FX Insights. Chart Of The Day AUD/USD: Neutral; strong recovery has room to extend to /20. Tuesday, 06 Jun 2017

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Candace Moore
6 years ago
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1 Quek Ser Leang Lee Sue Ann Global Economics & Markets Research URL: Tuesday, 06 June 2017 Chart Of The Day AUD/USD: Neutral; strong recovery has room to extend to /20. The shift to a bearish stance last Friday (see Chart of the Day update, spot at ) was wrong as AUD surged and took out the stop-loss at (overnight of ). The strong recovery from the low seen late last week was unexpected and there is room for the rebound to extend further to /20. At this stage, a sustained move above /20 is not expected. Overall, this pair is expected to stay underpinned in the coming days as long as the key short-term support at is intact. Further down, /75 is acting as a very strong support now. 1 P a g e

2 OVERVIEW For the most part markets have started the week on a quiet note, with just a hint of risk-off price action in light of diplomatic tensions between Qatar and some of its Arab neighbours. Wall Street ended in the red, but the major US equity indexes remained near all-time highs. US Treasuries edged lower amid a relatively quiet session that witnessed data of little economic significance and despite disappointment in the country s labour market report for the month of May, released end of last week. Gold hit a six-week high, whilst oil prices retreated amid rising tensions in the Middle East. Price action within the FX space was relatively subdued. The USD found some support most notably versus the EUR. Today is yet another relatively quiet session, where we will only be receiving the BLS JOLTS survey for April. Latest Flash Note: 02 Jun 17 US NFP: Jobs Creation At A Disappointing 138k In May 2 P a g e

3 06-Jun-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 Neutral 29 May S1: S2: R1: R2: GBP/SGD Neutral 01 Jun S1: S2: R1: R2: AUD/SGD *Neutral 06 Jun S1: S2: R1: R2: JPY/SGD Neutral 22 May S1: S2: R1: R2: USD/MYR Bearish 26 Apr S1: S2: R1: R2: USD/THB Neutral 05 Jun S1: S2: R1: R2: USD/CNH Bearish 17 May S1: S2: R1: R2: CNH/SGD *Neutral 06 Jun S1: S2: R1: R2: EUR/USD Neutral 29 May S1: S2: R1: R2: GBP/USD Neutral 01 Jun S1: S2: R1: R2: AUD/USD *Neutral 06 Jun 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 05-Jun-17 Performance* Open High Low Close 1-day 1-week 1-month YTD** USD/SGD % -0.33% -1.72% -4.75% EUR/SGD % +0.46% +1.25% +2.49% GBP/SGD % +0.15% -1.99% +0.10% AUD/SGD % +0.29% -0.43% -0.71% JPY/SGD % +0.38% +0.76% +1.32% USD/MYR % -0.19% -1.68% -4.96% USD/THB % -0.29% -1.84% -5.02% USD/CNH % -0.59% -1.83% -2.76% EUR/USD % +0.78% +3.02% +7.64% GBP/USD % +0.52% -0.25% +5.10% AUD/USD % +0.65% +1.36% +4.21% NZD/USD % +1.17% +3.32% +2.88% USD/JPY % -0.71% -2.46% -6.02% * 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: 1.3820 USD/SGD pair weakened further in afternoon session before bouncing off from low of 1.3787, the lowest since October 2016. The pair settled at 1.3818 on Monday, 0.

4 USD/SGD: USD/SGD pair weakened further in afternoon session before bouncing off from low of , the lowest since October The pair settled at on Monday, 0.2% lower from Friday, for a second day of losses. This morning, the SGD NEER index continues to hold steady at 0.61% above midpoint, and the % range implies USD/SGD of We indicated yesterday that further weakness seems likely from here even though the next support at is likely out of reach for now. In line with expectation, USD hit a low of before rebounding quickly to touch an overnight high of While the recent downward pressure has eased with the recovery, it is too early to expect a sustained rebound. USD is more likely to trade sideways, even though the immediate bias is for a probe higher towards the top of the expected / range. Bearish: Next leg lower has started but expect solid support at USD hit a fresh year s low of yesterday before rebounding quickly to close above last Friday s NY closing. While the reversal bar suggests that an interim low could be close-by, only a move back above (stop-loss unchanged) would indicate that the bearish phase that started more than 2 weeks ago (see Chart of the Day update on 18 May, spot at ) has ended. In the meanwhile, another push lower towards is not ruled out just yet but as indicated yesterday, this level is a solid support and is unlikely to yield so easily. *Took partial profit at on 28 May. 4 P a g e

5 EUR/SGD: The strong resistance continues to cap EUR s strength as this pair dropped quickly to a low of The subsequent sideway trade suggests that the current price action is part of a consolidation range. In other words, sideway trading is expected for today, likely between and Neutral: In a / range. [No change in view, see update from yesterday below] While EUR edged higher last Friday, upward momentum is not strong and we continue to view the current movement as part of a consolidation phase. A test of last month s peak near would not be surprising but this level is acting as a solid resistance and is unlikely to yield so easily. Overall, the neutral phase that started early last week is viewed as intact unless there is a clear break out of the expected / consolidation range. GBP/SGD: The target indicated at yesterday was not met as GBP touched a low of The subsequent strong rebound from the low that hit a high of was unexpected. The rally appears to be running ahead of itself and while a retest of /80 is not ruled out, a break above the major resistance is not expected. Support is at followed by the low near /30. Neutral: In a / range. The neutral phase that started last Thursday, 01 Jun (spot at ) is still intact. GBP has been trading mostly sideways since then and at this stage, there is no pre-indication that a break out of the expected / consolidation range is imminent. AUD/SGD: The unexpected strong surge in AUD hit an overnight high of Despite quickly approaching overbought, there is no sign of weakness just yet and extension higher seems likely. That said, is a strong resistance and this level is unlikely to yield so easily. Support is at but only a move below would indicate that an interim top is in place. JPY/SGD: Expectation for JPY to extend its gains to was proven wrong as this pair traded mostly sideways yesterday within a / range. Despite the consolidation, the undertone is still positive and as long as is intact, this pair is expected to edge higher towards That said, a sustained move above this level is not expected. Shift from bearish to neutral: Strong recovery has scope to extend to The shift to a bearish stance last Friday, 02 Jun (spot at ) was proven wrong quickly as AUD surged yesterday and took out several strong resistances with ease. The strong recovery appears to have scope to extend higher towards This is a rather strong resistance and at this stage, a sustained move above this level is not expected. Overall, AUD is expected to stay underpinned in the coming days with acting as a key support. Neutral: Bullish if NY closing above There is no change to the view highlighted yesterday. While upward momentum is improving, only a NY closing above would indicate that JPY has moved into a bullish phase. This scenario would not be surprising as long as the key short-term support at is not taken out within the next few days. Looking further ahead, a move into a bullish phase would have as an immediate target. 5 P a g e

6 USD/MYR: Malaysia s exports matched expectations to gain 20.6% y/y in April (24.1% y/y in March). In the first quarter, exports accelerated 21.3% (2.8% in 4Q16). Imports rose 24.7% y/y (39.4% in March) lifted by intermediate imports (29.2%), capital imports (14.8%) and imported consumer goods (1.0%). In first quarter, imports grew by 27.7% (5.0% in 4Q16). The trade surplus in MYR terms widened to MYR8.75bn in April (+5.4bn in March) bringing Jan-Apr trade surplus to MYR27.6bn (-16.3% y/y from MYR33bn in Jan-Apr 2016). Latest Flash Note: 05 Jun 17 Robust Exports Expand 20.6% In April Bearish: Expect to offer solid support ahead of While the break of the support was not surprising, downward momentum is still lackluster and any further weakness from here is expected to be slow and grinding. As indicated yesterday, is expected to offer solid support ahead of the rather strong level near Overall, the bearish phase that started more than a month ago (see Chart of the Day update on 26 Apr, spot at ) is deemed as intact until the trailing stop-loss at is taken out. *Took partial profit at USD/THB: Yesterday, the BoT started the Foreign Exchange Regulation Reform. Some regulations will be effective within this month, but others will require some time to carry out as they are related to other agencies authority. Major reforms are to relax regulations on FX risk management, provide more alternatives in foreign exchange services, and provide more investment options for Thai investors and companies. The BoT governor said the reforms will enhance Thailand s competitiveness. Latest Flash Note: 05 Jun 17 Thailand s Foreign Exchange Regulation Reform: New Diversification Strategy Neutral: In a 33.95/34.25 range. We just shifted from a bearish to neutral stance yesterday and there is no change to the view. USD dipped to a low of but recovered quickly. While downward momentum has improved, USD has to register a NY close below to indicate that it has entered a bearish phase again. In the meanwhile, we continue to expect this pair to trade between 33.95/34.25 even though the immediate bias is tilted to the downside. USD/CNH: Onshore RMB fell on Friday to /USD on Friday, after rising 0.68% over previous two days in a holiday-shortened week and in response to the adjustment in the fixing mechanism, for a weekly gain of 0.6% and the fourth weekly advance for the currency after hitting low of /USD in early May. Offshore CNH on Friday dropped the most since January as moneymarket rates begin moderating, as the sharp catch up gain appeared to be excessive that ran counter to the fine tuning of the fixing mechanism to prevent this type of herd behavior. CNH rose 0.7% for the week, to / USD. The announcement earlier of the inclusion of counter cyclical adjustment factor into the fixing model, on top of referencing market prices and basket of currencies, is likely to make for less predictable and transparent fixing, although it should help to curb the risks of depreciation bias in the RMB. Bearish: Diminished odds for further USD weakness. [No change in view, see update from yesterday below] USD rebounded strongly last Friday to hit a high of , holding below the trailing stop-loss for our bearish view at As long is intact, further USD weakness towards is not ruled out even though the odds for such a move have diminished. From here, last week s low is already acting as a very strong support. All in, until is taken out, the bearish phase that started on 17 May (spot at ), is deemed as intact. *Took partial profit at CNH/SGD: Shift from bullish to neutral: In a / range. The shift to a bullish CNH stance last Thursday, 01 Jun (spot at ) was proven wrong as CNH took out the stop-loss at yesterday. The rapid swing higher late last week and the subsequent equally rapid decline from the top have resulted in a mixed outlook. We are neutral on this pair now and expect broad sideway trading between and P a g e

EUR/USD: 1.1255 Eurozone Markit Composite PMI for May was released on Monday, and came in as expected at 56.8, which was unchanged from the prior reading.

7 EUR/USD: Eurozone Markit Composite PMI for May was released on Monday, and came in as expected at 56.8, which was unchanged from the prior reading. Services PMI was also reported and came in slightly above expectations at A reading at 56.2 was forecast. There was little reaction to the data, as markets focus this week is on Thursday s ECB policy meeting. The major highlights today will be the Euro area retail sales report for April and the Sentix investor confidence index for June. Expectation for EUR to extend its gain was proven wrong as the major resistance was unthreatened (high of ). The quick drop to a low of and the subsequent sideway trade suggests that the current price action is part of a consolidation phase. Further consolidation seems likely for today even though this pair is expected to trade at a slightly lower range of / Neutral: Bullish again if NY closing above There is not much to add as EUR traded in a relatively quiet manner yesterday. The undertone still appears to be positive but as highlighted in recent updates, this pair has to register a NY closing above to indicate that it has re-entered a bullish phase. This scenario would not be surprising as long as the key short-term support at is intact. 7 P a g e

GBP/USD: 1.2905 GBP stabilized after an initial drop on Monday, but the poll situation is still unclear enough. The UK s Markit PMI servicessector index declined to 53.8 for May from 55.

8 GBP/USD: GBP stabilized after an initial drop on Monday, but the poll situation is still unclear enough. The UK s Markit PMI servicessector index declined to 53.8 for May from 55.8 the previous month. This was below expectations of a smaller decline to around 55.0 and the weakest reading for 3 months. The strong surge that took GBP to an overnight high of was unexpected. Despite the pull-back from the top, the undertone for this pair is still positive even though any up-move is expected to face solid resistance Support is at followed by Neutral: In a / range. [No change in view, see update from yesterday below] GBP closed largely unchanged last Friday and there is no change to our current neutral stance. The current movement is viewed as the early stages of a consolidation phase and this pair is expected to trade between and for now. 8 P a g e

AUD/USD: 0.7485 The RBA will announce its latest interest rate decision at 12.30pm SGT on Tuesday. We expect the Australian central bank to leave the OCR at a low of 1.

9 AUD/USD: The RBA will announce its latest interest rate decision at 12.30pm SGT on Tuesday. We expect the Australian central bank to leave the OCR at a low of 1.5% - an eleventh consecutive month. At the previous meeting, the RBA increased its growth forecasts and also expected underlying inflation to reach around 2.0% by early Markets will look for evidence whether this confident tone has been maintained. The wider rhetoric within the statement will also be important for underlying policy expectations with a series of key comments in areas such as the labour market, housing sector, commodity prices and the value of the Australian dollar. Instead of trading sideways, AUD soared to hit an overnight high of The up-move is accompanied by strong momentum and extension higher seems likely. That said, /20 is major resistance and a clear break above this level seems unlikely, at least for today (next resistance is closer to ). Support is at but only a move back below would indicate that a temporary top is in place. Shift from bearish to neutral: Strong recovery has room to extend to /20. [See Chart of the Day on page 1] 9 P a g e

NZD/USD: 0.7130 New Zealand banks were closed in celebration of the Queen s Birthday and will reopen today.

10 NZD/USD: New Zealand banks were closed in celebration of the Queen s Birthday and will reopen today. The most important release in the week ahead is the fixing of dairy prices at the upcoming Global Dairy Trade (GDT) auction. Dairy prices have recorded five straight gains in recent auctions, with whole milk powder gaining to the highest level since the 7 February sale. The attempt to move higher was thwarted by (high of ) and the target indicated at /75 yesterday was not met. Upward momentum is waning rapidly and while a retest of would not be surprising, a break above seems unlikely for now. However, any weakness is expected to face solid support at followed by the stronger level near Bullish: Next bullish leg has started for followed by As indicated yesterday, the next bullish leg has started even though we are wary of the overbought conditions. From here, extension to , would not be surprising. Only a move back below (adjusted higher from ) would indicate that the 2-week long bullish phase (see update on 23 May (spot at ) has ended. *Took partial profit at P a g e

USD/JPY: 110.15 USD/JPY kept to a tight range around 110.50, but could see fresh losses if UST yields resume downward momentum.

11 USD/JPY: USD/JPY kept to a tight range around , but could see fresh losses if UST yields resume downward momentum. Wage growth returned to Japan in April labour cash earnings growth rose to 0.5% y/y in April, up from a revised reading of no growth in March (previously a contraction of 0.4%) and besting a median forecast of 0.3%.But real cash earnings, which account for inflation and often correlate with household spending, were static from a year prior in April after shrinking a revised 0.3% (previously contraction of 0.8%) in March. Instead of extending lower to , USD traded mostly sideways yesterday within a / range. Despite the quiet consolidation, the undertone for this pair still appears weak. From here, barring a move above , USD is expected to move below (next support at ) Neutral: Bearish if NY closing below USD just moved below at the time of writing. As highlighted yesterday, we prefer to wait for a NY closing below before adopting a bearish stance. This scenario appears to be likely unless USD can reclaim within these 1 to 2 days. Looking further ahead, a move into a bearish phase would have as an immediate target. 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 1.05% 1.25% 1.40% 1.50% USD/MYR 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% Updated on 01 Jun 17 US 1.25% 1.50% 1.50% 1.75% Central Bank Meetings 2017 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 # 16-11# # # 14 Reserve Bank of Australia (RBA) Reserve Bank of New Zealand (RBNZ) - 09^ 23-11^ 22-10^ *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 ^ 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