DAILY FX OUTLOOK FX Themes/Strategy/Trading Ideas Pause for breath Tuesday, January 9, 218 Despite less than hawkish comments from the Fed s Bostic (voter), the USD recovered slightly across G1 space on cited profit taking. Softer bund yields shaved the EUR-USD lower while GBP-USD recovered from intra-day lows to end unchanged following a Cabinet reshuffle. The calendar today includes the Fed s Kashkari at 15 GMT and in the interim, it remains to be seen if investors will resume their moves against the broad dollar (with the DXY thus far unable to detach successfully from the 92. handle on a sustained basis). Structurally, aggregate rate differentials would also seem to suggest that dollar weakness is slightly overplayed at this juncture, suggesting room for some consolidation. Asian FX Treasury Research & Strategy Emmanuel Ng +65 653 473 ngcyemmanuel@ocbc.com Asian central bank discomfort is expected to remain front and center amid official discomfort with an undue and accelerated tightening of monetary/financial conditions via their respective exchange rates. On other fronts, high level talks between the North and South today (first since 215) may nevertheless maintain background optimism visible towards the KRW. Meanwhile, global EM equities notched higher (in tandem with EZ/US) on Monday and with EM risk premiums continuing to compress in the year to date, the FXSI (FX Sentiment Index) inched lower within Risk-On territory. This may be expected to continue to exert a weight on USD-Asia despite the ACI (Asian Currency Index) bouncing on Monday. On the net portfolio inflow front, South Korea saw significant bond inflows on Monday, mitigating the recent bond outflows. If equity inflows continue to strengthen in the coming sessions, the KRW may begin to look increasingly stretched on the upside. Meanwhile, equity inflows for the TWD continue apace, while the INR s recent gains remain incongruent relative to the recent lackluster net inflows (bond and equities). Expect the IDR to remain underpinned on the back of recent bond (and equity) inflows. Elsewhere, the THB remains a beneficiary of recent significant bond inflows. In aggregate however, net inflows into the region we think would have to strengthen further to forestall a sharp bounce in USD-Asia in the event of a DXY recovery.
3/3/214 3/7/214 3/11/214 3/3/215 3/7/215 3/11/215 3/3/216 3/7/216 3/11/216 3/3/217 3/7/217 3/11/217 SGD NEER: In the wake of the dollar bounce, the SGD NEER retreated lower significantly on Monday to around +1.4% currently above its perceived mid-point (1.3459). NEER-implied USD-SGD thresholds are also firmer on the day as a result and we d expect the NEER to fluctuate within +.9% (1.3339) and +1.1% (1.3313). Pending further external cues, expect a top heavy 1.328-1.338 range. 12 118 116 114 112 11 18 16 14 12 1 Asian Currency Index SGD NEER % deviation USD-SGD Current 125.54 1.3 1.3319 +2.% 126.74 1.3195 Parity 124.26 1.3459-2.% 121.77 1.3734 CFETS RMB Index: The USD-CNY mid-point rose (as largely expected) to 6.4968 this morning from 6.4832 yesterday. This took the CFETS RMB Index a touch higher to 95.9 from 95.6 on Monday. 15 1 95 9 85 8 CFETS NEER vs. USD-CNY mid-point 7. 6.9 6.8 6.7 6.6 6.5 6.4 6.3 6.2 6.1 75 6. 1/1/1 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 1/1/17 1/1/18 CFETS RMB Index USD-CNY Fix, Bloomberg Treasury & Strategy Research 2
8-8-Mar-16 8-May-16 8-8-Sep-16 8-Nov-16 8-8-Mar-17 8-May-17 8-8-Sep-17 8-Nov-17 8-8- 8-Mar-16 8-May-16 8-8-Sep-16 8-Nov-16 8-8-Mar-17 8-May-17 8-8-Sep-17 8-Nov-17 8-8- 8-Mar-16 8-May-16 8-8-Sep-16 8-Nov-16 8-8-Mar-17 8-May-17 8-8-Sep-17 8-Nov-17 8-8- 8-Mar-16 8-May-16 8-8-Sep-16 8-Nov-16 8-8-Mar-17 8-May-17 8-8-Sep-17 8-Nov-17 8- G7 1.21 1.19 1.17 1.15 1.13 1.11 1.9 1.7 1.5 EUR-USD EUR-USD Despite improving December EZ confidence indicators, the EUR-USD succumbed to cited profit taking on Monday. Short term implied valuations are probing lower and this may invite a further consolidation towards the 1.1935 neighborhood ahead of 1.19. 1.3 Actual Fitted 123 118 113 18 13 USD-JPY USD-JPY This morning, the USD-JPY tripped lower after the BOJ reduced its purchases of bond over 1 years maturity by JPY1bn. Note that short term implied valuations for USD-JPY have continued to decay and the pair may dribble towards 112.25 with the 55-day MA (112.92) and 113. limiting for now. 98 Actual Fitted.8.78.76.74.72.7.68 AUD-USD AUD-USD Significantly better than expected November building approvals boosted the AUD- USD early today and we note short term implied valuations attempting to inch higher again. Nevertheless, the pair remains well north of its implied confidence intervals and preference to collect into dips towards the 1-day MA (.7774) instead. Actual Fitted 1.47 1.42 1.37 1.32 1.27 GBP-USD GBP-USD Despite the Cabinet reshuffle occurring uneventfully, our view remains unchanged and the still heavy short term implied valuations may keep the GBP-USD trapped within 1.35-1.3615 in the near term. 1.22 1.17 Actual Fitted Treasury & Strategy Research 3
8-8-Mar-16 8-May-16 8-8-Sep-16 8-Nov-16 8-8-Mar-17 8-May-17 8-8-Sep-17 8-Nov-17 8-1.44 1.39 1.34 1.29 1.24 1.19 USD-CAD USD-CAD Despite some attempt to bounce on Monday in the face of a broader dollar capitulation, short term implied valuations for the USD-CAD remain unambiguously southbound at this juncture. The support at 1.24 remains in danger of a breach with 1.216 the next potential structural support. Actual Fitted Treasury & Strategy Research 4
USD-Asia VS. Net Capital Flows South Korea Taiwan 1 145 7 29. 8 6 4 2-2 -4 165 185 115 1125 1145 1165 1185 125 1225 5 3 1-1 -3-5 29.5 3. 3.5 31. 31.5 32. 32.5 33. 33.5 34. NFB: Bond & Eq 2D RS USD-KRW NFB: 2d RS USD-TWD India Indonesia 63. 5 129 8 64. 4 3 131 3 65. 2 1 133-2 -7-12 66. 67. 68. 69. -1-2 -3-4 -5 135 137 139 NFB: Bond & Eq RS 2D USD-INR Bond & Equity: 2D RS USD-IDR Philippines Thailand 6 4 2 46. 47. 48. 25 2 15 1 32.4 32.9 33.4 33.9-2 -4-6 49. 5. 51. 52. 5-5 -1-15 -2 34.4 34.9 35.4 35.9 36.4 NFB: RS2 USD-PHP Net bond & equity WTD RS2 USD-THB Treasury & Strategy Research 5
29-Sep-5 29-Mar-6 29-Sep-6 29-Mar-7 29-Sep-7 29-Mar-8 29-Sep-8 29-Mar-9 29-Sep-9 29-Mar-1 29-Sep-1 29-Mar-11 29-Sep-11 29-Mar-12 29-Sep-12 29-Mar-13 29-Sep-13 29-Mar-14 29-Sep-14 29-Mar-15 29-Sep-15 29-Mar-16 29-Sep-16 29-Mar-17 29-Sep-17 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Aug-16 Dec-16 Aug-17 Dec-17 Malaysia 15 3.8 1 5 3.9 4. 4.1 4.2-5 -1 4.3 4.4 4.5-15 4.6 Equity 2D RS USD-MYR ACI VS. Net Capital Flows 2. 1.5 1..5 z-score 4wk MA Stronger Asia FX 1m% -4-2. 2 -.5-1. -1.5 Weaker Asia FX 4 6-2. 8 Total Net Flows (2D RS) ACI (RHS) 3.5 FX Sentiment Index 3. 2.5 RISK OFF 2. 1.5 1..5. -.5-1. -1.5 RISK ON -2. Treasury & Strategy Research 6
ZAR CLP AUD NZD NOK SEK COP CAD HUF RUB TRY KRW PLN MYR GBP CNY BRL EUR TWD INR SGD CHF THB IDR JPY PHP MXN ARS 1M Correlation Matrix Security DXY USGG1 CNY SPX MSELCA CRY JPY CL1 VIX ITRXEX CNH EUR DXY 1 -.372.947 -.718 -.868 -.939.393 -.899.99.57.948 -.989 SGD.979 -.461.941 -.87 -.924 -.925.315 -.91.228.667.958 -.964 KRW.969 -.512.983 -.763 -.87 -.979.239 -.935.123.615.981 -.971 CHF.951 -.255.841 -.691 -.816 -.858.491 -.797.99.427.847 -.931 CNH.948 -.565.987 -.798 -.887 -.96.171 -.957.177.674 1 -.947 CNY.947 -.545 1 -.765 -.884 -.972.192 -.965.127.686.987 -.946 CAD.939 -.434.953 -.85 -.921 -.923.176 -.952.148.741.957 -.91 TWD.929 -.47.92 -.868 -.963 -.891.313 -.924.345.667.929 -.99 INR.886 -.532.92 -.879 -.912 -.847.32 -.881.434.594.91 -.89 PHP.87 -.529.913 -.552 -.683 -.958.13 -.885.18.571.93 -.898 MYR.861 -.465.864 -.872 -.963 -.788.187 -.881.46.7.862 -.831 CCN12M.833 -.568.858 -.85 -.861 -.831.19 -.863.385.574.894 -.833 IDR.766 -.432.791 -.913 -.942 -.728.88 -.859.55.832.87 -.753 THB.592 -.7.536 -.79 -.783 -.453.349 -.638.515.499.571 -.539 JPY.393.42.192 -.72 -.213 -.19 1 -.24 -.6 -.37.171 -.297 USGG1 -.372 1 -.545.582.463.524.42.578 -.277 -.51 -.565.473 NZD -.92.428 -.912.845.97.862 -.25.898 -.146 -.693 -.935.88 AUD -.942.462 -.94.78.858.926 -.327.899 -.77 -.6 -.96.924 GBP -.943.295 -.848.732.896.813 -.433.829 -.144 -.543 -.861.892 EUR -.989.473 -.946.717.844.943 -.297.883 -.139 -.566 -.947 1 Source: Bloomberg Immediate technical support and resistance levels S2 S1 Current R1 R2 EUR-USD 1.1819 1.19 1.1973 1.2 1.289 GBP-USD 1.3342 1.35 1.3578 1.36 1.3613 AUD-USD.77.78.786.7875.79 NZD-USD.71.714.718.7189.7197 USD-CAD 1.2356 1.24 1.241 1.25 1.2718 USD-JPY 112. 112.15 112.55 112.83 113. USD-SGD 1.3256 1.33 1.331 1.34 1.3475 EUR-SGD 1.59 1.5922 1.5937 1.6 1.645 JPY-SGD 1.1723 1.18 1.1826 1.19 1.1939 GBP-SGD 1.7977 1.8 1.872 1.891 1.81 AUD-SGD 1.322 1.4 1.462 1.465 1.481 Gold 1283.27 13. 1319.4 1327.3 134.52 Silver 16.77 17.1 17.14 17.15 17.2 Crude 57.8 62.1 62.16 62.2 62.56 FX performance: 1-month change agst USD 1. % 8. 6. 4. 2.. -2. -4. -6. -8. -1. Source: Bloomberg Treasury & Strategy Research 7
G1 FX Heat Map AUD NZD EUR GBP JPY CAD USD SGD MYR AUD 9 1 1 2 2 2 2 2 NZD 9 1 1 2 2 2 2 2 EUR 1 1 2 2 1 2 2 2 GBP 1 1 2 2 1 2 1 9 JPY 2 2 2 2 2 1 1 1 CAD 2 2 1 1 2 1 2 2 USD 2 2 2 2 1 1 1 1 SGD 2 2 2 1 1 2 1 2 MYR 2 2 2 9 1 2 1 2 Asia FX Heat Map USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR USD 1 1 1 1 1 1 1 1 1 1 JPY 1 2 1 1 1 2 1 9 1 1 CNY 1 2 1 1 2 2 2 2 2 2 SGD 1 1 1 2 2 1 2 2 1 9 MYR 1 1 1 2 9 1 2 2 1 1 KRW 1 1 2 2 9 2 9 1 2 9 TWD 1 2 2 1 1 2 2 2 9 2 THB 1 1 2 2 2 9 2 9 1 1 PHP 1 9 2 2 2 1 2 9 1 1 INR 1 1 2 1 1 2 9 1 1 9 IDR 1 1 2 9 1 9 2 1 1 9 Treasury & Strategy Research 8
FX Trade Ideas Inception B/S Currency Spot Target Stop/Trailing Stop Rationale TACTICAL 1 21-Nov-17 S USD-SGD 1.3561 1.3125 1.3345 Little contagion in geopolitical risks, sanguine portfolio inflow environment,usd fragility 2 27-Nov-17 B GBP-USD 1.3344 1.3655 1.3185 Investors may imputebrexit talks in December. Prevailing USD weakness. STRUCTURAL 3 9-May-17 B GBP-USD 1.2927 1.37 1.2535 USD skepticism, UK snap elections, positioning overhang, hawkish BOE? RECENTLY CLOSED TRADE IDEAS Inception Close B/S Currency Spot Close Rationale P/L (%)* 1 7-Nov-17 13-Dec-17 S AUD-USD.7671.759 RBA on hold, no inflation or rate hike urgency 2 7-Nov-17 4- Bullish 2M 1X2 USD-JPY Call Spread Rate differential complex Spot ref: 114.15; Strikes: 113.78, 118.31; supportive of the USD, BOJ static Exp: 4/1/18; Cost:.9% **of notional +.78 -.9** Treasury & Strategy Research 9
This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC and/or its related and affiliated corporations may at any time make markets in the securities/instruments mentioned in this publication and together with their respective directors and officers, may have or take positions in the securities/instruments mentioned in this publication and may be engaged in purchasing or selling the same for themselves or their clients, and may also perform or seek to perform broking and other investment or securities-related services for the corporations whose securities are mentioned in this publication as well as other parties generally. Co.Reg.no.:193232W Treasury & Strategy Research 1