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 JPY/SGD: 1.2510 Improving upward momentum but bullish only if above 1.2550. JPY touched a high of 1.2525 yesterday and the key 1.2550 resistance was unthreatened. As noted yesterday, upward momentum has improved considerably but JPY has to break above 1.2550 to indicate that it has moved into a bullish phase (with an immediate target of 1.2630). This scenario would not be surprising as long as the key short-term support at 1.2430 is not taken out. 1 P a g e
OVERVIEW Whilst price action was maybe a little more interesting on Tuesday there was no major change overall. Wall Street saw a modestly risk-off tone, with bond yields slightly lower, and the JPY a tad firmer. The decline in Treasury yields (10-year notes down 4bps to 2.21%) came as Fed Governor Lael Brainard said that she expected a further Fed rate hike soon, but stated that If the soft inflation data persist, that would be concerning and, ultimately, could lead me to reassess the appropriate path of policy. The US will see the release of pending home sales for April and the Chicago PMI for May, together with the Fed Beige Book of economics anecdotes. Fed's Kaplan is due to speak in New York at 8pm SGT tonight. Latest Flash Note: 25 May 17 FOMC Minutes: Points To June Rate Hike, Some Details On A Gradual Balance Sheet Reduction Plan https://goo.gl/ecqvzd 2 P a g e
31-May-17 Summary of Views FX Pairs Spot Outlook Since/ Rate Target Trailing-Stop Support Resistance USD/SGD 1.3870 Bearish 18 May 17 1.3915 1.3755 1.3820 1.3890 1.3920 S1: 1.3840 S2: 1.3800 R1: 1.3890 R2: 1.3920 EUR/SGD 1.5485 Neutral 29 May 17 1.5450 S1: 1.5440 S2: 1.5410 R1: 1.5520 R2: 1.5550 GBP/SGD 1.7760 Bearish 26 May 17 1.7910 1.7600 1.7810 1.7860 1.8020 S1: 1.7675 S2: 1.7645 R1: 1.7810 R2: 1.7860 AUD/SGD 1.0345 Neutral 02 May 17 1.0515 S1: 1.0315 S2: 1.0280 R1: 1.0370 R2: 1.0400 JPY/SGD 1.2510 Neutral 22 May 17 1.2445 S1: 1.2470 S2: 1.2430 R1: 1.2525 R2: 1.2550 USD/MYR 4.2780 Bearish 26 Apr 17 4.3660 4.2210 4.2850 4.2980 4.3050 S1: 4.2660 S2: 4.2500 R1: 4.2850 R2: 4.2980 USD/THB 34.11 Bearish 16 May 17 34.49 33.80 34.18 34.24 34.33 S1: 34.02 S2: 33.80 R1: 34.19 R2: 34.24 USD/CNH 6.8320 Bearish 17 May 17 6.8740 6.7930 6.8260 6.8450 6.8650 S1: 6.8035 S2: 6.7930 R1: 6.8360 R2: 6.8450 CNH/SGD 0.2028 Neutral 26 May 17 0.2023 S1: 0.2025 S2: 0.2022 R1: 0.2033 R2: 0.2036 EUR/USD 1.1170 Neutral 29 May 17 1.1180 S1: 1.1105 S2: 1.1025 R1: 1.1205 R2: 1.1230 GBP/USD 1.2805 Bearish 25 May 17 1.2900 1.2755 1.2830 1.2910 1.2975 S1: 1.2775 S2: 1.2755 R1: 1.2890 R2: 1.2910 AUD/USD 0.7460 Neutral 26 May 17 0.7435 S1: 0.7415 S2: 0.7380 R1: 0.7480 R2: 0.7520 NZD/USD 0.7085 Bullish 23 May 17 0.7000 0.7130 0.7090 0.7030 0.7000 S1: 0.7065 S2: 0.7035 R1: 0.7110 R2: 0.7130 USD/JPY 110.85 Neutral * Shift in outlook. 24 May 17 111.90 S1: 110.50 S2: 110.20 R1: 111.35 R2: 112.00 FX Pairs Ranges for 30-May-17 Performance* Open High Low Close 1-day 1-week 1-month YTD** USD/SGD 1.3865 1.3884 1.3839 1.3844-0.13% -0.41% -0.88% -4.45% EUR/SGD 1.5472 1.5511 1.5412 1.5476 +0.02% -0.44% +1.66% +2.05% GBP/SGD 1.7795 1.7858 1.7741 1.7792-0.01% -1.24% -1.14% -0.36% AUD/SGD 1.0307 1.0340 1.0280 1.0329 +0.21% -0.58% -1.72% -0.75% JPY/SGD 1.2456 1.2525 1.2446 1.2482 +0.20% +0.37% -0.04% +1.36% USD/MYR 4.2705 4.2830 4.2705 4.2810 +0.24% -0.25% -1.33% -4.53% USD/THB 34.10 34.19 34.07 34.11 +0.02% -0.92% -1.38% -4.72% USD/CNH 6.8248 6.8336 6.8234 6.8234 +0.02% -0.81% -1.07% -2.16% EUR/USD 1.1163 1.1205 1.1108 1.1183 +0.17% +0.00% +2.61% +6.82% GBP/USD 1.2838 1.2888 1.2795 1.2860 +0.17% -0.76% -0.18% +4.27% AUD/USD 0.7437 0.7470 0.7416 0.7466 +0.36% -0.16% -0.81% +3.81% NZD/USD 0.7056 0.7101 0.7036 0.7095 +0.55% +1.18% +2.72% +2.26% USD/JPY 111.24 111.32 110.64 110.82-0.37% -0.84% -0.90% -5.73% * 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-16. 3 P a g e
USD/SGD: 1.3860 USD/SGD turned lower after recording a session high of 1.3884 to settle at 1.3844 (-0.14%). This morning, the SGD NEER is trading at around 0.7% above the mid-point with 0.5-1.0% range implying USD/SGD within 1.3820-1.3890 based on current FX levels. Later at 10am, we will receive bank lending and monetary aggregates for April. Latest Flash Note: 25 May 17 Tradeable Sectors Continue To Boost Economic Growth in 1Q 2017 https://goo.gl/jgbrcl The critical resistance indicated at 1.3890 yesterday was unthreatened as USD eased off quickly after touching a high of 1.3884. The current movement is viewed as part of consolidation phase and sideway trading is expected for today, likely within a 1.3840/1.3885 range. Bearish: Diminished odds for further USD weakness. USD hit a high of 1.3884 yesterday, holding just below the trailing stop-loss for our bearish view at 1.3890. As indicated yesterday, the odds for further USD weakness have diminished but only a break above 1.3890 would indicate that the bearish phase that started on 18 May (spot at 1.3915) has ended. The downside risk would continue to decrease unless USD can move and stay below 1.3830 soon. A clear break below 1.3830 would greatly increase the prospect of an extension to 1.3755. *Took partial profit at 1.3820. 4 P a g e
EUR/SGD: 1.5485 The strong 1.5400 support continues to hold as EUR rebounded quickly after hitting a low of 1.5412. The sharp swing up to a high of 1.5511 appears to be running ahead of itself and any further strength is unlikely to move clearly beyond the strong resistance at 1.5520. Support is at 1.5445 ahead of the low near 1.5410 (which is not expected to be challenged). Neutral: Immediate downward pressure towards 1.5370. EUR rebounded strongly to hit a high of 1.5512 yesterday, holding below the key short-term resistance at 1.5520. As long as 1.5520 is intact, another push lower towards 1.5370 is not ruled out just. At this stage, a sustained move below this level is not expected. A move back above 1.5520 would indicate that the current negative undertone has eased and the start of a consolidation phase. GBP/SGD: 1.7755 We suggested yesterday that allow for a bounce to 1.7800/05 but 1.7860 is expected to cap for a move lower to 1.7710. The high of 1.7858 was just a couple of pips below 1.7860 and GBP dropped sharply after NY close to hit a low of 1.7709. The decline appears to be running ahead of itself but another push towards 1.7695/00 seems likely even though last Friday s low at 1.7645 is likely out of reach for now. Resistance is at 1.7810 followed by the still very strong level at 1.7860. Bearish: Stop-loss lowered to 1.7860. GBP rebounded strongly to hit a high of 1.7858 yesterday but critically held below the stop-loss for our bearish view at 1.7860. The sharp drop after NY close bodes well for our bearish expectation but last week s low near 1.7675 is acting as a rather strong support now and it may take several days before a break of this level can be seen. A move below this level would shift the focus to 1.7600. On the upside, only a break above 1.7860 (stop-loss unchanged) would indicate that the bearish phase that started last Friday (see Chart of the Day update, spot at 1.7910) has ended. *Took partial profit at 1.7720. AUD/SGD: 1.0345 Instead of trading sideways as expected, AUD rose strongly to hit an overnight high of 1.0340 before extending its gain earlier this morning. The up-move appears to have scope to extend further to 1.0365/70 but the major 1.0400 is unlikely to be challenged, at least not for today. Support is at 1.0315 and the 1.0280 low seen yesterday is likely strong enough to hold any intraday pull-back. JPY/SGD: 1.2510 The anticipated JPY strength exceeded our expectation by taking out the 1.2510 resistance (high of 1.2525). However, upward momentum has been dented with the subsequent strong pull-back from the high even though it is premature to expect a significant pull-back. JPY is more likely to trade sideways from here but the immediate bias is for a probe towards the top of the expected 1.2470/1.2540 consolidation range. Neutral: Likely in early stages of a basing process. We indicated in recent updates that despite the break of the strong support at 1.0290 (that resulted in a fresh year-todate low of 1.0253); we are not convinced that the price action is the start of a bearish phase. Nevertheless, we allowed for a dip to 1.0230. However, the strong surge yesterday suggests that the current price action is likely the early stages of a basing process. Upward momentum is not strong at this stage but would continue to improve as long as 1.0280 is intact. On the upside, AUD has to register a NY close above 1.0425 to indicate the start of a bullish phase. Neutral: Improving upward momentum but bullish only if above 1.2550. JPY touched a high of 1.2525 yesterday and the key 1.2550 resistance was unthreatened. As noted yesterday, upward momentum has improved but JPY has to break above 1.2550 to indicate that it has moved into a bullish phase (with an immediate target of 1.2630). This scenario would not be surprising as long as the key short-term support at 1.2430 is not taken out. 5 P a g e
USD/MYR: 4.2780 MYR has strengthened, set to complete a third straight month of gains, the longest such winning run since 2014. This is largely on the back of stable energy prices and global funds boosting holdings of Malaysian equities. April money supply data will be released at 3pm SGT later today. Bearish: Took partial profit at 4.2850. Next target at 4.2210. [No change in view (see update below) except stop-loss is lowered to 4.2980 from 4.3050] USD edged lower to touch a fresh year-to-date low of 4.2660 last Friday. While downward momentum is beginning to show signs of waning, it is premature to expect an end to the current bearish phase that started more than a month ago (see Chart of the Day update on 26 Apr, spot at 4.3630). As there is hardly any significant support until 4.2210, we continue to anticipate a move towards this level even though momentum indicators are not as impulsive as preferred. We have suggested taking partial profit previously at 4.2850 and those with remaining shorts should continue to maintain a stop-loss at 4.3050. *Took partial profit at 4.2850. USD/THB: 34.11 THB is seen rising this morning, poised for its fourth monthly advance this year, amid inflows into Thai bonds and equities. April current account data is scheduled at 3.30pm SGT today. Surplus may have narrowed to $1.02bn from $2.58bn in March, according to median estimates. Elsewhere, Mathee Supapongse, the deputy governor overseeing monetary stability, said the BoT will continue to closely monitor capital inflows, especially short-term funds that could be highly volatile and cause the baht to fluctuate accordingly. Bearish: Next significant support is at 33.80. There is not much to add as USD traded quietly over the past couple of days. The bearish phase that started 2 weeks ago (see Chart of the Day on 16 May, spot at 34.49) is still deemed as intact until the stop-loss at 34.24 is taken out (adjusted lower from 34.33 previously). That said, the recent low near 34.02 is acting as a strong support and this level may continue to hold for a couple more days. A clear break below this level would shift the focus to 33.80. *Took partial profit at 34.30. USD/CNH: 6.8320 Chinese markets reopen today after two days of holidays. China s economic expansion maintained a steady pace this month, with broad measures of manufacturing and services activity pointing to sustained growth. The official manufacturing PMI held steady at 51.2 in May. A separate gauge of the nation s services sector expanded at a faster pace after slowing from multiyear highs the previous month. The official non-manufacturing PMI strengthened to 54.5 in May from 54.0 the month before. Later this week, Caixin China will release a private manufacturing PMI report, which focuses on small- and medium-sized enterprises. Caixin will follow that up with its services PMI report next week. Latest Flash Note: 24 May 17 Moody s Sovereign Rating Downgrade And Our Initial Assessment https://goo.gl/u7kvas Bearish: To take partial profit at 6.7980 [No change in view, see update from yesterday below] While USD hit a fresh low of 6.8036 yesterday, it rebounded swiftly and sharply to end the day on a strong note at 6.8219. Downward momentum is beginning to slow but the bearish phase that started on 17 May (spot at 6.8740) is considered as intact until the stop-loss at 6.8450 is taken out. That said, those who are short should look to take partial profit upon any weakness towards 6.7980 (above the February s low of 6.7930). CNH/SGD: 0.2028 Neutral: Bullish if NY closing above 0.2033. [No change in view, see update from yesterday below] The recovery target of 0.2033 that was first indicated last Friday, 26 May was met as CNH touched an exact high of 0.2033 yesterday. Upward momentum has improved considerably with the strong daily close and from here, a NY closing above 0.2033 would indicate that CNH has moved into a bullish phase with an immediate target of 0.2043. This scenario seems likely as long as the key short-term support at 0.2022 is intact. 6 P a g e
EUR/USD: 1.1170 EUR/USD recovered sharply higher after hitting a low of 1.1110 earlier on Tuesday. Markets were more sanguine on the threat of Greece not paying up in July (Greek FinMin Tsakalotos said his comments had been distorted ), whilst a source story from Reuters suggesting a shift in bias at next week s ECB also injected a bid tone. On the data front, the European Commission s economic sentiment index fell 0.5pts to 109.2 in May. More importantly, ahead of today s Euro area-wide reading, flash HICP readings in Germany and Spain both printed slightly below expectations. In Germany, the HICP fell 0.2% m/m in May, with base effects lowering annual inflation to 1.4% y/y. In Spain, a flat HICP in the month also delivered a decline in annual inflation, in this case to 2.0% y/y. Today, we will also receive the flash May HICP in France and Italy. Euro area unemployment for April and the latest retail spending and labour market reports in Germany will also be rolled out. The target indicated at 1.1100 yesterday was not met as EUR rebounded strongly from a low of 1.1108 (high of 1.1205). The sharp swing higher was unexpected and downward momentum has eased. The undertone is still positive and while a retest of 1.1205 would not be surprising, a move above 1.1230 is not expected. Support is at 1.1145 followed by the 1.1108 low which is acting as a rather strong support now. Neutral: Immediate downward pressure to 1.1025. In the Chart of the Day update yesterday, we were of the view that EUR is about to stage a deeper pull-back towards the major support at 1.1025. The subsequent rebound from a low of 1.1108 took out the strong 1.1190 resistance but eased off quickly from a high of 1.1205. While downward momentum has clearly been dented, we still detect a weak undertone to the current price action and would continue to hold the same view unless EUR close above 1.1190 by end of today s NY session. All that said, any weakness in the coming days is viewed a corrective pull-back and not the start of a major bearish reversal. 7 P a g e
GBP/USD: 1.2805 GBP did not show much of a reaction to a couple of sentiment surveys as they crossed the wires. The GFK consumer confidence index edged higher to -5 from -7, beating the -8 prediction. This was also the brightest outcome since January. The better-than-expected reading was accompanied by a drop in the Llyods business barometer which fell to 27 from 47, the lowest reading since September 2016. Instead, markets appeared to have their interests on a new poll showing the Conservative Party could lose its overall majority in the UK parliament. The YouGov poll showed that the ruling Conservative party missed a majority by 16 seats. The survey also found that the opposition Labour party won 257 seats, up from 229 in the prior poll. Following the announcement, GBP declined across the board. The sharp drop after NY close appears to be running ahead of itself but with no signs of stabilization yet, further extension towards last Friday s low at 1.2775 would not be surprising. However, the next support at 1.2750/55 is likely out of reach for now. Resistance is at 1.2845 ahead of the 1.2888 high seen during NY hours. Bearish: To take partial profit at 1.2755/60. GBP rebounded and hit a high of 1.2888 yesterday, holding below the stop-loss for our bearish view at 1.2910. The subsequent sharp drop post-ny close is encouraging but the decline lacks momentum and the suggested partial profittaking level at 1.2755/60 could be out of reach within these 1 to 2 days. In the event of a break of 1.2755/60, the next level to focus on is at 1.2705, the high back in February. On the upside, a break above 1.2910 (level unchanged) would indicate that the bearish phase that started last Friday 26 May (spot at 1.2900) has ended. 8 P a g e
AUD/USD: 0.7460 AUD/USD was initially under pressure following this week s open but the pair found buyer s during the Asian session on Tuesday and has rallied about half a cent since. Today s gain sees the pair snapping a prior three-day losing streak. Australian retail sales and private capital expenditure is the next high impacting release pertaining to the pair and will be reported at 9.30am SGT on Thursday. Instead of consolidating, AUD surged to hit an overnight high of 0.7470. The strong daily closing suggests further upward pressure and while a move above the strong 0.7480 resistance would not be surprising, the next resistance at 0.7500 is unlikely to come under serious threat. Support is at 0.7440 but the more significant level is at 0.7415. Neutral: In a 0.7380/0.7480 range. AUD is currently approaching the top end of our expected 0.7380/0.7480 consolidation range. Short-term momentum looks constructive but at this stage, it is too early to expect a sustained up-move. An intraday move above 0.7480 is not ruled out but for AUD to turn bullish, it has to close above last week s high near 0.7515/20. In the meanwhile, the positive undertone is expected to improve further especially if AUD can hold above 0.7415 in the next few days. 9 P a g e
NZD/USD: 0.7085 In its biannual Financial Stability Report released earlier today, the RBNZ said that an overheated housing market remains one of the key challenges facing New Zealand s financial system. Policymakers did note that levels of housing risk have stabilized on account of government efforts to tighten loan-to-value ratio (LVR) on investment properties. Although LVR policies have helped prevent a housing downturn, low mortgage rates have encouraged an increase in high debt-to-income lending. Early Thursday morning, first quarter trade data will be released. The terms of trade index is projected to rise 3.9% on the quarter, following a 5.7% in increase in October-December. Expectation for a deeper pull-back was proven wrong as NZD continues to march higher and hit a high of 0.7101. The rally appears to be severely over-extended now but with no signs of weakness just yet, another push higher towards 0.7110 is not ruled out. That said, the next resistance at 0.7130 is unlikely to come into the picture, at least not for today. Support is at 0.7065 followed by yesterday s low near 0.7035 (which is likely safe for now). Bullish: Focus at 0.7130 now. Despite weak internal indications, NZD continues with its strong run to hit an overnight high of 0.7101. The bullish phase that started last Tuesday, 23 May (spot at 0.7000) has exceeded our expectation by taking out the 0.7090 resistance. The focus has shifted to 0.7130 now, the minor low seen in February. Stop-loss is adjusted higher to 0.7035 from 0.7000. *Took partial profit at 0.7075. 10 P a g e
USD/JPY: 110.85 USD/JPY continues to stretch the downside of the 111/112 range but not by very much. A preliminary estimate from the Ministry of Economy, Trade and Industry showed industrial production rose 4% in April, following a 1.9% decrease in March. Analysts in a median forecast expected a rebound of 4.2%. Compared to the same month a year earlier, industrial production jumped 5.7%. JPY was little changed following the release, with the dollar last seen hovering at 110.93 yen. 110.85: We indicated yesterday that USD is expected to drift lower towards the 110.85 support with next support at 110.50. USD hit a low of 110.64 and the subsequent weak recovery suggests further downward pressure to test the 110.50 support (next support is at 110.20). Resistance is at 111.05 but only a move back above 111.35 would indicate that the current mild downward pressure has eased. Neutral: In a 110.50/112.00 range. There is not much to add as USD edged down to touch a low of 110.64 yesterday. While downward momentum is ticking higher, at this stage, any weakness is expected to encounter solid support near 110.50 ahead of the critical month-to-date low of 110.20. All in, we continue to hold a neutral stance and expect this pair to trade in a broad 110.50/112.00 range (narrowed from 110.50/112.50 previously) even though the downside appears to be increasingly vulnerable. 11 P a g e
UOB FX & Interest Rate Outlook FX Outlook 2Q17 3Q17 4Q17 1Q18 Rates Outlook 2Q17 3Q17 4Q17 1Q18 EUR/USD 1.06 1.06 1.08 1.09 EU 0.00% 0.00% 0.00% 0.00% GBP/USD 1.23 1.22 1.21 1.20 UK 0.25% 0.25% 0.25% 0.25% AUD/USD 0.78 0.79 0.79 0.80 AU 1.50% 1.50% 1.50% 1.50% NZD/USD 0.70 0.71 0.71 0.72 NZ 1.75% 1.75% 1.75% 1.75% USD/JPY 115 117 118 119 JP -0.20% -0.20% -0.20% -0.30% USD/SGD 1.43 1.45 1.46 1.47 SG 1.20% 1.40% 1.45% 1.65% USD/MYR* Updated on 27 Mar 17 *Updated on 27 Apr 17 4.35 4.46 4.32 4.48 4.30 4.50 4.28 4.52 *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 35.8 36.2 36.5 36.8 TH 1.50% 1.50% 1.50% 1.75% USD/CNY 7.02 7.09 7.16 7.20 CN 4.35% 4.35% 4.35% 4.35% USD/IDR 13600 13700 13800 13900 ID 4.75% 4.75% 4.75% 5.00% USD/PHP 50.2 50.6 50.9 50.9 PH 3.25% 3.50% 3.50% 3.50% USD/INR 67.9 68.8 69.8 69.8 IN 5.75% 5.50% 5.50% 5.50% USD/TWD 31.0 31.1 31.4 31.6 TW 1.38% 1.38% 1.38% 1.38% USD/HKD 7.80 7.80 7.80 7.80 HK 1.50% 1.75% 1.75% 2.00% USD/KRW 1140 1150 1160 1170 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) - 01 15* - 03 14* 26-20* - 01 14* European Central Bank (ECB) 19-09 27-08 20-07 26-14 Bank of England (BOE) - 02 # 16-11 # 15-03 # 14-02 # 14 Reserve Bank of Australia (RBA) - 07 07 04 02 06 04 01 05 03 07 05 Reserve Bank of New Zealand (RBNZ) - 09^ 23-11^ 22-10^ 28-09^ Bank of Japan (BOJ) 31** - 16 27** - 16 20 ** - 21 31 ** - 20 ** Bank Negara Malaysia (BNM) 19-02 - 12-13 - 07-09 - Bank of Thailand (BOT) - 08 29-24 - 05 16 27-08 21 Monetary Authority of Singapore (MAS) - 13 - 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. 193500026Z