DAILY MARKET OUTLOOK FX Themes/Strategy/Trading Ideas Thursday, November 15, 2018 Positive Brexit headlines (Cabinet backed PM May on the draft text of the Brexit agreement) saw the GBP (and the EUR) managing to hold higher ground against the USD on Wednesday. Softer UST yields (Oct core CPI softer than expected) meanwhile also saw the USD on the defensive against its peers, with the USD-JPY also tripping lower. Crude meanwhile managed to bottom out slightly, putting a lid on the still supported USD-CAD. Overall, the DXY slipped lower to around 96.80 by late NY. Despite softer global govie yields on the day (China s Oct data stream on Wednesday was mixed), AUD and the NZD generally outperformed within G10 space and climbed against the USD. This morning, October Australian labor market numbers came in hotter than expected, boosting the AUD-USD. On the risk appetite front, negative EZ/US equities continued to drive the FXSI (FX Sentiment Index) higher on Wednesday within Risk-Off territory and expect sentiment to remain fragile. Going ahead, PM May still has to clear the hurdle of Parliamentary approval for the draft Brexit agreement, while the European Commission has yet to respond (21 Nov 18) to the (still intransigent) Italian fiscal budget plan. On the latter, note slightly wider Italian-bund spreads. For today, look to ECB (and Fed) appearances for further short term guidance but fragility towards the European complex (in view of the near term vol surface) remains apparent at this juncture. Although the dollar may continue to range trade, the dissimilar undercurrents in the respective majors may see investors staying heavy on a cross like the EUR-AUD in the interim. Treasury Research & Strategy Emmanuel Ng +65 6530 4037 ngcyemmanuel@ocbc.com Terence Wu +65 6530 4367 TerenceWu@ocbc.com
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 May-17 Sep-17 May-18 Sep-18 15 November 2018 Daily Market Outlook Asian FX Expect USD-Asia to edge lower intra-day with EM equities in aggregate also inching higher yesterday for the 2 nd consecutive session on Wednesday. As an aside, the INR may continue to be bolstered if crude continues to wallow at recent lows. The Bank of Thailand on Wednesday kept its benchmark rate unchanged at 1.50% but the changing voting pattern (4 votes for leaving policy unchanged and 3 voted for a hike; down from 5 votes for policy to be left unchanged previously) is portending an eventual policy normalization on the horizon. For today, the BSP is expected to hike its policy benchmark rates by 25 amid recent faltering hawkishness. Elsewhere, Bank Indonesia is expected to remain static at its policy meeting. SGD NEER: The SGD NEER stood at +1.37% above its perceived parity (1.3967), still populating a familiar range between +1.25% and +1.50%. With the USD still suppressed by positive headlines from Europe, expect downside support at 1.3761, and an intra-day top around 1.3815. CFETS RMB Index: This morning, the USD-CNY mid-point was set marginally lower, within expectations, at 6.9392 compared to 6.9402 on Wednesday. In response, the CFETS RMB Index eased marginally to 92.60 from 92.62 previously. CFETS NEER vs. USD-CNY mid-point Asian Currency Index 106.00 Reverse scale 6.00 120 10 6.10 118 10 10 98.00 96.00 9 9 9 6.20 6.30 6.40 6.50 6.60 6.70 6.80 6.90 116 114 112 110 108 106 88.00 7.00 104 CFETS RMB Index Hybrid USD-CNY Fix (RHS), Bloomberg Treasury Research & Strategy 2
15 November 2018 Daily Market Outlook Short term Asian FX/bond market views Currency Bias Rationale USD-CNH USD-KRW USD-TWD USD-INR USD-SGD USD-MYR USD-IDR USD-THB USD-PHP / / / 3Q GDP numbers disappointed. PBOC s quarterly monetary policy report sounding accommodative. Core view remains that the exchange rate mechanism may serve as an escape valve for trade-war and economic deceleration concerns. PBOC states that the 7.00 level for USD-CNY isn t that crucial. October CPI/PPI prints remain subdued, with curves still seen suppressed. Latest aggregate financing numbers, after adjusting for the new methodology, do not protend aggressive monetary stimulus. October official PMIs disappoint, Caixin manufacturing PMI static, Oct trade and industrial production numbers outperformed, while retail sales underperformed. Govie and NDIRS yields remain soggy. BOK remained static as expected in October with the official economic prognosis downgraded as expected. 3Q GDP and Sep industrial production readings came in lower than expected. BOK governor notes that further cuts are not appropriate and the Bank will consider a hike in November. His latest comments however seem to suggest some wavering from his previous hawkishness. With the global economic prognosis wavering, govie and NDIRS yields softening on the week, led by the back-end. CBC remained static at its policy meeting in Spetember and is expected to remain so into 2019. Govie (and NDIRS) yields slightly more underpinned. CBC governor ambivalent on the benchmark rate. Some CBRC members looking towards policy normalization to aford the authority eventual downside wiggle room. Rate environment softening in line with the North Asian complex. Bonds may find some near term reprieve from import curbs, lower crude, and friendlier CPI and trade deficit readings. Watch for the next RBI board meeting on 19 th Nov 18 for further resolution of the tiff between the RBI and the government. In the interim, curves (govie and NDIRS yields lower on the wwek, led by the belly) remain softer. Oct CPI prints softer than expected, perhaps pushing the RBI back towards a neutral stance and putting rate cuts back on the table. MAS steepens the NEER s slope again in October. NEER may remain afloat above +% if risk appetite stays supported. Govie and IRS curves continue to take cues from offshore, local govies should continue to outperform their US counterparts. The mid-term review of the 11th Malaysia Plan saw growth forecasts downgraded and with the previous plan to achieve a balanced budget by 2020 scuppered, replaced by an projected -3.0% deficit. Sep CPI readings significantly softer than expected. BNM static in November,highlighting the drag from the fiscal front. A frosty market reception to the latest budget announcement (significantly larger than expected 2018 budget deficit penciled in) will be expected to exert implicit downside pressure on the MYR and govies. Ongoing strong demand from foreigners for ID govt bonds. Easing off of EM jitters and broad dollar momentum may allow the BI to take a temporary pause in rate hikes in its Nov meeting, although a Dec rate hike remains in play. Slightly compressing current account deficit for 3Q and 2Q seen supportive for FX and govies. Govie and NDIRS yields may consolidate in the near term after the recent softening. BOT MPC members mulling a policy normalization timetable. We note however a lack of immediate inflation risks, and latest export and manufacturing prints remained soft. BOT unchanged at Nov MPC, but saw 3 dissenters in favour of rate hike. Voting pattern appears to suggest that members are inclined to a hike in Dec hike, rather than Feb. Nevertheless, any rate hike should be viewed as a step back to neutrality, rather than a turn towards hawkishness. Govie and NDIRS yields to find near term support on the BOT MPC. Deputy BSP govenor notes that the BSP may pause or hike today. Official rhetoric continues to point towards lower inflation prints in the coming months. Sep monetary aggregates moderate. 3Q GDP prints below expectation on slower consumer spending. Treasury Research & Strategy 3
15 November 2018 Daily Market Outlook USD-Asia VS. Net Capital Flows South Korea Taiwan 10000 1045 4000 29.0 8000 6000 1065 1085 1105 3000 2000 1000 29.5 30.0 4000 2000 0-2000 -4000 1125 1145 1165 1185 1205 1225 0-1000 -2000-3000 -4000-5000 -6000 30.5 31.0 31.5 32.0 32.5 NFB: Bond & Eq 20D RS USD-KRW NFB: 20d RS USD-TWD India Indonesia 11000 63.0 5000 13100 9000 7000 5000 3000 1000-1000 65.0 67.0 69.0 71.0 3000 1000-1000 -3000 13600 14100 14600-3000 -5000-7000 73.0 75.0-5000 -7000 15100 NFB: Bond & Eq RS 20D USD-INR Bond & Equity: 20D RS USD-IDR Philippines Thailand 600 49.0 2500 30.8 400 200 50.0 51.0 2000 1500 1000 31.8 32.8 0 52.0 500 0 33.8-200 -400-600 53.0 54.0-500 -1000-1500 -2000 34.8 35.8 NFB: RS20 USD-PHP Net bond & equity WTD RS20 USD-THB Malaysia 150 3.85 100 3.95 50 4.05 4.15-50 4.25-100 -150-200 4.35 4.45 Source: CEIC, Bloomberg, OCBC Bank Equity 20D RS USD-MYR Treasury Research & Strategy 4
Feb-17 Mar-17 May-17 Jun-17 Aug-17 Sep-17 Nov-17 Dec-17 Feb-18 Mar-18 May-18 Jun-18 Aug-18 Sep-18 Nov-18 1-Jan-14 1-Jul-14 1-Jan-15 1-Jul-15 1-Jan-16 1-Jul-16 1-1- 1-1- 15 November 2018 Daily Market Outlook ACI VS. Net Capital Flows FX Sentiment Index 1.5 1.0 z-score 4wk MA Stronger Asia FX 1m% 2.5 2.0 1.5 RISK OFF 0.5 1.0 0.0 0.5-0.5 0.0-0.5-1.0 Weaker Asia FX -1.0-1.5-1.5 RISK ON Total Portfolio Flows (20D RS) ACI (RHS) 1M Correlation Matrix DXY USGG10 CNY SPX MSELCAPF CRY JPY CL1 VIX ITRXEX CNH EUR DXY 1-0.281 0.639-0.49-0.278-0.844 0.598-0.71 0.316 0.196 0.574-0.98 SGD 0.89 0.015 0.418-0.216 0.03-0.908 0.8-0.818-0.016-0.166 0.318-0.907 CHF 0.837-0.072 0.516-0.237 0.014-0.877 0.736-0.866 0.027-5 0.38-0.855 IDR 0.818-0.509 0.661-0.55-0.403-0.806 0.491-0.757 0.355 0.3 0.483-0.841 CNH 0.768-0.502 0.627-0.683-0.598-0.622 0.253-0.39 0.518 0.373 0.612-0.737 MYR 0.639-0.524 1-0.48-0.613-0.356 0.101-0.166 0.47 0.539 0.944-0.613 THB 0.598 0.449 0.101 0.304 0.5-0.815 1-0.848-0.496-0.577-0.036-0.616 JPY 0.574-0.563 0.944-0.549-0.726-0.237-0.036-0.019 0.577 0.611 1-0.535 CAD 0.495-0.594 0.843-0.617-0.685-0.082-0.216 0.147 0.637 0.758 0.873-0.459 INR 0.358 0.393-0.194 0.378 0.589-0.726 0.87-0.876-0.561-0.656-0.31-0.42 KRW 0.228-0.839 0.624-0.678-0.863 0.055-0.51 0.208 0.717 0.872 0.669-0.209 USGG10 0.224 0.467-0.377 0.487 0.644-0.609 0.802-0.778-0.655-0.774-0.468-0.279 TWD -0.028-0.77 0.53-0.554-0.778 0.331-0.665 0.425 0.687 0.894 0.582 0.058 CNY -0.281 1-0.524 0.822 0.903-6 0.449-0.061-0.825-0.837-0.563 0.273 PHP -0.365-0.204 0.203-0.015-0.402 0.606-0.662 0.759 0.199 0.339 0.282 0.419 NZD -0.367-0.359 0.291-0.32-0.61 0.682-0.803 0.824 0.542 0.663 0.4 0.43 AUD -0.385-0.496 0.129-0.421-0.575 0.698-0.89 0.81 0.577 0.719 0.213 0.442 GBP -0.534-0.327-0.021-0.188-0.386 0.8-0.881 0.852 0.385 0.608 0.085 0.556 EUR -0.641 0.663-0.734 0.818 0.796 0.225 0.153-0.021-0.784-0.723-0.796 0.582-0.98 0.274-0.613 0.46 0.236 0.86-0.616 0.753-0.272-0.152-0.535 1 Source: Bloomberg Technical support and resistance levels S2 S1 Current R1 R2 EUR-USD 1.1243 1.1300 1.1327 1.1400 1.1512 GBP-USD 1.2715 1.3000 1.3003 1.3037 1.3100 AUD-USD 0.7163 0.7200 0.7272 0.7300 0.7302 NZD-USD 0.6596 0.6700 0.6799 0.6800 0.6814 USD-CAD 1.3046 1.3200 1.3233 1.3259 1.3264 USD-JPY 112.78 11 113.56 11 114.21 USD-SGD 1.3716 1.3761 1.3770 1.3800 1.3864 EUR-SGD 1.5522 1.5525 1.5598 1.5600 1.5844 JPY-SGD 1.2045 1.2100 1.2125 1.2200 1.2202 GBP-SGD 1.7616 1.7900 1.7905 1.7940 1.8000 AUD-SGD 0.9857 00 14 30 50 Gold 120 1201.60 1210.10 1210.20 1239.30 Silver 13.93 1 14.10 14.10 14.41 Crude 55.08 55.90 55.99 56.00 67.22 G10 FX Heat Map Asia FX Heat Map AUD NZD EUR GBP JPY CAD USD SGD MYR USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR AUD 1 1 1 2 2 2 2 2 NZD 1 1 1 2 2 2 2 2 EUR 1 1 1 1 2 1 1 1 GBP 1 1 1 2 2 9 1 1 JPY 2 2 1 2 1 2 1 1 CAD 2 2 2 2 1 2 1 1 USD 2 2 1 9 2 2 1 9 SGD 2 2 1 1 1 1 1 2 MYR 2 2 1 1 1 1 9 2 ource: OCBC Bank USD 2 1 1 9 1 1 2 1 1 1 JPY 2 2 1 1 1 2 2 1 1 1 CNY 1 2 1 1 1 9 2 1 1 1 SGD 1 1 1 2 1 1 2 1 1 1 MYR 9 1 1 2 1 1 2 1 1 1 KRW 1 1 1 1 1 1 1 2 2 1 TWD 1 2 9 1 1 1 2 1 1 1 THB 2 2 2 2 2 1 2 1 1 1 PHP 1 1 1 1 1 2 1 1 1 1 INR 1 1 1 1 1 2 1 1 1 1 IDR 1 1 1 1 1 1 1 1 1 1 S Treasury Research & Strategy 5
15 November 2018 Daily Market Outlook Government bond yield changes 6.00-8.00-1 -1-1 US 3M 6M 12M 2Y 3Y 5Y 7Y 10Y 5.00 Eurozone 3M 6M 12M 2Y 3Y 5Y 7Y 10Y 0.20-0.20-0.40-0.60-0.80-1.20-1.40-1.60-1.80 Japan 6M 12M 2Y 3Y 5Y 7Y 10Y UK Australia Canada 1.50 0.50-0.50-1.50-2.50-8.00-1 3M 6M 12M 2Y 3Y 5Y 7Y 10Y -3.50 3M 12M 2Y 3Y 5Y 7Y 10Y -1 3M 6M 12M 2Y 3Y 5Y 7Y 10Y -8.00-1 China Korea 1.50 0.50-0.50 Taiwan -1-1 -16.00-1.50-18.00 6M 12M 3Y 5Y 10Y 3M 6M 12M 2Y 3Y 5Y 10Y -2.50 2Y 5Y 10Y India 25.00 2 Indonesia Singapore 15.00 1-8.00 5.00-1 -1-1 -15.00-1 -16.00 3M 6M 12M 2Y 3Y 5Y 10Y -2-25.00 1Y 2Y 3Y 5Y 7Y 10Y 3M 6M 12M 2Y 5Y 10Y Thailand 3.50 Malaysia 2 Philippines 1 2.50 1.50-1 -2 0.50-3 -0.50-4 3M 6M 12M 2Y 3Y 5Y 10Y 3M 7M 12M 2Y 3Y 5Y 7Y 10Y -5 2Y 3Y 5Y 7Y 10Y Treasury Research & Strategy 6
15 November 2018 Daily Market Outlook FX Trade Recommendations Inception B/S Currency Spot/Outright Target Stop/Trailing Stop Rationale TACTICAL 1 23- B 3M USD-THB 32.780 33.500 32.400 Vanishing net inflows, firmer USD, fragile risk appetite 2 09-Nov-18 B USD-JPY 113.88 115.55 11 Rate differential support for the USD, epecially post-fomc 3 13-Nov-18 S EUR-USD 1.1230 1.1035 1.1330 Italian fiscal uncertainty, USD underpinned by FOMC prospects STRUCTURAL - - - - - - - RECENTLY CLOSED TRADE IDEAS Inception Close B/S Currency Spot Close Rationale P/L (%)* 1 11-Sep-18 24- B GBP-USD 1.3056 1.2920 Positoning ahed of BOE MPC and positivty from Brexit news flow -1.04 2 22-01-Nov-18 S EUR-USD 1.1520 1.1420 Italian fiscal risks, ECB unlikely to surprise on the hawkish front +0.87 3 30-02-Nov-18 B USD-SGD 1.3840 1.3750 Resilient DXY, fragile risk appetite, proxy CNH trade -0.65 4 08-Nov-18 12-Nov-18 B AUD-USD 0.7286 0.7200 Improving risk appetite post US midterms -1.18 * realized, excl carry Treasury Research & Strategy 7
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