3905 USD/SGD ended firmer, close to session high of 1.3908. The SGD NEER is trading at around 0.67% above the mid-point this morning and the 0.5-1.0% range implies USD/SGD within 1.3860-1.

4 USD/SGD: USD/SGD ended firmer, close to session high of The SGD NEER is trading at around 0.67% above the mid-point this morning and the % range implies USD/SGD within based on current FX levels. Singapore s April headline inflation rose at a slower pace of 0.4% y/y, compared to 0.7% y/y in March, which was then one of the highest inflation rate in 31 months (since August 2014). The reason for the moderation in inflation was due to a larger 6.7% y/y decline in accommodation cost, which was in turn due to the disbursement of S&CC rebates to households in April (which was not given out last year). Although headline inflation was lower than expected, core inflation rose quite quickly to a 30- month high of 1.7% y/y in April. The higher core inflation partly reflects the stronger pickup in the cost of electricity and gas due to the electricity tariffs hike in April. The MAS continues to expect core inflation to average 1-2% (from 0.9% in 2016), while headline inflation to average % in 2017 (from -0.5% in 2016). We maintain our 2017 core inflation forecast of 1.3%, while expect headline inflation to average 0.5% in Despite higher core inflation in April, we do not think electricity tariffs hike will be pushing core inflation much more from here since the weightage of this segment in the consumer basket is small. As such, we think that the current dovish policy stance will remain even in the upcoming October 2017 meeting. Latest Flash Note: 23 May 17 Highest Core Inflation In 30 Months Unlikely To Rattle MAS s October Decision Expectation for a retest of last week s low near /40 was wrong as USD rebounded strongly to hit an overnight high of The strong daily closing suggests there is scope for extension higher but at this stage, a break above the key resistance seems is not expected (minor resistance at ). Support is at ahead of the stronger level near Bearish: To take partial profit at [See Chart of the Day on page 1] 4 P a g e

5 EUR/SGD: EUR exceeded the target indicated at yesterday (high of ) but the rally was short-lived. The quick drop from the high suggests that a short-term top is in place and this pair is expected to trade sideways for today, likely between and Bullish: Over-extended but scope for extension to We just shifted from a neutral to bullish EUR stance yesterday and there is no change to the view. As highlighted, while the current rally is over-extended, there is scope for extension to (high so far has been ). Stop-loss remains unchanged at even though ideally this pair should not move back below the short-term support at GBP/SGD: GBP traded sideways as expected, albeit a slightly wider range than anticipated. Indicators are mostly mixed which suggest further consolidation for now, likely not moving much out of the / range seen yesterday. Neutral: In a / range. [No change in view, see update from yesterday below] GBP continues to trade in a calm manner and there is no change to the current view wherein we expect this pair to trade within a broad / range. AUD/SGD: The anticipated AUD strength exceeded our expectation by taking out the strong resistance to hit a high of However, the rally was not sustained and the quick drop from the high suggests that an interim top is in place. The pull-back appears incomplete and extension lower to /50 would not be surprising. Resistance is at ahead of the top which is unlikely to be threatened for now. JPY/SGD: The initial rebound in JPY touched a high of (just below the target indicated at ) before pulling back quickly. The current movement is viewed as part of a consolidation phase and this pair is expected to trade sideways between and for today. Neutral: Shift to bullish only if NY closing is above AUD took out the strong resistance to hit a high of yesterday. However, the up-move was not sustained and the NY closing of was below the key level. As highlighted, AUD has to register a NY closing above to indicate the start of a sustained up-move towards This still appears to be a likely scenario as long as AUD can hold above the key short-term support at in the next couple of days. Neutral: In a / range. There is not much to add as JPY traded in a rather choppy manner yesterday. The current price action is still viewed as part of a consolidation range and we continue to expect this pair to trade sideways albeit likely at a narrower / range instead of the / expected previously. 5 P a g e

6 USD/MYR: USD/MYR closed below 4.30 on Tuesday. Decision at the upcoming OPEC meeting to extend production cuts could lend further support to the MYR. Separately, Malaysian PM Najib Razak said foreign direct investment into Malaysia will probably exceed the MYR41bn inflows seen in Latest Flash Note: 19 May 17 GDP Growth Hits 2-Year High At 5.6% In 1Q Bearish: To take partial profit at There is not much to add to the Chart of the Day update from yesterday. We noted that is is acting as a major mid to long-term support and those who are short should look to book partial profit near this level (low has been ). To put it another way, the bearish USD that started about a month ago could be nearing its last legs and those who are short should look to exit some of their position. Stop-loss remains unchanged at for now. USD/THB: THB is seen weakening for a third session, tracking declines in its regional peers. All eyes are on the BoT at 3pm SGT. All 23 analysts polled by Bloomberg are expecting no change in the policy rate at 1.50%. Thailand s headline inflation has fallen back to 0.38% y/y in April from 0.76% in March, and this is well below the BoT s target. Latest Flash Note: 22 May 17 Export Growth Accelerates to 8.5% At Start Of 2Q17 Bearish: To take partial profit at 34.25/30. The 34.25/30 support is more resilient than expected as USD tested twice (once on Monday and Tuesday) but rebounded each time. Downward momentum has clearly been dented but confirmation of a short-term low is only upon a breach of That said, the odds for a sustained move below 34.25/30 have diminished considerably and those who are short from last Tuesday (see Chart of the Day on 16 May, spot at 34.49) should look to take partial profit near 34.25/30. USD/CNH: Moody s has downgraded China s sovereign rating to A1 from AA3 earlier this morning and changes the outlook to Stable from Negative. The rating agency said that the move reflects expectation that China s financial strength will erode somewhat over the coming years. Stable outlook reflects assessment that, at the A1 rating level, risks are balanced. GDP will remain very large and growth will continue to be high compared to other sovereigns, though potential growth is likely to fall in coming years. It expects China s growth potential to decline to close to 5% over the next five years. Moody s expects that economywide leverage to increase further over the coming years. Latest Flash Note: 17 May 17 Belt And Road Initiative And What It Means Bearish: Bearish phase appears to be close to ending. The bearish phase that started last Wednesday, 17 May appears to be close to ending. The trailing stop-loss at was briefly breached earlier when USD spiked to a high after Moody downgraded China this morning. From here, a clear break of would not be surprising and that would indicate the bearish outlook has shifted to neutral. Support is at followed by which is acting as a very strong support now. CNH/SGD: Bearish: Decline over-extended but scope for extension to with lower odds for [No change in view, see update from yesterday below] We just shifted to a bearish CNH stance yesterday and there is no change to the view. While oversold, the current weakness has room to extend lower to The next support is at the 2016 low of and the odds for a move towards this level are not high at this stage. Stop-loss is unchanged at P a g e

EUR/USD: 1.1185 Eurozone economic news flow overnight was generally positive. The May flash Euro-zone PMI manufacturing reading rose to 57.0 from a final reading of 56.7 for April.

7 EUR/USD: Eurozone economic news flow overnight was generally positive. The May flash Euro-zone PMI manufacturing reading rose to 57.0 from a final reading of 56.7 for April. This was above expectations of 56.5 and the strongest reading for 73 months. The services-sector reading edged lower to a two-month low of 56.2 from 56.4 previously and slightly below consensus expectations of The overall composite index was unchanged on the month at 56.8 and held at six-year high. Meanwhile, the national business surveys released overnight largely backed up the PMIs. Germany s IFO index rose 1.6pts to a higher than expected in May, led by a 1.8pt rise in the present situation index to a new multi-decade high. The expectations index firmed to its highest reading since February Separately, the French INSEE business confidence index returned to its cyclical high of 105 in May. Today s docket is light, apart from an update on consumer confidence in Germany. But the ECB diary is busy with the publication of its Financial Stability Review, whilst board members Praet and Draghi have speeches to make in Sofia and Madrid respectively. While EUR retested the recent top near /65 as expected, the subsequent sharp and swift pull-back from a high of came as a surprise. A short-term top is likely in place and the current weakness has room to extend below the overnight low of towards /55. The next level near is a significant support and is unlikely to yield so easily. On the upside, any rebound is expected to face strong resistance at and the high is unlikely to come into the picture for now. Bullish: Still bullish but odds for extension to are not high. EUR eked out a marginal new high of yesterday before easing off quickly. The price action is not surprising as we have held the view that that while the outlook for this pair is still bullish, the odds for extension to are not high. That said, only a break below would indicate that the bullish phase that started last Wednesday, 17 May (see Chart of the Day update, spot at ) has ended. We have suggested taking partial profit at last Friday and those who are still long should look to exit their position if there is another push towards *Took partial profit at P a g e

GBP/USD: 1.2960 GBP struggled again as UK markets were in subdued mood after the attack in Manchester.

8 GBP/USD: GBP struggled again as UK markets were in subdued mood after the attack in Manchester. On the data front, the CBI s Distributive Trades Survey suggested that the retail sales lift reported in April may prove short-lived. A net 2% of respondents reported higher sales in May, down from a net 38% in April. UK politicians are likely to be back on the election trail on Wednesday, but there is nothing on the calendar to hint at progress for GBP in either direction. GBP registered a range of / yesterday, reasonably close to our expected sideway trading range of / The daily closing in NY is on the weak side and this has resulted in a negative undertone which could put pressure on GBP from here. That said, any weakness is deemed as part of a broader consolidation range and not the start of a bearish reversal. From here, allow for a bounce to but is expected to cap for a move lower towards (next support is at ). Neutral: Likely in a topping process. While there is no change to the current neutral outlook for GBP, the price action over the past few days is beginning to look increasingly like a topping process. The current neutral phase has been intact for about 3 weeks now and from here, a clear break below would greatly increase the odds for a move towards the low seen earlier this month. Overall, the current mild downward pressure would continue to increase over the next several days as long GBP holds below the strong resistance. 8 P a g e

AUD/USD: 0.7475 AUD/USD turned lower to give back most of Tuesday s gains after briefly scaling above resistance in the early day. Earlier, the Westpac-Melbourne Institute leading index came in at -0.

9 AUD/USD: AUD/USD turned lower to give back most of Tuesday s gains after briefly scaling above resistance in the early day. Earlier, the Westpac-Melbourne Institute leading index came in at -0.12% m/m compared to the previous reading of +0.08%. The six month annualized growth rate fell from 1.11% in March to 0.92% in April. While the target indicated at yesterday was exceeded with a high of , the swift and sharp pull-back from the top has dented the upward momentum. A temporary top is likely in place at and AUD is expected to trade sideways for today, expected to be between and Bullish: Immediate target of We just turned bullish AUD yesterday and there is no change to the view. While we prefer a stronger closing in NY and a shallower pull-back (high has been ), the bullish outlook appears intact for now. Only a break below would indicate that our bullish expectation is wrong. Immediate target remains unchanged at P a g e

NZD/USD: 0.7010 NZD/USD is back near the 0.700-mark. According to data released this morning, New Zealand s April trade balance held in positive territory for a second consecutive month.

10 NZD/USD: NZD/USD is back near the mark. According to data released this morning, New Zealand s April trade balance held in positive territory for a second consecutive month. The merchandise trade balance rose to NZD578mn in April, from a revised NZD277mn surplus the month before. That was the highest monthly surplus since In annualized terms, the deficit narrowed to NZD3.48bn from NZD3.71bn the previous month. Annual exports amounted to NZD4.75bn in April, whilst total imports were NZD4.17bn billion. All eyes will now turn to the New Zealand Treasury s annual Budget due for release on Thursday. Markets are looking to the Budget for signs of long-term investments, given the country s booming population growth. We indicated yesterday that momentum indicators are clearly bullish but the major /55 resistance is likely out of reach for now. In line with expectation, NZD extended its gain but only managed to touch a high of The quick drop from the top suggests that NZD has moved into a consolidation phase. In other words, expect sideway trading for today, likely between and Bullish: Immediate target of /55. We turned bullish NZD yesterday and there is no change to the view. NZD rose quickly to hit a high of which is just below our immediate target of /55. Overbought short-term indicators could lead to a couple of days of consolidation but as long as is not taken out, the prospect for a break above /55 appears to be quite high. A move above /55 would shift the focus to P a g e

USD/JPY: 111.90 USD/JPY finally reacted to the better risk sentiments elsewhere to bounce convincingly off the 111.0-handle.

11 USD/JPY: USD/JPY finally reacted to the better risk sentiments elsewhere to bounce convincingly off the handle. It was reported on Tuesday that Japanese Manufacturing PMI, preliminary for May, fell to 52.0 from a prior reading at Consensus forecast was for a reading at The below-forecast reading was impacted by a slowdown in export orders and at, 52.0, represents a six-month low. Also reported was the Japanese All Industries Activity Index, which came in below expectations at -0.6%. Consensus forecast was for a reading at -0.4%, following a prior reading at 0.7%. Later today, the Cabinet Office will release its monthly economic report for May. The strong rally from a low of was unexpected. The rally appears to be running ahead of itself but there is scope for extension to At this stage, a sustained move above this level is not expected (next resistance at ). Support is at ahead of the stronger level near The low is likely safe for today. Shift from bearish to neutral: In a broad / range. The bearish phase that started last Thursday has ended as USD took out the trailing stop-loss at ( high at time of writing). The price action is not surprising as we have warned of the waning momentum over the past couple of days. From here, USD is deemed to have moved into a consolidation phase and in view of the outsized drop last week, a broad sideway consolidation between and would not be surprising. 11 P a g e

12 UOB FX & Interest Rate Outlook FX Outlook 2Q17 3Q17 4Q17 1Q18 Rates Outlook 2Q17 3Q17 4Q17 1Q18 EUR/USD EU 0.00% 0.00% 0.00% 0.00% GBP/USD UK 0.25% 0.25% 0.25% 0.25% AUD/USD AU 1.50% 1.50% 1.50% 1.50% NZD/USD NZ 1.75% 1.75% 1.75% 1.75% USD/JPY JP -0.20% -0.20% -0.20% -0.30% USD/SGD SG 1.20% 1.40% 1.45% 1.65% USD/MYR* Updated on 27 Mar 17 *Updated on 27 Apr *Meetings associated with a Summary of Economic Projections and a press conference. # Meetings associated with release of Inflation Report. ^Meetings associated with release of Monetary Policy Statement. **Meetings associated with release of Outlook Report. MY 3.00% 3.00% 3.00% 3.00% USD/THB TH 1.50% 1.50% 1.50% 1.75% USD/CNY CN 4.35% 4.35% 4.35% 4.35% USD/IDR ID 4.75% 4.75% 4.75% 5.00% USD/PHP PH 3.25% 3.50% 3.50% 3.50% USD/INR IN 5.75% 5.50% 5.50% 5.50% USD/TWD TW 1.38% 1.38% 1.38% 1.38% USD/HKD HK 1.50% 1.75% 1.75% 2.00% USD/KRW KR 1.25% 1.25% 1.25% 1.25% Central Bank Meetings 2017 US 1.25% 1.50% 1.50% 1.75% Central Bank Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Federal Reserve (FOMC) * * 26-20* * European Central Bank (ECB) Bank of England (BOE) - 02 # # # # 14 Reserve Bank of Australia (RBA) Reserve Bank of New Zealand (RBNZ) - 09^ 23-11^ 22-10^ 28-09^ Bank of Japan (BOJ) 31** ** ** ** - 20 ** Bank Negara Malaysia (BNM) Bank of Thailand (BOT) Monetary Authority of Singapore (MAS) 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

FX Insights. Chart Of The Day USD/JPY: Next significant support at Friday, 29 April 2016

FX Insights. Chart Of The Day USD/JPY: Next significant support at Friday, 29 April 2016 Quek Ser Leang Quek.SerLeang@uobgroup.com Lee Sue Ann Lee.SueAnn@uobgroup.com Global Economics & Markets Research Email: GlobalEcoMktResearch@uobgroup.com URL: www.uob.com.sg/research Chart Of The Day