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 Tuesday, 06 June 2017 Chart Of The Day AUD/USD: 0.7480 Neutral; strong recovery has room to extend to 0.7515/20. The shift to a bearish stance last Friday (see Chart of the Day update, spot at 0.7385) was wrong as AUD surged and took out the stop-loss at 0.7455 (overnight of 0.7499). The strong recovery from the 0.7372 low seen late last week was unexpected and there is room for the rebound to extend further to 0.7515/20. At this stage, a sustained move above 0.7515/20 is not expected. Overall, this pair is expected to stay underpinned in the coming days as long as the key short-term support at 0.7425 is intact. Further down, 0.7370/75 is acting as a very strong support now. 1 P a g e
OVERVIEW For the most part markets have started the week on a quiet note, with just a hint of risk-off price action in light of diplomatic tensions between Qatar and some of its Arab neighbours. Wall Street ended in the red, but the major US equity indexes remained near all-time highs. US Treasuries edged lower amid a relatively quiet session that witnessed data of little economic significance and despite disappointment in the country s labour market report for the month of May, released end of last week. Gold hit a six-week high, whilst oil prices retreated amid rising tensions in the Middle East. Price action within the FX space was relatively subdued. The USD found some support most notably versus the EUR. Today is yet another relatively quiet session, where we will only be receiving the BLS JOLTS survey for April. Latest Flash Note: 02 Jun 17 US NFP: Jobs Creation At A Disappointing 138k In May https://goo.gl/rqnmiu 2 P a g e
06-Jun-17 Summary of Views FX Pairs Spot Outlook Since/ Rate Target Trailing-Stop Support Resistance USD/SGD 1.3815 Bearish 18 May 17 1.3915 1.3755 1.3820 1.3870 1.3890 S1: 1.3780 S2: 1.3755 R1: 1.3845 R2: 1.3870 EUR/SGD 1.5550 Neutral 29 May 17 1.5450 S1: 1.5510 S2: 1.5445 R1: 1.5580 R2: 1.5625 GBP/SGD 1.7820 Neutral 01 Jun 17 1.7810 S1: 1.7725 S2: 1.7660 R1: 1.7875 R2: 1.7920 AUD/SGD 1.0340 *Neutral 06 Jun 17 1.0340 S1: 1.0290 S2: 1.0250 R1: 1.0395 R2: 1.0425 JPY/SGD 1.2520 Neutral 22 May 17 1.2445 S1: 1.2490 S2: 1.2460 R1: 1.2530 R2: 1.2550 USD/MYR 4.2610 Bearish 26 Apr 17 4.3660 4.2210 4.2850 4.2880 4.2980 S1: 4.2400 S2: 4.2210 R1: 4.2790 R2: 4.2880 USD/THB 34.04 Neutral 05 Jun 17 34.06 S1: 34.00 S2: 33.95 R1: 34.15 R2: 34.25 USD/CNH 6.7810 Bearish 17 May 17 6.8740 6.7170 6.7930 6.8000 6.8450 S1: 6.7570 S2: 6.7245 R1: 6.7945 R2: 6.8000 CNH/SGD 0.2036 *Neutral 06 Jun 17 0.2036 S1: 0.2032 S2: 0.2027 R1: 0.2040 R2: 0.2044 EUR/USD 1.1255 Neutral 29 May 17 1.1180 S1: 1.1225 S2: 1.1210 R1: 1.1280 R2: 1.1300 GBP/USD 1.2905 Neutral 01 Jun 17 1.2875 S1: 1.2850 S2: 1.2800 R1: 1.2955 R2: 1.3010 AUD/USD 0.7480 *Neutral 06 Jun 17 0.7480 S1: 0.7460 S2: 0.7425 R1: 0.7500 R2: 0.7525 NZD/USD 0.7130 Bullish 23 May 17 0.7000 0.7170 0.7130 0.7090 0.7075 S1: 0.7110 S2: 0.7090 R1: 0.7150 R2: 0.7170 USD/JPY 110.15 Neutral * Shift in outlook. 24 May 17 111.90 S1: 109.70 S2: 108.70 R1: 110.95 R2: 111.25 FX Pairs Ranges for 05-Jun-17 Performance* Open High Low Close 1-day 1-week 1-month YTD** USD/SGD 1.3819 1.3831 1.3788 1.3817 +0.07% -0.33% -1.72% -4.75% EUR/SGD 1.5567 1.5589 1.5514 1.5544-0.17% +0.46% +1.25% +2.49% GBP/SGD 1.7735 1.7879 1.7727 1.7823 +0.23% +0.15% -1.99% +0.10% AUD/SGD 1.0245 1.0355 1.0227 1.0337 +0.63% +0.29% -0.43% -0.71% JPY/SGD 1.2504 1.2523 1.2469 1.2504 +0.03% +0.38% +0.76% +1.32% USD/MYR 4.2650 4.2670 4.2610 4.2620-0.39% -0.19% -1.68% -4.96% USD/THB 34.04 34.10 33.92 34.00-0.08% -0.29% -1.84% -5.02% USD/CNH 6.7835 6.7871 6.7752 6.7814 +0.10% -0.59% -1.83% -2.76% EUR/USD 1.1277 1.1283 1.1233 1.1252-0.24% +0.78% +3.02% +7.64% GBP/USD 1.2855 1.2940 1.2851 1.2905 +0.09% +0.52% -0.25% +5.10% AUD/USD 0.7427 0.7499 0.7416 0.7488 +0.56% +0.65% +1.36% +4.21% NZD/USD 0.7139 0.7149 0.7115 0.7139-0.09% +1.17% +3.32% +2.88% USD/JPY 110.34 110.72 110.23 110.45 +0.04% -0.71% -2.46% -6.02% * 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: 1.3820 USD/SGD pair weakened further in afternoon session before bouncing off from low of 1.3787, the lowest since October 2016. The pair settled at 1.3818 on Monday, 0.2% lower from Friday, for a second day of losses. This morning, the SGD NEER index continues to hold steady at 0.61% above midpoint, and the 0.5-1.0% range implies USD/SGD of 1.3828-1.3760. We indicated yesterday that further weakness seems likely from here even though the next support at 1.3780 is likely out of reach for now. In line with expectation, USD hit a low of 1.3788 before rebounding quickly to touch an overnight high of 1.3830. While the recent downward pressure has eased with the recovery, it is too early to expect a sustained rebound. USD is more likely to trade sideways, even though the immediate bias is for a probe higher towards the top of the expected 1.3795/1.3845 range. Bearish: Next leg lower has started but expect solid support at 1.3755. USD hit a fresh year s low of 1.3788 yesterday before rebounding quickly to close above last Friday s NY closing. While the reversal bar suggests that an interim low could be close-by, only a move back above 1.3870 (stop-loss unchanged) would indicate that the bearish phase that started more than 2 weeks ago (see Chart of the Day update on 18 May, spot at 1.3915) has ended. In the meanwhile, another push lower towards 1.3755 is not ruled out just yet but as indicated yesterday, this level is a solid support and is unlikely to yield so easily. *Took partial profit at 1.3820 on 28 May. 4 P a g e
EUR/SGD: 1.5550 The strong 1.5600 resistance continues to cap EUR s strength as this pair dropped quickly to a low of 1.5514. The subsequent sideway trade suggests that the current price action is part of a consolidation range. In other words, sideway trading is expected for today, likely between 1.5510 and 1.5580. Neutral: In a 1.5445/1.5625 range. [No change in view, see update from yesterday below] While EUR edged higher last Friday, upward momentum is not strong and we continue to view the current movement as part of a consolidation phase. A test of last month s peak near 1.5625 would not be surprising but this level is acting as a solid resistance and is unlikely to yield so easily. Overall, the neutral phase that started early last week is viewed as intact unless there is a clear break out of the expected 1.5445/1.5625 consolidation range. GBP/SGD: 1.7820 The target indicated at 1.7710 yesterday was not met as GBP touched a low of 1.7727. The subsequent strong rebound from the low that hit a high of 1.7879 was unexpected. The rally appears to be running ahead of itself and while a retest of 1.7875/80 is not ruled out, a break above the major 1.7920 resistance is not expected. Support is at 1.7780 followed by the low near 1.7725/30. Neutral: In a 1.7660/1.7920 range. The neutral phase that started last Thursday, 01 Jun (spot at 1.7820) is still intact. GBP has been trading mostly sideways since then and at this stage, there is no pre-indication that a break out of the expected 1.7660/1.7920 consolidation range is imminent. AUD/SGD: 1.0340 The unexpected strong surge in AUD hit an overnight high of 1.0355. Despite quickly approaching overbought, there is no sign of weakness just yet and extension higher seems likely. That said, 1.0395 is a strong resistance and this level is unlikely to yield so easily. Support is at 1.0315 but only a move below 1.0290 would indicate that an interim top is in place. JPY/SGD: 1.2520 Expectation for JPY to extend its gains to 1.2550 was proven wrong as this pair traded mostly sideways yesterday within a 1.2469/1.2523 range. Despite the consolidation, the undertone is still positive and as long as 1.2460 is intact, this pair is expected to edge higher towards 1.2550. That said, a sustained move above this level is not expected. Shift from bearish to neutral: Strong recovery has scope to extend to 1.0425. The shift to a bearish stance last Friday, 02 Jun (spot at 1.0235) was proven wrong quickly as AUD surged yesterday and took out several strong resistances with ease. The strong recovery appears to have scope to extend higher towards 1.0425. This is a rather strong resistance and at this stage, a sustained move above this level is not expected. Overall, AUD is expected to stay underpinned in the coming days with 1.0250 acting as a key support. Neutral: Bullish if NY closing above 1.2550. There is no change to the view highlighted yesterday. While upward momentum is improving, only a NY closing above 1.2550 would indicate that JPY has moved into a bullish phase. This scenario would not be surprising as long as the key short-term support at 1.2445 is not taken out within the next few days. Looking further ahead, a move into a bullish phase would have 1.2630 as an immediate target. 5 P a g e
USD/MYR: 4.2610 Malaysia s exports matched expectations to gain 20.6% y/y in April (24.1% y/y in March). In the first quarter, exports accelerated 21.3% (2.8% in 4Q16). Imports rose 24.7% y/y (39.4% in March) lifted by intermediate imports (29.2%), capital imports (14.8%) and imported consumer goods (1.0%). In first quarter, imports grew by 27.7% (5.0% in 4Q16). The trade surplus in MYR terms widened to MYR8.75bn in April (+5.4bn in March) bringing Jan-Apr trade surplus to MYR27.6bn (-16.3% y/y from MYR33bn in Jan-Apr 2016). Latest Flash Note: 05 Jun 17 Robust Exports Expand 20.6% In April https://goo.gl/oyqhn4 Bearish: Expect 4.2400 to offer solid support ahead of 4.2210. While the break of the 4.2660 support was not surprising, downward momentum is still lackluster and any further weakness from here is expected to be slow and grinding. As indicated yesterday, 4.2400 is expected to offer solid support ahead of the rather strong level near 4.2210. Overall, the bearish phase that started more than a month ago (see Chart of the Day update on 26 Apr, spot at 4.3630) is deemed as intact until the trailing stop-loss at 4.2880 is taken out. *Took partial profit at 4.2850. USD/THB: 34.04 Yesterday, the BoT started the Foreign Exchange Regulation Reform. Some regulations will be effective within this month, but others will require some time to carry out as they are related to other agencies authority. Major reforms are to relax regulations on FX risk management, provide more alternatives in foreign exchange services, and provide more investment options for Thai investors and companies. The BoT governor said the reforms will enhance Thailand s competitiveness. Latest Flash Note: 05 Jun 17 Thailand s Foreign Exchange Regulation Reform: New Diversification Strategy https://goo.gl/arjg7t Neutral: In a 33.95/34.25 range. We just shifted from a bearish to neutral stance yesterday and there is no change to the view. USD dipped to a low of 33.94 but recovered quickly. While downward momentum has improved, USD has to register a NY close below 33.95 to indicate that it has entered a bearish phase again. In the meanwhile, we continue to expect this pair to trade between 33.95/34.25 even though the immediate bias is tilted to the downside. USD/CNH: 6.7810 Onshore RMB fell on Friday to 6.8170/USD on Friday, after rising 0.68% over previous two days in a holiday-shortened week and in response to the adjustment in the fixing mechanism, for a weekly gain of 0.6% and the fourth weekly advance for the currency after hitting low of 6.9083/USD in early May. Offshore CNH on Friday dropped the most since January as moneymarket rates begin moderating, as the sharp catch up gain appeared to be excessive that ran counter to the fine tuning of the fixing mechanism to prevent this type of herd behavior. CNH rose 0.7% for the week, to 6.7809/ USD. The announcement earlier of the inclusion of counter cyclical adjustment factor into the fixing model, on top of referencing market prices and basket of currencies, is likely to make for less predictable and transparent fixing, although it should help to curb the risks of depreciation bias in the RMB. Bearish: Diminished odds for further USD weakness. [No change in view, see update from yesterday below] USD rebounded strongly last Friday to hit a high of 6.7943, holding below the trailing stop-loss for our bearish view at 6.8000. As long 6.8000 is intact, further USD weakness towards 6.7170 is not ruled out even though the odds for such a move have diminished. From here, last week s 6.7245 low is already acting as a very strong support. All in, until 6.8000 is taken out, the bearish phase that started on 17 May (spot at 6.8740), is deemed as intact. *Took partial profit at 6.7980 CNH/SGD: 0.2036 Shift from bullish to neutral: In a 0.2027/0.2044 range. The shift to a bullish CNH stance last Thursday, 01 Jun (spot at 0.2045) was proven wrong as CNH took out the stop-loss at 0.2036 yesterday. The rapid swing higher late last week and the subsequent equally rapid decline from the top have resulted in a mixed outlook. We are neutral on this pair now and expect broad sideway trading between 0.2027 and 0.2044. 6 P a g e
EUR/USD: 1.1255 Eurozone Markit Composite PMI for May was released on Monday, and came in as expected at 56.8, which was unchanged from the prior reading. Services PMI was also reported and came in slightly above expectations at 56.3. A reading at 56.2 was forecast. There was little reaction to the data, as markets focus this week is on Thursday s ECB policy meeting. The major highlights today will be the Euro area retail sales report for April and the Sentix investor confidence index for June. Expectation for EUR to extend its gain was proven wrong as the major 1.1300 resistance was unthreatened (high of 1.1283). The quick drop to a low of 1.1233 and the subsequent sideway trade suggests that the current price action is part of a consolidation phase. Further consolidation seems likely for today even though this pair is expected to trade at a slightly lower range of 1.1225/1.1280. Neutral: Bullish again if NY closing above 1.1300. There is not much to add as EUR traded in a relatively quiet manner yesterday. The undertone still appears to be positive but as highlighted in recent updates, this pair has to register a NY closing above 1.1300 to indicate that it has re-entered a bullish phase. This scenario would not be surprising as long as the key short-term support at 1.1210 is intact. 7 P a g e
GBP/USD: 1.2905 GBP stabilized after an initial drop on Monday, but the poll situation is still unclear enough. The UK s Markit PMI servicessector index declined to 53.8 for May from 55.8 the previous month. This was below expectations of a smaller decline to around 55.0 and the weakest reading for 3 months. The strong surge that took GBP to an overnight high of 1.2940 was unexpected. Despite the pull-back from the top, the undertone for this pair is still positive even though any up-move is expected to face solid resistance 1.2955. Support is at 1.2880 followed by 1.2850. Neutral: In a 1.2800/1.3010 range. [No change in view, see update from yesterday below] GBP closed largely unchanged last Friday and there is no change to our current neutral stance. The current movement is viewed as the early stages of a consolidation phase and this pair is expected to trade between 1.2800 and 1.3010 for now. 8 P a g e
AUD/USD: 0.7485 The RBA will announce its latest interest rate decision at 12.30pm SGT on Tuesday. We expect the Australian central bank to leave the OCR at a low of 1.5% - an eleventh consecutive month. At the previous meeting, the RBA increased its growth forecasts and also expected underlying inflation to reach around 2.0% by early 2018. Markets will look for evidence whether this confident tone has been maintained. The wider rhetoric within the statement will also be important for underlying policy expectations with a series of key comments in areas such as the labour market, housing sector, commodity prices and the value of the Australian dollar. Instead of trading sideways, AUD soared to hit an overnight high of 0.7499. The up-move is accompanied by strong momentum and extension higher seems likely. That said, 0.7515/20 is major resistance and a clear break above this level seems unlikely, at least for today (next resistance is closer to 0.7555). Support is at 0.7460 but only a move back below 0.7425 would indicate that a temporary top is in place. Shift from bearish to neutral: Strong recovery has room to extend to 0.7515/20. [See Chart of the Day on page 1] 9 P a g e
NZD/USD: 0.7130 New Zealand banks were closed in celebration of the Queen s Birthday and will reopen today. The most important release in the week ahead is the fixing of dairy prices at the upcoming Global Dairy Trade (GDT) auction. Dairy prices have recorded five straight gains in recent auctions, with whole milk powder gaining to the highest level since the 7 February sale. The attempt to move higher was thwarted by 0.7150 (high of 0.7149) and the target indicated at 0.7170/75 yesterday was not met. Upward momentum is waning rapidly and while a retest of 0.7150 would not be surprising, a break above 0.7175 seems unlikely for now. However, any weakness is expected to face solid support at 0.7110 followed by the stronger level near 0.7090. Bullish: Next bullish leg has started for 0.7170 followed by 0.7200. As indicated yesterday, the next bullish leg has started even though we are wary of the overbought conditions. From here, extension to 0.7170, 0.7200 would not be surprising. Only a move back below 0.7090 (adjusted higher from 0.7075) would indicate that the 2-week long bullish phase (see update on 23 May (spot at 0.7000) has ended. *Took partial profit at 0.7075. 10 P a g e
USD/JPY: 110.15 USD/JPY kept to a tight range around 110.50, but could see fresh losses if UST yields resume downward momentum. Wage growth returned to Japan in April labour cash earnings growth rose to 0.5% y/y in April, up from a revised reading of no growth in March (previously a contraction of 0.4%) and besting a median forecast of 0.3%.But real cash earnings, which account for inflation and often correlate with household spending, were static from a year prior in April after shrinking a revised 0.3% (previously contraction of 0.8%) in March. Instead of extending lower to 110.00, USD traded mostly sideways yesterday within a 110.20/110.72 range. Despite the quiet consolidation, the undertone for this pair still appears weak. From here, barring a move above 110.75, USD is expected to move below 110.00 (next support at 109.70) Neutral: Bearish if NY closing below 110.00. USD just moved below 110.00 at the time of writing. As highlighted yesterday, we prefer to wait for a NY closing below 110.00 before adopting a bearish stance. This scenario appears to be likely unless USD can reclaim 110.80 within these 1 to 2 days. Looking further ahead, a move into a bearish phase would have 108.70 as an immediate target. 11 P a g e
UOB FX & Interest Rate Outlook FX Outlook 2Q17 3Q17 4Q17 1Q18 Rates Outlook 2Q17 3Q17 4Q17 1Q18 EUR/USD 1.11 1.12 1.13 1.13 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 0.74 0.75 0.75 0.76 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 113 114 115 116 JP -0.20% -0.20% -0.20% -0.30% USD/SGD 1.39 1.40 1.42 1.43 SG 1.05% 1.25% 1.40% 1.50% USD/MYR 4.35 4.32 4.30 4.28 MY 3.00% 3.00% 3.00% 3.00% USD/THB 34.5 34.8 35.0 35.3 TH 1.50% 1.50% 1.50% 1.75% USD/CNY 6.80 6.82 6.85 6.88 CN 4.35% 4.35% 4.35% 4.35% USD/IDR 13300 13500 13600 13700 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 65.6 66.5 67.2 68.0 IN 5.75% 5.50% 5.50% 5.50% USD/TWD 30.0 30.3 30.5 30.7 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 1130 1140 1150 1160 KR 1.25% 1.25% 1.25% 1.25% Updated on 01 Jun 17 US 1.25% 1.50% 1.50% 1.75% Central Bank Meetings 2017 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^ *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. 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