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 EUR/USD: 1.1045 Bearish; target a move to 1.0950. We have highlighted several times in recent updates that a daily closing below 1.1120 would shift the outlook for EUR to bearish. The condition was met yesterday as EUR dropped sharply in overnight trading and is currently hovering around the next major support near 1.1040/45 (minor low in early August & rising trend-line support). Based on the current momentum, a move below this level would not be surprising and would shift the focus towards 1.0950 followed closely by the 1.0910 low seen on the day of Brexit. If the current price action is a valid break, any short-term recovery should be shallow and should not move back above 1.1140/45. 1 P a g e
OVERVIEW The US dollar index closed on a 7-month high on Tuesday (11 Oct) and expectations for a year-end Fed rate hike continued to increase while the UK pound continued to be weighed down by the concerns of a hard Brexit while BOE s external MPC member, Michael Saunders, said during his testimony in UK parliament that the volatile GBP trading is not too big a concern for the Bank of England and he expected the GBP to decline in value further. The GBP/USD pair dropped to an intraday low of 1.2090, before eventually ending the NY session at 1.2123 (from 1.2362). EUR/USD traded lower by 0.76% to 1.1054 from 1.1139. AUD/USD closed lower at 0.7539 (from 0.7607), tracking losses in equities. Similarly, the kiwi also depreciated against the dollar and the NZD/USD closed the NY session higher at 0.7056 (from 0.7136). The yen was the major FX that stood out against the USD as the USD/JPY pair traded in the tight range of 103.18-104.07 during the New York session before ending lower at 103.51 (from 103.61 previously). USD/SGD touched a high of 1.3799 before closing higher for the fourth straight day at 1.3794. However, the trade-weighted SGD NEER has maintained stability ahead of the monetary policy statement this Fri. SGD NEER is currently trading at 0.25% above the mid-point. Later in the Asia afternoon, we will have the Japan September prelim machine tool orders data. In Europe, we have the German September wholesale price index, the final print for French September CPI, and the Eurozone August industrial production data. The US economic calendar is still rather light today with just the JOLTS August jobs openings data so the focus will be on the 20/21 Sep FOMC minutes due on 12 Oct (13 Oct, 2am Singapore time). Latest Flash Note: 07 Oct 16 US Sep Labor Market: Another Mediocre Month Of 156k http://bit.ly/2d3oyss 2 P a g e
12-Oct-16 Summary of Views FX Pairs Spot Outlook Since/ Rate Target Trailing-Stop Support Resistance USD/SGD 1.3775 Bullish 05 Oct 16 1.3710 1.3800 1.3720 1.3690 S1: 1.3750 S2: 1.3720 R1: 1.3800 R2: 1.3840 EUR/SGD 1.5235 Neutral 10 Oct 16 1.5370 - - S1: 1.5200 S2: 1.5160 R1: 1.5290 R2: 1.5355 GBP/SGD 1.6985 Bearish 07 Oct 16 1.7140 1.6400 1.7130 1.7200 S1: 1.6660 S2: 1.6400 R1: 1.7000 R2: 1.7130 AUD/SGD 1.0430 Neutral 07 Sep 16 1.0400 - - S1: 1.0380 S2: 1.0330 R1: 1.0480 R2: 1.0500 JPY/SGD 1.3315 *Neutral 12 Oct 16 1.3315 - - S1: 1.3250 S2: 1.3200 R1: 1.3400 R2: 1.3450 USD/MYR 4.1830 Bullish 14 Sep 16 4.1250 4.2100 4.1720 4.1280 4.1150 S1: 4.1500 S2: 4.1280 R1: 4.2100 R2: 4.2445 USD/THB 35.35 Bullish 06 Oct 16 34.78 35.55 35.30 35.10 34.95 S1: 35.20 S2: 35.10 R1: 35.48 R2: 35.55 USD/CNH 6.7245 Bullish 07 Oct 16 6.7150 6.7500 6.7110 6.7020 S1: 6.7170 S2: 6.7110 R1: 6.7315 R2: 6.7500 CNH/SGD 0.2049 Neutral 30 Sep 16 0.2046 - - S1: 0.2046 S2: 0.2043 R1: 0.2053 R2: 0.2058 EUR/USD 1.1065 *Bearish 12 Oct 16 1.1065 1.0950 1.1145 S1: 1.1000 S2: 1.0950 R1: 1.1100 R2: 1.1145 GBP/USD 1.2285 Bearish 14 Sep 16 1.3195 1.1500 1.2620 1.2470 1.2610 S1: 1.2090 S2: 1.1500 R1: 1.2360 R2: 1.2470 AUD/USD 0.7565 Neutral 03 Oct 16 0.7630 - - S1: 0.7530 S2: 0.7510 R1: 0.7600 R2: 0.7630 NZD/USD 0.7085 Bearish USD/JPY 103.40 Bullish * Shift in outlook. 05 Oct 16 0.7195 05 Oct 16 102.80 0.7010 0.7110 104.30 103.35 0.7160 0.7205 102.70 102.30 S1: 0.7045 S2: 0.7010 S1: 103.00 S2: 102.70 R1: 0.7110 R2: 0.7160 R1: 103.80 R2: 104.30 FX Pairs Ranges for 11-Oct-16 Performance* Open High Low Close 1-day 1-week 1-month YTD** USD/SGD 1.3745 1.3799 1.3745 1.3794 +0.31% +0.67% +1.70% -2.80% EUR/SGD 1.5307 1.5356 1.5227 1.5245-0.42% -0.72% +0.09% -1.03% GBP/SGD 1.6993 1.7008 1.6664 1.6713-1.62% -4.19% -7.56% -19.0% AUD/SGD 1.0453 1.0461 1.0378 1.0393-0.60% -0.47% +1.34% +0.95% JPY/SGD 1.3264 1.3364 1.3230 1.3323 +0.43% +0.03% +0.09% +13.0% USD/MYR 4.1450 4.1760 4.1280 4.1700 +0.45% +1.09% +2.51% -2.79% USD/THB 35.13 35.49 35.10 35.44 +0.91% +1.89% +1.66% -1.61% USD/CNH 6.7185 6.7315 6.7179 6.7283 +0.16% +0.52% +0.64% +2.43% EUR/USD 1.1135 1.1143 1.1046 1.1053-0.75% -1.33% -1.59% +1.84% GBP/USD 1.2365 1.2365 1.2090 1.2123-1.91% -4.74% -9.08% -16.6% AUD/USD 0.7603 0.7610 0.7533 0.7540-0.88% -1.03% -0.34% +3.76% NZD/USD 0.7135 0.7142 0.7048 0.7061-1.06% -2.03% -3.97% +3.67% USD/JPY 103.59 104.07 103.14 103.50-0.07% +0.60% +1.63% -14.0% * 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. 3 P a g e
USD/SGD: 1.3775 Latest Flash Note: 07 Oct 16 Singapore MAS Policy Preview: Zero Appreciation Of The SGD NEER Likely To Remain In Upcoming Meeting http://bit.ly/2e9ergu USD continues to strengthen but the up-move was checked by the major resistance indicated at 1.3800 yesterday (high of 1.3799). Upward momentum is showing signs of tiring and this coupled with overbought conditions suggest that any further up-move will continue to struggle to move beyond 1.3800. That said, it is too early to expect a significant pullback and USD is more likely to consolidate its recent gains and trade sideways at these higher levels. Expected range for today; 1.3750/1.3795. Bullish: Above 1.3800 would shift the focus to 1.3840. There is not much to add as the recent price action is in line with our expectation. USD continues to move higher and came within a pip of the 1.3800 target that was first highlighted last Wednesday (see Chart of the Day update on 05/10/16, spot at 1.3710). A break above 1.3800 would shift the focus towards 1.3840, the high seen in late May. Stoploss is adjusted higher to 1.3720 from 1.3690. 4 P a g e
EUR/SGD: 1.5230 The break below 1.5250 was unexpected as EUR plunged to an overnight low of 1.5227. With no signs of stabilization just yet, the current weakness could extend lower to test the major 1.5200 support (where a break would open up the way for a move to 1.5160). Resistance is at 1.5270 but only a move above 1.5290 would indicate that the current decline has stabilized. Neutral: Bearish if daily closing below 1.5200. The sharp and resilient decline yesterday was unexpected. The pressure has shifted quickly to the downside and from here, a daily closing below 1.5200 would indicate that a move towards 1.5100 has started. Overall, this pair is expected to remain under pressure unless it can move and stay above 1.5290 within these 1 to 2 days. GBP/SGD: 1.6905 GBP dropped to a low of 1.6664 yesterday but opened sharply higher this morning. The strong rebound appears to have scope to extend further to 1.7000. Support is at 1.6770 and the 1.6664 low is unlikely to come into the picture for now. Bearish: Extremely over-extended but further weakness seems likely. GBP dropped quickly to a low of 1.6664 yesterday before rebounding as rapidly to current level. While downward momentum has eased, it is not enough to turn the current bearish phase around. Only a move back above 1.7130 (adjusted from 1.7200) would indicate that a temporary low is in place. Until then, another leg lower towards 1.6400/1.6500 would not be surprising. AUD/SGD: 1.0430 AUD dropped below the 1.0420 support to touch a low of 1.0378 but rebounded strongly. While the recovery appears incomplete, the current movement is viewed as part of a broader consolidation phase and a clear break above the major 1.0480 resistance is not expected. The overnight low of 1.0375/80 is acting as a very strong intraday support. JPY/SGD: 1.3315 Against our expectation, JPY recovered quickly and edged above the key 1.3360 resistance (high of 1.3364) before easing off. A retest of 1.3360/65 would not be surprising but based on the current momentum, a sustained move above 1.3400 seems unlikely. Support is at 1.3280 followed by the stronger level near 1.3250. Neutral: In a 1.0330/1.0480 range. After testing the top end of our expected sideway consolidation range of 1.0480 on Monday (high of 1.0482), AUD dropped sharply to an overnight low of 1.0378. The pullback from the 1.0482 high appears to have scope to extend lower but at this stage, a sustained move below 1.0330 seems unlikely. In other words, there is no change to the current neutral view on AUD and we continue to expect sideway consolidation between 1.0330 and 1.0480. Shift from bearish to neutral: In a 1.3200/1.3450 range. As indicated in the Chart of the Day update yesterday, the odds for further sustained JPY weakness are not high. In fact, the overnight JPY strength moved above the 1.3360 stop-loss with a high of 1.3364. To put it another way, the bearish phase that started last week has ended. The current movement is viewed as part of a neutral consolidation phase, likely within a 1.3200/1.3450 range. 5 P a g e
USD/MYR: 4.1830 Bullish: Still clearly bullish, next target at 4.2100 followed by 4.2445. The 4.1720 target that was first indicated about 3 weeks ago was finally met as USD touched a high of 4.1760 yesterday. The bullish outlook is still clearly intact and the sharp rally bodes well for further USD strength. From here, the next target to aim for is at 4.2100 followed by the minor peak of 4.2445 seen in late February. Stop-loss is adjusted higher to 4.1280 from 4.1150. USD/THB: 35.35 Bullish: Room for further USD strength towards 35.55. The partial profit taking level advocated at 35.30 yesterday was easily met as USD continues with its strong rally to touch a high of 35.48. The up-move is very over-extended but in view of the rather impulsive momentum, further rally towards the 35.55 peak seen in late June will not be surprising. Only a move back below 35.10 (adjusted from 34.95) would indicate that a short-term top is in place. *Took partial profit at 35.30. USD/CNH: 6.7245 Bullish: Target 6.7500. There is not much to add as the recent price action is in line with our bullish USD expectation (see Chart of the Day update on 07/10/16). While overbought, upward momentum remains strong and we continue to anticipate further USD strength towards the 6.7500 target. Stop-loss is adjusted higher to 6.7110 from 6.7020. CNH/SGD: 0.2049 Neutral: Bullish if daily closing above 0.2053. The underlying tone for CNH has improved with the break above 0.2050 yesterday (high of 0.2053). From here, a daily closing above 0.2053 would indicate the start of a sustained up-move in CNH towards the 0.2058 high seen in mid-september. Overall, this pair is expected to stay underpinned unless there is a move back below 0.2043 within these few days. 6 P a g e
EUR/USD: 1.1065 The anticipated EUR weakness exceeded our expectation by easily taking out the strong 1.1100 support and dropped sharply to a low of 1.1046. Downward momentum is clearly strong but oversold conditions suggest that any further decline would likely be at a slower pace even though the next significant support below 1.1045/45 is closer to 1.1000. Resistance is at 1.1100 but only a move back above 1.1145 would indicate that the current sharp decline has stabilized. Shift from neutral to bearish: [See Chart of the Day on page 1] 7 P a g e
GBP/USD: 1.2285 GBP closed at 1.2123 yesterday but surged to current level during Sydney hours. The strong rebound on the back of PM May s comments that UK parliament should be allowed to vote on her plan on Brexit appears incomplete and further extension towards 1.2355/60 seems likely (key resistance is nearer to 1.2470). Support is at 1.2150 and the overnight low of 1.2090 is likely to be safe for today. Bearish: Next support at 1.1500 There is no change to the view wherein the current GBP weakness could revisit 1.1500. That said, this level seems rather far at this stage and may not be seen so soon. Overall, only a move back above 1.2470 (adjusted from 1.2610) would indicate that the current bearish phase in GBP has ended. *Took partial profit at 1.3035. 8 P a g e
AUD/USD: 0.7565 Instead of trading sideways as expected, AUD dropped to an overnight low 0.7533. The subsequent strong rebound off the low suggests that AUD is trying to form a short-term base for a stronger recovery. From here, allow for a dip to 0.7550 but as long as 0.7525/30 is not taken out, the recovery could extend towards 0.7600/05. Neutral: Bearish if daily closing below 0.7510. AUD dipped below the lower end of the expected sideway consolidation of 0.7550/0.7710 yesterday (low of 0.7533). The underlying tone has deteriorated but only a daily closing below 0.7510 would indicate that the current neutral phase has shifted to bearish. All in, AUD has to move and stay above 0.7600 within these 1 to 2 day or the downward pressure would continue to grow. 9 P a g e
NZD/USD: 0.7085 Instead of providing strong support, the 0.7100 level was easily breached as NZD dropped sharply to a low of 0.7048. The strong bounce off the low suggests that a short-term base is likely in place. That said, it is too early to expect a significant recovery and NZD is more likely to consolidate its recent loss and trade sideways at these lower levels. Expected range for today; 0.7045/1.7110. Bearish: Next support at 0.7010. NZD continues to surprise us by not only taking out the 0.7110 support but extended its decline and edged below the major level of 0.7050 (overnight low of 0.7048). While the decline is very over-extended now, only a move back above 0.7160 (adjusted from 0.7205) would indicate that the current bearish phase has ended. Otherwise, another leg lower towards the next major level of 0.7010 could not be ruled out just yet (0.7010 is the rising trend-line support connecting the two major lows seen in January and May). 10 P a g e
USD/JPY: 103.40 In line with expectation, USD extended its gain but the upmove was contained by the major 104.15/30 resistance zone (high of 104.07). The subsequent rapid pull-back suggests that the recent upward pressure has eased and the current movement is viewed as part of a consolidation phase even though the immediate bias is tilted to the downside. Expected range for today; 103.00/103.80. Bullish: Increasing risk of a short-term top. [No change in view, see previous update below] The stop-loss for bullish view at 102.70 was barely intact as USD dipped to a low of 102.78 yesterday. While the downward pressure appears to have eased with the subsequent strong recovery, USD has to punch above the major 104.15/30 resistance or the risk of a short-term top could not be ruled out just yet. 11 P a g e
UOB FX & Interest Rate Outlook FX Outlook 4Q16 1Q17 2Q17 3Q17 Rates Outlook 4Q16 1Q17 2Q17 3Q17 EUR/USD 1.10 1.09 1.09 1.08 EU 0.00% 0.00% 0.00% 0.00% GBP/USD 1.28 1.24 1.22 1.20 UK 0.10% 0.10% 0.10% 0.10% AUD/USD 0.76 0.78 0.80 0.80 AU 1.50% 1.50% 1.50% 1.50% NZD/USD 0.73 0.75 0.75 0.76 NZ 1.75% 1.50% 1.50% 1.50% USD/JPY 106 109 110 111 JP -0.20% -0.30% -0.30% -0.30% USD/SGD 1.38 1.41 1.42 1.41 SG 0.90% 0.90% 0.95% 1.00% USD/MYR 4.15 4.10 4.08 4.00 MY 3.00% 2.75% 2.75% 2.75% USD/THB 35.5 35.8 36.0 36.3 TH 1.50% 1.50% 1.50% 1.50% USD/CNY 6.68 6.66 6.65 6.63 CN 4.10% 4.10% 4.10% 4.10% USD/IDR 13,200 13,300 13,400 13,300 ID 5.00% 5.00% 5.00% 5.00% USD/PHP 46.0 45.0 43.0 41.0 PH 3.00% 3.25% 3.25% 3.50% USD/INR 68.9 70.4 71.9 70.5 IN 6.50% 6.75% 6.75% 6.75% USD/TWD 31.8 31.5 31.2 31.4 TW 1.38% 1.38% 1.38% 1.38% USD/HKD 7.80 7.80 7.80 7.80 HK 1.00% 1.00% 1.25% 1.25% USD/KRW 1150 1160 1170 1160 KR 1.00% 1.00% 1.00% 1.00% Last updated on 23 Sep 16 Quarterly Global Outlook: 4Q 2016 http://bit.ly/2cxfctq * US 0.75% 0.75% 1.00% 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 27-27 - 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 29-21 - 1 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) - - - 14 - - - - - 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