DAILY FX OUTLOOK FX Themes/Strategy/Trading Ideas Thursday, October 19, 217 Despite supportive Fed-speak (from Williams and Dudley) and the Beige Book, firmer UST yields (led by the back-end) still left the greenback mixed across G1 space. Improved risk appetite levels saw the JPY underperforming across the board while the CAD was lifted by better than expected August manufacturing sales (+1.6% mom). >> The Taylor put so far has only manifested efficiently via the USD-JPY (with additional lift from the upcoming weekend elections in Japan) while markets may continue to trade off idiosyncratic factors (e.g., EUR, GBP, NZD) for the other currency pairs in the near term. Key technical levels (for the DXY and 1y UST yield for example) meanwhile remain fairly secure in the interim and not in imminent danger of a breach, potentially confining investors to further range trading. In the coming weeks, the US President is due to announce his choice for the next Fed chair (before 3 Nov 17) and we note that rate differential arguments in the interim have continued to bolster prospects for the broad dollar. Watch the news feed for any ensuing headlines with Trump scheduled to have an interview with Yellen today with the WH also indicating that the decision could be forthcoming in the coming days. For today, central bank speak comes potentially from the Fed s George (133 GMT) while US data on tap include weekly initial claims and the Philly Fed at 123 GMT. On the China front, 3Q GDP and September data stream is scheduled for 2 GMT. The Bank of Korea left its benchmark rate unchanged at 1.25% this morning as widely expected. Meanwhile, Bank Indonesia is expected to also remain static (despite comments from the President earlier this week) at its policy meeting today. Real interest rate arguments may suggest outside risks for another cut but given the still sanguine growth outlook and stable inflation outlook, the central bank may opt to leave its policy parameters unchanged, especially in light of exchange rate considerations. Asian FX Treasury Research & Strategy Emmanuel Ng +65 653 473 ngcyemmanuel@ocbc.com On the net portfolio inflow front in Asia, we see continued moderation of outflow momentum for the KRW and the TWD on a rolling 1-month basis. Meanwhile, the IDR continues to experience sequential net equity outflows while the INR and the THB may be looking slightly stretched to the upside relative to still prevailing (albeit moderating) outflow pressures. Intra-day, expect the ACI (Asian Currency Index) to pick higher despite the FXSI (FX
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 Sentiment Index) dipping into Risk-On territory for the first time since August. SGD NEER: A loose pattern has continued to play out in the few sessions, with the SGD NEER drifting back below the +1.% threshold as the Asian session gets underway. This morning, the SGD NEER is softer on the day at around +.97% above parity (1.3688) with NEER-implied USD-SGD thresholds slightly firmer on the day. At current levels, the +1.% threshold is estimated at 1.3552 and +1.1% at 1.3539 where a base for the pair is expected pending further external headlines. Technically, USD-SGD may continue to orbit its 55-day MA (1.3562). 12 118 116 114 112 11 18 16 14 12 1 Asian Currency Index SGD NEER % deviation USD-SGD Current 125.4.92 1.3563 +2.% 126.74 1.3419 Parity 124.26 1.3688-2.% 121.77 1.3967 CFETS RMB Index: This morning, the USD-CNY mid-point rose (largely in line with expectations) to 6.693 from 6.5991 on Wednesday. This took the CFETS RMB Index lower to 94.77 from 94.8 yesterday. 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 1/1/1 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 1/1/17 6. CFETS RMB Index USD-CNY Fix, Bloomberg Treasury & Strategy Research 2
G7 EUR-USD 1.21 1.19 1.17 1.15 1.13 1.11 1.9 1.7 1.5 1.3 Actual Fitted EUR-USD The ECB s Draghi yesterday did not address monetary policy while Catalonia-related headlines (deadline 8 GMT) may hold the market s attention today instead. Elsewhere, investors will also be watching ongoing coalition talks in Germany while hawkish expectations surrounding the ECB s taper continue to moderate. Overall, short term implied valuations remain relatively suppressed we prefer a heavy stance within 1.173 and the 55-day MA (1.184). 123 118 113 18 13 98 USD-JPY USD-JPY Fed-speak yesterday remained sufficiently supportive of further rate hikes while the BOJ s Sakurai did not come across as excessively dovish. Nonetheless, rate differential arguments and this weekend s Japanese elections dovetail with climbing short term implied valuations for the USD-JPY. Expect 113.3/5 to attract if the aforementioned dynamics continue to persist. Actual Fitted.8.78.76.74.72.7.68 AUD-USD AUD-USD This morning, the better than expected September labor market numbers (employment change +19.8k) gave the AUD-USD a slight boost. Watch for cross-talk from political developments in NZ (NZ First s announcement due today) with short term implied valuations for the AUD-USD still perceived to be top heavy with the 1-day MA (.7817) and the 55-day MA (.799). Actual Fitted GBP-USD 1.57 1.52 1.47 1.42 1.37 1.32 1.27 1.22 1.17 GBP-USD Look towards potential headline risks for the GBP as the EU summit (UK s PM May to address EU leaders) gets underway today despite Sep/Aug labor market date coming in on the right side of expectations. Meanwhile, apparent dissent within the MPC despite the BOE s Carney looking for firmer inflation rates may also leave the pound soggy. To this end, note that short term implied valuations continue to head south with the 55-day MA (1.3145) now looking somewhat fragile. Actual Fitted Treasury & Strategy Research 3
1.44 1.39 1.34 1.29 1.24 1.19 USD-CAD USD-CAD Short term implied valuations for the USD-CAD may potentially nullify near term positivity from the latest manufacturing sales numbers. As such, the pair may attempt to base build off its 55-day MA (1.2463) within the recent 1.24-1.26 range as investors mull the BOC meeting next week amid prevailing Nafta-related news flow. Actual Fitted USD-Asia VS. Net Capital Flows South Korea Taiwan 1 18 8 29.5 8 6 4 2-2 11 112 114 116 118 12 122 6 4 2-2 -4 3. 3.5 31. 31.5 32. 32.5 33. 33.5-4 124 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17-6 34. NFB: Bond & Eq 2D RS USD-KRW NFB: 2d RS USD-TWD India 15 1 5 63.5 64.5 65.5 66.5 67.5-5 68.5-1 NFB: Bond & Eq RS 2D USD-INR Indonesia 5 129 4 3 131 2 1 133 135-1 -2 137-3 -4 139-5 Bond & Equity: 2D RS USD-IDR Thailand 3 33. 25 33.5 2 15 1 34. 34.5 5-5 35. 35.5-1 36. -15-2 36.5 Philippines 7 5 46. 47. 3 48. 1 49. -1-3 -5 5. 51. -7 Net bond & equity WTD RS2 USD-THB NFB: RS2 USD-PHP Treasury & Strategy Research 4
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 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 15 1 5-5 -1 Malaysia 3.8 3.9 4. 4.1 4.2 4.3 4.4 4.5-15 4.6 Equity 2D RS USD-MYR 1.5 1. z-score 4wk MA ACI VS. Net Capital Flows Stronger Asia FX 1m% -4-3.5-2. -1 -.5-1. 1-1.5-2. Weaker Asia FX 2 3-2.5 4 Total Net Flows (2D RS) ACI (RHS) 3.5 FX Sentiment Index 3. 2.5 2. 1.5 RISK OFF 1..5. -.5-1. -1.5 RISK ON -2. Treasury & Strategy Research 5
RUB KRW THB TWD CLP COP PLN MYR PHP CNY SGD BRL JPY INR CAD ARS EUR HUF CHF IDR ZAR AUD NOK GBP SEK NZD TRY MXN 1M Correlation Matrix Security DXY USGG1 CNY SPX MSELCA CRY JPY CL1 VIX ITRXEX CNH EUR DXY 1.757.46.659.162 -.41.79.62 -.25.79.586 -.967 CAD.927.814.22.789.337 -.335.577.18 -.16 -.96.38 -.847 SGD.879.746.676.383 -.16 -.692.773 -.184 -.262.88.793 -.887 MYR.877.752.417.599.64 -.565.62 -.61 -.365.73.573 -.843 IDR.814.86.221.741.338 -.376.639.5 -.22 -.65.31 -.74 CHF.796.748.3.836.592 -.239.662.4 -.31 -.97.174 -.663 USGG1.757 1.113.72.284 -.53.784 -.179 -.247 -.143.332 -.628 JPY.79.784.396.343 -.4 -.52 1 -.7 -.351.21.574 -.66 TWD.648.633.81.98 -.416 -.785.687 -.163 -.629.232.868 -.686 THB.645.598.646.167 -.389 -.813.594 -.341 -.486.17.788 -.692 INR.632.434.79.82 -.376 -.371.551.263 -.8.392.67 -.715 CNH.586.332.969 -.65 -.53 -.6.574 -.31 -.415.259 1 -.71 CCN12M.454.391.746.89 -.219 -.412.591.81 -.3 -.43.77 -.498 CNY.46.113 1 -.241 -.546 -.234.396.497.17.382.969 -.575 PHP.41.549 -.315.819.814.34.242 -.19.242 -.415 -.333 -.265 KRW.115.194.725 -.357 -.691 -.59.23.162 -.435.387.67 -.247 NZD -.81 -.792 -.83 -.788 -.381.356 -.518.36 -.77.195 -.173.695 AUD -.837 -.84 -.294 -.672 -.197.438 -.615.7.79.14 -.338.76 GBP -.863 -.796.24 -.889 -.513.383 -.536.136.36.297 -.266.733 EUR -.967 -.628 -.575 -.489.19.396 -.66 -.119.185 -.189 -.71 1 Source: Bloomberg Immediate technical support and resistance levels S2 S1 Current R1 R2 EUR-USD 1.1682 1.18 1.182 1.1845 1.1896 GBP-USD 1.3153 1.32 1.329 1.33 1.3511 AUD-USD.7738.78.7854.79.796 NZD-USD.751.71.7137.7156.72 USD-CAD 1.24 1.2437 1.247 1.25 1.2588 USD-JPY 111.73 112. 112.99 113. 113.19 USD-SGD 1.35 1.3546 1.3582 1.36 1.3656 EUR-SGD 1.5928 1.6 1.63 1.647 1.66 JPY-SGD 1.2 1.28 1.221 1.21 1.2112 GBP-SGD 1.7822 1.79 1.7941 1.8 1.8275 AUD-SGD 1.6 1.635 1.667 1.7 1.78 Gold 126.5 1264.51 1279.9 1298.97 13. Silver 16.47 16.9 16.96 17. 17.24 Crude 5.76 52. 52.4 52.1 52.86 FX performance: 1-month change agst USD 2. % 1.. -1. -2. -3. -4. -5. -6. Source: Bloomberg Treasury & Strategy Research 6
G1 FX Heat Map AUD NZD EUR GBP JPY CAD USD SGD MYR AUD 1 9 9 1 2 1 1 1 NZD 1 1 1 1 2 1 1 1 EUR 9 1 2 1 2 1 1 1 GBP 9 1 2 1 2 1 1 1 JPY 1 1 1 1 1 2 1 2 CAD 2 2 2 2 1 2 1 1 USD 1 1 1 1 2 2 2 2 SGD 1 1 1 1 1 1 2 2 MYR 1 1 1 1 2 1 2 2 Asia FX Heat Map USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR USD 2 2 2 2 1 9 2 2 9 2 JPY 2 1 1 2 2 2 1 1 1 2 CNY 2 1 2 2 1 1 1 1 1 9 SGD 2 1 2 2 1 1 1 1 1 2 MYR 2 2 2 2 1 1 1 1 1 2 KRW 1 2 1 1 1 1 1 1 1 2 TWD 9 2 1 1 1 1 2 2 2 2 THB 2 1 1 1 1 1 2 2 1 2 PHP 2 1 1 1 1 1 2 2 1 2 INR 9 1 1 1 1 1 2 1 1 2 IDR 2 2 9 2 2 2 2 2 2 2 Treasury & Strategy Research 7
FX Trade Ideas Inception B/S Currency Spot Target Stop/Trailing Stop Rationale TACTICAL 1 21-Sep-17 B USD-JPY 112.58 115.5 111.3 Policy dichotomy post FOMC-BOJ + positive risk appetite levels 2 28-Sep-17 S AUD-USD.7816.7625.7915 Cyclicals may undergo a reassessment in face of corrective moves in the USD and US yields 3 28-Sep-17 B USD-CAD 1.25 1.2795 1.235 Reality check from the BOC's Poloz even as the USD garners renewed interest STRUCTURAL 4 9-May-17 B GBP-USD 1.2927 1.37 1.2535 USD skepticism, UK snap elections, positioning overhang, hawkish BOE? 5 22-Aug-17 Bearish 2M 1X1.5 USD-JPY Put Spread Underwhelming data feed, Spot ref: 19.31; Strikes: 19., 16.4; gradualist Fed, potential negative Exp: 2/1/17; Cost:.57% US political baggage 6 29-Aug-17 Bearish 2M 1X1.5 USD-SGD Put Spread Vunerable USD, prevailing Spot ref: 1.3519; Strikes: 1.3511, 1.3361; positivity towards carry, EM/Asia Exp: 27/1/17; Cost:.31% RECENTLY CLOSED TRADE IDEAS Inception Close B/S Currency Spot Close Rationale P/L (%)* 1 11-Sep-17 18-Sep-17 S USD-CAD 1.2128 1.227 Support from earlier than expected BOC rate hike, inherent USD vulnerability 2 2-Jul-17 21-Sep-17 Bullish 2M 1X1.5 AUD-USD Call Spread More positive than expected RBA Spot ref:.7915; Strikes:.799,.8111; minutes, supportive data, weak Exp: 21/9/17; Cost:.65%. Closed at.7964 USD 3 19-Sep-17 27-Sep-17 B GBP-USD 1.354 1.3395 Earlier than expected paradigm change by the BOE -1.16 +.4-1.11 4 28-Sep-17 11-Oct-17 S EUR-USD 1.1734 1.186 Political overhang from Germany contrasting with FOMC, Yellen -.99 5 9-Oct-17 12-Oct-17 S GBP-USD 1.3116 1.3256 Brexit concerns plus additional leadership threats to PM May's position -1.5 6 4-Oct-17 12-Oct-17 B USD-SGD 1.362 1.3525 Potential USD resilience- Fed, -.56 geopolitical risks, static MAS, decaying capital inflows in Asia Jan-Oct*** 217 Return -8.68 * realized **of notional ***month-to-date 216 Return +6.91 Treasury & Strategy Research 8
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