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: 1.2535 Early signs of topping, confirmation upon breach of 1.2440. Despite exceeding the strong 1.2655 resistance yesterday, the bullish JPY phase that started earlier this month are showing early signs of topping. From here, a sustained move above the 1.2669 high appears unlikely but confirmation of a short-term top is only upon a break below 1.2440. Having said that, a move below 1.2440 would indicate the start of a correction/consolidation phase and not a bearish reversal. 1 P a g e
OVERVIEW Oil rallied after weekly EIA data were somewhat better than expected, resulting in a +3.6% up day for the front month Brent crude contract and a +1% net daily move for WTI. The enthusiasm in the oil market propelled US equities. Bond yields also were up, if not by much, with the curve steepening by around half a basis point as the 2-year yield increased by 2.5bps and the 30-year by 3bps.The 10-year yield was as low as 1.65% and as high as 1.75% at the close. Volatility was also evident within the FX space. For the DXY, a push to the upside in the Europe session met stiff resistance at 97.90 which sparked a sharp decline to 97.23 before recovering slightly to close flat at 97.45. On the Fed front, Richmond Fed President Lacker said that there is still a case for further rate hikes based on the natural real rate of interest (as it as at or just above zero). However, this contrasts the more cautious overtures laid out by FOMC leadership in recent weeks. Markets now look ahead to durable goods orders data for January, expected to show a rebound from the soft reading in December. The weekly jobless claims report will also be released and will be of interest after last week's surprisingly low reading. Meanwhile, San Francisco Fed President John Williams will be speaking in New York. Before that, Atlanta Fed President Dennis Lockhart will be giving opening remarks at a banking conference. All eyes will also be on the G20 Finance Ministers meeting that starts in Shanghai on Friday. 25-Feb-16 Summary of Views FX Pairs Spot Outlook Since/ Rate Target Trailing-Stop Support Resistance USD/SGD 1.4045 Neutral 17 Feb 16 1.4050 S1: 1.4000 S2: 1.3960 R1: 1.4115 R2: 1.4160 EUR/SGD 1.5460 Bearish 23 Feb 16 1.5435 1.5285 1.5550 S1: 1.5395 S2: 1.5285 R1: 1.5550 R2: 1.5620 GBP/SGD 1.9560 Bearish 23 Feb 16 1.9800 1.9500 1.9760 1.9910 S1: 1.9500 S2: 1.9400 R1: 1.9640 R2: 1.9760 AUD/SGD 1.0100 Bullish 18 Feb 16 1.0055 1.0280 1.0170 1.0000 0.9940 S1: 1.0050 S2: 1.0000 R1: 1.0200 R2: 1.0280 JPY/SGD 1.2535 Bullish 09 Feb 16 1.2120 1.2700 1.2655 1.2440 1.2400 S1: 1.2500 S2: 1.2440 R1: 1.2600 R2: 1.2670 USD/MYR 4.2050 Bullish 18 Feb 16 4.1720 4.2700 4.2490 4.1800 4.1450 S1: 4.2000 S2: 4.1800 R1: 4.2400 R2: 4.2545 USD/THB 35.68 Neutral 15 Feb 16 35.58 S1: 35.60 S2: 35.50 R1: 35.76 R2: 35.80 USD/CNH 6.5370 Neutral 24 Feb 16 6.5375 S1: 6.5300 S2: 6.5200 R1: 6.5500 R2: 6.5680 EUR/USD 1.1020 Neutral 16 Feb 16 1.1165 S1: 1.0955 S2: 1.0850 R1: 1.1085 R2: 1.1130 GBP/USD 1.3925 Bearish 17 Feb 16 1.4305 1.3800 1.3930 1.4075 1.4170 S1: 1.3870 S2: 1.3800 R1: 1.4000 R2: 1.4075 AUD/USD 0.7195 Bullish 23 Feb 16 0.7225 0.7325 0.7130 S1: 0.7170 S2: 0.7130 R1: 0.7260 R2: 0.7325 NZD/USD 0.6660 Neutral 23 Feb 16 0.6705 S1: 0.6620 S2: 0.6565 R1: 0.6700 R2: 0.6750 USD/JPY 112.00 Neutral * Shift in outlook. 16 Feb 16 114.45 S1: 111.40 S2: 111.00 R1: 112.40 R2: 113.00 FX Pairs Ranges for 24-Feb-16 Performance* Open High Low Close 1-day 1-week 1-month YTD** USD/SGD 1.4083 1.4110 1.4026 1.4051-0.17% +0.14% -1.74% -0.88% EUR/SGD 1.5503 1.5538 1.5413 1.5470-0.21% -0.91% -0.25% +0.49% GBP/SGD 1.9730 1.9756 1.9503 1.9566-0.84% -2.44% -3.94% -6.34% AUD/SGD 1.0133 1.0138 1.0054 1.0110-0.24% +0.31% +1.67% -1.95% JPY/SGD 1.2551 1.2669 1.2500 1.2522-0.22% +1.84% +3.61% +6.30% USD/MYR 4.1920 4.2445 4.1920 4.2150 +0.40% +0.05% -1.83% -1.74% USD/THB 35.72 35.78 35.64 35.66-0.14% +0.16% -0.66% -0.99% USD/CNH 6.5360 6.5430 6.5320 6.5330-0.02% +0.11% -1.14% -0.53% EUR/USD 1.1017 1.1045 1.0955 1.1011-0.05% -1.04% +1.51% +1.39% GBP/USD 1.4022 1.4029 1.3878 1.3924-0.68% -2.57% -2.28% -5.47% AUD/USD 0.7201 0.7213 0.7145 0.7196-0.08% +0.18% +3.45% -1.22% NZD/USD 0.6645 0.6674 0.6586 0.6660 +0.30% +0.45% +3.22% -2.43% USD/JPY 112.09 112.26 111.04 112.17 +0.06% -1.67% -5.16% -6.75% * 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-15. 2 P a g e
USD/SGD: 1.4045 SGD saw a rather choppy session Wednesday, after firming early in Asia following the release of the 4Q15 GDP report, to 1.4032/USD, then weakened sharply along with falling crude oil prices, to 1.4110/USD in the evening, before wrapping up the session for a 0.2% gain to 1.4053/USD late Wednesday. Singapore 4Q15 GDP grew 1.8% y/y in 4Q 2015, slightly lower than the 2.0% y/y advance estimates, as the manufacturing sector continued to be hampered by the slowdown in global demand. For 2015, Singapore s economy expanded 2.0% y/y, a slight downward revision from the 2.1% y/y advance estimates and far slower than the 3.3% pace in 2014, for the slowest pace since the recession in 2009. Singapore s growth prospects remain challenging in 2016, particularly in the first half of the year. However, we remain optimistic of some pickup in external sectors in 2H2016 as the economic conditions in the US continue on an improving path, in addition to favourable base effect due to the low base in 2015. We do not think that the recent releases of weak economic numbers warrant an easing in MAS monetary policy in April and we are also not of the view of an impending economic recession. We maintain our projection for 2016 GDP of 2.7%, at the top end of government s 1-3% growth forecast. This morning SGD NEER index pedaled back to -1% below the midpoint, after having risen to as much as 0.5% early Wednesday following the 4Q GDP report. For now, the -0.5% to -1.0% range looks reasonable, and that implies USD/SGD range of 1.3970-1.4112. In line with expectation, USD extended its up-move but struggled to move above the 1.4110/15 high seen last week. The rapid and sharp pull-back from the overnight high of 1.4110 suggests that a short-term top is in place. The current weakness appears to have scope to extend lower but at this stage, a move below 1.4000 is unlikely. Resistance is at 1.4080 ahead of 1.4115. Neutral: Caught in a range for now. There is no much to add as USD retested the recent high of 1.4110/15 before easing off quickly. We continue to hold a neutral view and expect this pair to trade sideways for at least another few days more. The key levels are at 1.3960 and 1.4160. 3 P a g e
EUR/SGD: 1.5460 The short-term outlook for this pair appears mixed and further sideway trading is expected for today. Solid support remains at 1.5395 while any up-move is expected to struggle near the stiff resistance at 1.5550. Bearish: Extension to 1.5285 cannot be ruled out just yet. As long as this pair continues to stay below 1.5550, another leg lower to 1.5285 cannot be ruled out just yet. The current movement is likely a short-term consolidation phase that should lead to an eventual move lower. That said, 1.5395/00 is a solid support and this level has to break before further down-move can be expected. GBP/SGD: 1.9560 The anticipated GBP weakness exceeded our 1.9600 target by a wide margin. However, the current weakness is showing some early signs of stabilization and further sharp drop is not expected for today. From here, allow for a retest of the 1.9500/05 support but 1.9440 is expected to hold for a rebound to 1.9640. Bearish: Take partial profit at 1.9500. The low of 1.9503 was just a few pips shy of our target at 1.9500. While the outlook for GBP is still clearly bearish, a sustained move below 1.9500 appears unlikely for now. Those who are shorts should consider taking partial profit at 1.9500. Overall, only a move back above the stop-loss at 1.9760 (adjusted from 1.9910) would indicate that the current bearish phase has ended. The next significant support below 1.9500 is at 1.9400. AUD/SGD: 1.0100 AUD traded sideways as expected albeit at a lower range than anticipated. The outlook remains mixed and further range trading is likely for today, likely between 1.0050 and 1.0140. Bullish: 1.0170 target met, focus on 1.0280 next. We continue to view the current movement as a short-term consolidation phase that is expected to lead to an eventual move higher. The recent high of 1.0200 exceeded our initial target of 1.0170 and is acting as a very strong resistance now but a break above this level could lead to a quick rise towards the revised target at 1.0280. Stop-loss remains unchanged at 1.0000. JPY/SGD: 1.2535 The initial dip in JPY held above the 1.2500 support before rallying strongly to exceed the 1.2620 target with a high of 1.2669. However, the up-move was quickly reversed and the sharp drop from the high suggests that a short-term top is in place. The current pull-back has scope to extend lower but any down-move is likely limited to 1.2460. Resistance is at 1.2600 and the high of 1.2669 is unlikely to come under threat for now. Bullish: Early signs of topping. [See Chart of the Day on page 1] 4 P a g e
USD/MYR: 4.2050 Malaysia CPI in January rose 3.5%y/y, from 2.7% in December 2015, the largest annual increase since March 2014. We maintain our near term inflation and interest rate outlook for Malaysia. Inflation is expected to accelerate in 1Q16 owing to the sharply lower base effect and higher cost related adjustments. The upside pressures are partly offset by petrol price cuts which may help to cap inflation below 4% in 1Q06, and thereafter moderate further in subsequent months. We project a higher average inflation of 3.2% in 2016 albeit subject to downward revision if oil price weakness persists and domestic demand moderates further. Growth risks continue to outweigh inflation risks thus we anticipate Bank Negara Malaysia (BNM) to maintain its overnight policy rate (OPR) at 3.25%. Bullish: Target at 4.2490 exceeded, short-term top appears imminent. We turned bullish USD last Thursday, 18 February when spot was at 4.1720 with a target of 4.2490. Over the last couple of days, we have highlighted that the upward momentum is not as impulsive as we would like and suggested that those who are holding long positions should book some profit near 4.2490. The high has been 4.2545 yesterday and the sharply lower opening this morning suggests that a short-term top is close-by. However, only a break below 4.1800 would indicate the start of a corrective pull-back. In the meanwhile, 4.2545 is acting as a very strong resistance and only a break above this level would lead to another leg higher to 4.2700. USD/THB: 35.68 THB edged higher by 0.1% to 35.710/USD on Wednesday, though the pair is seen a tad lower today. In News, the Excise Department was told to submit plans to broaden its tax base in the next two months in a bid to make its 800-billion-baht tax revenue target over five years achievable. Finance permanent secretary Somchai Sujjapongse said apart from being a source of government income, an excise tax could be used to discourage actions or behaviour that is harmful to health or the environment. For instance, an excise tax should be imposed to curb consumption if a study finds beverages with high sugar content are harmful to health, he added without elaborating on products. Neutral: Odds for a move above 32.80 have diminished considerably. Over the past few days, we have highlighted that despite the generally positive undertone for USD, only a daily closing above 32.80 would indicate the start of a bullish phase. However, the odds for such a move have diminished considerably with the weak closing yesterday. To put it another way; the current outlook is still considered as neutral and we expect this pair to trade between 35.50 and 35.80 for at least several more days. USD/CNH: 6.5370 Onshore RMB fell 0.1% to 6.5328/USD, and has accumulated a 4-day loss of 0.24% against USD, after another weak central parity on Wednesday. Offshore CNH declined 0.04% to 6.5363/USD but otherwise the onshore offshore remains relatively tight. This suggests that speculative activities are still being sidelined at the moment. The central parity was lowered by 0.04% to 6.5302/USD on Wednesday, following a 0.17% drop on Tuesday, showing again that the G20 finance ministers meeting that is scheduled for Friday and Saturday in Shanghai has so far done little to provide support for the RMB. US Treasury Sec Jack Lew late Wed downplayed the prospects of crisis response to the market turbulence from the G20 meeting. In addition, the announcement from PBoC on Wednesday to open up domestic interbank bond market to foreign institutions suggests that the authorities are not concerned about capital outflows, even as foreign reserves fell by more than US$510bn in 2015. Neutral: In a broad sideway range now. We just turned neutral yesterday and there is no change to the current view. We continue to expect USD to trade in a broad sideway range, likely between 6.5200 and 6.5680. 5 P a g e
EUR/USD: 1.1015 Eurozone data was limited on Wednesday. In France, consumer confidence nudged lower in February but jobseeker numbers fell an unexpectedly large 27.9k in January. Today, Germany's Gfk consumer confidence survey will be released, together with consumer and business confidence readings in Italy. In addition, the ECB will release its money and credit aggregates for January. The most recent ECB Bank Lending Survey pointed to continued growth in demand for credit and expectations that growth will continue. EUR dipped below the major 1.0990 support but as expected, held above 1.0940. The recent downward pressure has eased somewhat with the solid rebound from the low of 1.0955 but it is still too early to expect a robust recovery. From here, allow for a dip to 1.0980 but 1.0940 will likely continue to hold for a move higher to 1.1055/60. Neutral: Daily closing below 1.0990 would shift outlook to bearish. While EUR touched a low of 1.0955, it rebounded quickly to close almost unchanged for the day. As highlighted in recent updates, despite the generally negative undertone, we prefer to wait for a daily closing below 1.0990 before turning bearish. From here, a move back above 1.1085 is enough to suggest that the short-term downward pressure has eased. 6 P a g e
GBP/USD: 1.3925 GBP/USD plummeted to new 7-year-lows of 1.3878 on Brexit fears before a slight recovery was seen. Notably, a new Comres/Daily Mail UK public opinion poll shows 51% in favour of remaining in the EU and 39% for leaving (Brexit). This 12% pro-eu balance is wider than the 8% balance the organisation found last week but narrower than the 18% margin it found in January. Data wise, the CBI s Distributive Trades Survey for February pointed to a slightly less upbeat retail picture, with the reported sales balance dropping further to 10, from 16 in January, and versus12 expected by the market. All eyes on today s second estimate of UK s economic growth for the final quarter of last year, likely to come out weaker than first announced, although expectations point to no headline figure changes. The first estimate showed the economy grew at the rate of 0.5%, one percentage point up from the first quarter. GBP continues with its decline to touch a fresh low of 1.3878. The current weakness is severely oversold now and with early signs of momentum slowing down, further sharp drop is unlikely for today. That said, it is premature to expect a sustained recovery and it is more likely that this pair will consolidate its recent loss at these lower levels. In other words, expect range trading, likely between 1.3870 and 1.4000. Bearish: Partial profit taken at 1.3930, extension to 1.3800 not ruled out but odds are not high. The low of 1.3878 yesterday exceeded our partial profit-take level of 1.3930. While the outlook is still bearish, severely oversold conditions coupled with early signs of momentum slowing down suggests low odds of extension lower to the next support at 1.3800. That said, confirmation that the bearish phase has ended is only upon a move back above 1.4075 (adjusted from 1.4170). 7 P a g e
AUD/USD: 0.7190 Australia s private capital expenditure rose 0.8% in the December quarter, with a revised 8.4% decline in the third quarter and against expectations for a fall of 3.0%. Total investment spending in the mining sector fell 7.0%, with spending on building and structures down 0.4%, and spending on equipment, plant and machinery down 5.6%. AUD traded sideways as expected albeit at a lower range than anticipated. The price action continues to suggest range trading for today, likely between 0.7160 and 0.7235. Bullish: Immediate target at 0.7325/30. While the pull-back from the recent high of 0.7259 has been deeper than expected, the stop-loss for our bullish AUD view is still intact at 0.7130. As long as this level is not taken out, we continue to expect a move to 0.7325/30 even though 0.7259 is acting as a very strong resistance now and this level will not be easy to crack. 8 P a g e
NZD/USD: 0.6660 Snapping the significant jump seen on Monday, NZD turned lower on Tuesday amid the sentiment shift towards safety. As we mentioned earlier this week, there is not a huge amount of data until the RBNZ 10 March meeting, so risk-sentiment will continue be the key driver for NZD. NZD dipped below 0.6600 but rebounded quickly from a low of 0.6586. The recovery appears to have scope to extend higher but any further up-move is expected to struggle near the strong resistance at 0.6715. Support is at 0.6620 and the 0.6586 low is unlikely to come under threat today. Neutral: In a broad 0.6560/0.6750 range. There is no change to the neutral view and we continue to expect NZD to trade between 0.6560 and 0.6750 in the coming days. 9 P a g e
USD/JPY: 112.00 USD/JPY has dropped below the 112.00 mark, as the rally in risky assets and oil having come off the boil. Japan EconMin Ishihara said that Japan is not engaged in competitive currency devaluation and Japan shares the understanding that competitive currency devaluation is not desirable. Separately, Japan vice FinMin Sakai said that they will continue to carefully monitor currencies. Against our expectation, USD moved clearly below the 111.40 support before recovering to close near the day s high. The recent downward pressure appears to have eased but it is too early to expect a sustained rebound. From here, allow for a dip to 111.50 but 111.00 is expected to hold for a move higher to 112.40. Neutral: Daily closing below 112.00 would shift outlook to bearish. While USD touched a low of 111.04 yesterday, it rebounded strongly to close above 112.00. The undertone is clearly negative but we are not convinced that the current price action is the start of a sustained down-move unless there is a daily closing below 112.00. That said, this pair is expected to remain under pressure unless it can reclaim the strong 113.00 resistance. 10 P a g e
UOB FX & Interest Rate Outlook FX Outlook 1Q16 2Q16 3Q16 4Q16 Rates Outlook 1Q16 2Q16 3Q16 4Q16 EUR/USD 1.10 1.11 1.11 1.12 EU 0.05% 0.05% 0.05% 0.05% GBP/USD 1.42 1.44 1.43 1.41 UK 0.50% 0.50% 0.50% 0.75% AUD/USD 0.74 0.74 0.75 0.76 AU 2.00% 2.00% 2.00% 2.00% NZD/USD 0.65 0.65 0.66 0.67 NZ 2.50% 2.50% 2.50% 2.50% USD/JPY 118 119 120 122 JP -0.10% -0.10% -0.20% -0.20% USD/SGD 1.42 1.46 1.44 1.42 SG 1.30% 1.50% 1.65% 1.75% USD/MYR 4.15 4.25 4.20 4.10 MY 3.25% 3.25% 3.25% 3.25% USD/THB 36.2 36.5 36.8 37.0 TH 1.50% 1.50% 1.50% 1.50% USD/CNY 6.55 6.60 6.47 6.45 CN 4.10% 3.85% 3.85% 3.85% USD/IDR 13,500 13,400 13,300 13,200 ID 7.0% 6.75% 6.75% 6.75% USD/PHP 47.5 48.0 47.0 46.0 PH 4.0% 4.0% 4.0% 4.0% USD/INR 67.9 69.0 70.0 71.1 IN 6.75% 6.75% 6.75% 6.75% USD/TWD 33.9 34.1 33.9 33.6 TW 1.50% 1.38% 1.38% 1.38% USD/HKD 7.80 7.80 7.80 7.80 HK 0.75% 1.00% 1.00% 1.25% USD/KRW 1220 1250 1200 1180 KR 1.25% 1.25% 1.25% 1.25% Last updated on 19 Feb 16 US 0.50% 0.75% 0.75% 1.00% Central Bank Meetings 2016 Central Bank Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Federal Reserve (FOMC) 27-16 27-15 27-21 - 02 14 European Central Bank (ECB) 21-10 21-02 21-08 20-08 Bank of England (BOE) 14 04 17 14 12 16 14 04 15 13 03 15 Reserve Bank of Australia (RBA) - 02 01 05 03 07 05 02 06 04 01 06 Reserve Bank of New Zealand (RBNZ) 28-10 28-09 - 11 22-10 - Bank of Japan (BOJ) 29-15 28-16 29 - Bank Negara Malaysia (BNM) 21-09 - 19-13 - 07-23 - Bank of Thailand (BOT) - 03 23-11 22-03 14-09 21 Monetary Authority of Singapore (MAS) - TBA 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