DAILY FX OUTLOOK FX Themes/Strategy/Trading Ideas Friday, January 5, 218 Except against the JPY, the dollar weakened across the board on increased risk appetite levels. Firmer UST yields (belly underperformed) and a better than expected December ADP (+25k) failed to impart support to the USD.. JPY underperformed across the board as the JPY crosses firmed. Asset market environment remained optimistic with WTI crude briefly past 62., EZ/US and EM equities continuing to gain. China Caixin composite/services PMI improved markedly from the previous month and provided fuel for optimism. EZ composite/services PMI also ticked higher from the previous month. Fed s Bullard (dove) noted that the slope of the Philips curve has been drifting towards zero and inflation expectations remain in check denting dollar positivity. Risk-On Risk-Off dynamics may dominate ahead of tonight s US NFP (133 GMT; mkts: +19k) and the EZ CPI readings(remember recent ECB rhetoric). The Fed s Harker (1515 GMT) and Mester (173 GMT) are also on tap. At this juncture, a Fed that is perceived to be on track for 2-3 rate hikes this year may continue to prove insufficient for dollar bulls (or deter dollar skeptics). Against a low vol (markets remain gamma shy for now)/positive risk appetite environment, expect attention to be continually diverted away from the greenback into the end of the week. Asian FX Treasury Research & Strategy Emmanuel Ng +65 653 473 ngcyemmanuel@ocbc.com USD-Asia continues to remain reactive to the DXY (again sub-92. overnight) and with the FXSI (FX Sentiment Index) sinking deeper into Risk-On territory. Prospects for the ACI (Asian Currency Index) to continue to decay towards the key 19.2 (19.98 this morning) remain on the cards if the current conducive conditions persist. However, not that net portfolio inflows in Asia have not been exceptional save for equity inflows for Taiwan and bond inflows for Thailand, leaving potential for unwind if the broad dollar bounces. Coupled with fast compressing short-end premiums (diluting carry arguments), accelerated downside momentum for USD-Asia may be somewhat lacking at this juncture.
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 3/11/217 5 January 218 Daily FX Outlook SGD NEER: The SGD NEER is firmer on the day at +1.26% above its perceived parity (1.3433) with NEER-implied USD-SGD thresholds lower from yesterday. Note that inherent broad dollar weakness has continued to permit the NEER to subsist above its +1.% threshold since the onset of the year. At current levels, the +1.3% threshold is estimated at 1.3261 with some cause for pause towards 1.325 as a result. Note however the heavy USD-Asia complex. 12 118 116 114 112 11 18 16 14 12 1 Asian Currency Index SGD NEER % deviation USD-SGD Current 125.81 1.25 1.3272 +2.% 126.74 1.3169 Parity 124.26 1.3433-2.% 121.77 1.377 CFETS RMB Index: The USD-CNY mid-point fell (as largely expected) to 6.4915 from 6.543 yesterday. This saw the CFETS RMB Index easing further to 94.9 from 94.93 on Thursday. 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 6. 1/1/1 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 1/1/17 1/1/18 CFETS RMB Index USD-CNY Fix, Bloomberg Treasury & Strategy Research 2
6-Jan-16 6-Mar-16 6-May-16 6-Jul-16 6-Sep-16 6-Nov-16 6-Jan-17 6-Mar-17 6-May-17 6-Jul-17 6-Sep-17 6-Nov-17 6-Jan-16 6-Mar-16 6-May-16 6-Jul-16 6-Sep-16 6-Nov-16 6-Jan-17 6-Mar-17 6-May-17 6-Jul-17 6-Sep-17 6-Nov-17 6-Jan-16 6-Mar-16 6-May-16 6-Jul-16 6-Sep-16 6-Nov-16 6-Jan-17 6-Mar-17 6-May-17 6-Jul-17 6-Sep-17 6-Nov-17 6-Jan-16 6-Mar-16 6-May-16 6-Jul-16 6-Sep-16 6-Nov-16 6-Jan-17 6-Mar-17 6-May-17 6-Jul-17 6-Sep-17 6-Nov-17 5 January 218 Daily FX Outlook G7 1.21 1.19 1.17 1.15 1.13 1.11 1.9 1.7 1.5 1.3 EUR-USD EUR-USD Short term implied valuations remain consolidative and the pair may remain in stasis ahead of EZ CPI and US NFP numbers. Expect initial support towards 1.225 and with the pair still north of implied confidence intervals, expect 1.21 to continue to limit in the interim. Potentially, the CDU-SPD talks next week may also deter excessive upticks. Actual Fitted 123 118 113 18 13 98 USD-JPY USD-JPY USD-JPY may remain trapped by dollar negativity and underpinned JPY-crosses. Overall, preference to still fade excessive upside towards the 55-day MA (112.95) with short term implied valuations attempting to inch lower. Note that the Fed s Bullard also noted that the tax reform changes are unlikely to shifts the Fed s rate trajectory. Actual Fitted.8.78.76.74 AUD-USD AUD-USD Despite the November trade deficit and slightly consolidative short term implied valuations, investors may collect on dips towards.7815 if global risk appetite levels remain padded..72.7.68 Actual Fitted 1.47 1.42 1.37 1.32 1.27 1.22 GBP-USD GBP-USD Short term implied valuations remain somewhat underpinned but investors may continue to tread cautiously (but positively) within 1.35-1.36. The better than expected UK December services PMI may also continue to prove mildly supportive. 1.17 Actual Fitted Treasury & Strategy Research 3
6-Jan-16 6-Mar-16 6-May-16 6-Jul-16 6-Sep-16 6-Nov-16 6-Jan-17 6-Mar-17 6-May-17 6-Jul-17 6-Sep-17 6-Nov-17 5 January 218 Daily FX Outlook 1.44 1.39 1.34 1.29 1.24 1.19 USD-CAD USD-CAD With crude continuing to push higher, expect USD-CAD to retain a slippery tone ahead of the US/Canadian labor market numbers tonight. Short term implied valuations stepped lower overnight but remain depressed on a multisession horizon. Expect a heavy 1.245-1.254 range to prevail in the interim. Actual Fitted Treasury & Strategy Research 4
5 January 218 Daily FX Outlook 1 8 6 4 2-2 -4 USD-Asia VS. Net Capital Flows South Korea Taiwan 145 7 165 185 5 115 3 1125 1145 1 1165 1185-1 125 1225-3 -5 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 29.5 3. 3.5 31. 31.5 32. 32.5 33. 33.5 34. NFB: Bond & Eq 2D RS USD-KRW NFB: 2d RS USD-TWD India Indonesia 63.5 5 129 8 64.5 4 3 131 3 65.5 2 1 133-2 66.5-1 135-7 67.5-2 -3 137 68.5-4 139-12 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17-5 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 NFB: Bond & Eq RS 2D USD-INR Bond & Equity: 2D RS USD-IDR Philippines 6 4 2-2 -4-6 46. 47. 48. 49. 5. 51. 52. Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Thailand 32.4 25 32.9 2 15 1 5 33.4 33.9 34.4 34.9-5 35.4-1 35.9-15 -2 36.4 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 NFB: RS2 USD-PHP Net bond & equity WTD RS2 USD-THB Malaysia 15 3.8 1 5 3.9 4. 4.1 4.2-5 -1 4.3 4.4 4.5-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 4.6 Equity 2D RS USD-MYR Treasury & Strategy Research 5
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 Nov-17 5 January 218 Daily FX Outlook 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 RISK OFF 2. 1.5 1..5. -.5-1. -1.5 RISK ON -2. 1M Correlation Matrix Security DXY USGG1 CNY SPX MSELCA CRY JPY CL1 VIX ITRXEX CNH EUR DXY 1 -.395.944 -.696 -.888 -.941.43 -.88.16.467.946 -.99 SGD.977 -.485.939 -.79 -.931 -.937.44 -.916.124.59.959 -.974 KRW.956 -.654.989 -.841 -.928 -.975.24 -.951.282.579.988 -.966 CAD.956 -.394.951 -.657 -.848 -.959.343 -.923 -.9.594.955 -.952 CHF.947 -.32.835 -.712 -.856 -.856.528 -.812.41.287.863 -.935 CNH.946 -.589.986 -.783 -.92 -.973.26 -.958.18.552 1 -.962 CNY.944 -.568 1 -.735 -.888 -.983.229 -.952.57.585.986 -.95 TWD.93 -.363.896 -.743 -.93 -.98.46 -.884.261.494.886 -.923 PHP.899 -.595.948 -.826 -.942 -.951.3 -.976.24.717.956 -.916 INR.876 -.578.887 -.886 -.931 -.859.335 -.874.371.381.95 -.895 MYR.873 -.388.843 -.693 -.859 -.816.388 -.841.318.446.844 -.895 CCN12M.779 -.627.813 -.899 -.883 -.795.237 -.845.341.358.879 -.831 IDR.649 -.271.651 -.548 -.654 -.658.195 -.76.41.685.633 -.668 THB.481.139.328 -.387 -.57 -.336.556 -.515.393.141.459 -.555 JPY.43.337.229 -.14 -.245 -.23 1 -.92 -.212 -.327.26 -.34 USGG1 -.395 1 -.568.674.544.547.337.599 -.311 -.444 -.589.56 NZD -.851.57 -.844.848.891.813 -.335.847 -.17 -.433 -.92.867 GBP -.868.146 -.718.49.674.732 -.546.695.26 -.256 -.748.854 AUD -.99.532 -.912.831.92.897 -.379.886 -.51 -.452 -.949.911 EUR -.99.56 -.95.734.896.946 -.34.911 -.81 -.512 -.962 1 Source: Bloomberg Treasury & Strategy Research 6
ZAR CLP NZD HUF PLN COP RUB AUD SEK NOK TRY KRW CNY EUR PHP TWD MYR CAD INR SGD CHF THB GBP IDR BRL JPY MXN ARS 5 January 218 Daily FX Outlook Immediate technical support and resistance levels S2 S1 Current R1 R2 EUR-USD 1.187 1.2 1.269 1.289 1.21 GBP-USD 1.3329 1.35 1.3556 1.3581 1.36 AUD-USD.7697.78.7846.7869.79 NZD-USD.71.712.7151.7163.7165 USD-CAD 1.2416 1.2484 1.2494 1.25 1.2738 USD-JPY 112. 112.11 112.79 112.85 113. USD-SGD 1.3247 1.3261 1.3271 1.33 1.3488 EUR-SGD 1.5921 1.6 1.617 1.655 1.61 JPY-SGD 1.1748 1.1762 1.1766 1.18 1.1948 GBP-SGD 1.797 1.7976 1.7991 1.8 1.872 AUD-SGD 1.322 1.4 1.413 1.462 1.486 Gold 1281.61 13. 1322.2 1327.3 1331.95 Silver 17.16 17.2 17.24 17.3 17.32 Crude 57.45 61.9 61.96 62. 62.21 FX performance: 1-month change agst USD 1. % 8. 6. 4. 2.. -2. -4. -6. -8. G1 FX Heat Map Source: Bloomberg AUD NZD EUR GBP JPY CAD USD SGD MYR AUD 2 1 1 2 2 2 2 2 NZD 2 1 1 2 2 2 2 2 EUR 1 1 2 2 1 2 2 2 GBP 1 1 2 2 1 2 1 2 JPY 2 2 2 2 2 1 1 9 CAD 2 2 1 1 2 1 2 2 USD 2 2 2 2 1 1 1 1 SGD 2 2 2 1 1 2 1 2 MYR 2 2 2 2 9 2 1 2 Treasury & Strategy Research 7
5 January 218 Daily FX Outlook Asia FX Heat Map USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR USD 1 1 1 1 1 1 9 1 1 1 JPY 1 2 1 9 1 2 9 1 1 1 CNY 1 2 1 1 2 2 2 2 2 2 SGD 1 1 1 2 2 9 2 2 1 2 MYR 1 9 1 2 1 1 2 1 1 1 KRW 1 1 2 2 1 2 1 1 2 2 TWD 1 2 2 9 1 2 2 2 1 2 THB 9 9 2 2 2 1 2 1 1 1 PHP 1 1 2 2 1 1 2 1 1 9 INR 1 1 2 1 1 2 1 1 1 2 IDR 1 1 2 2 1 2 2 1 9 2 Treasury & Strategy Research 8
5 January 218 Daily FX Outlook FX Trade Ideas Inception B/S Currency Spot Target Stop/Trailing Stop Rationale TACTICAL 1 21-Nov-17 S USD-SGD 1.3561 1.327 1.349 Little contagion in geopolitical risks, sanguine portfolio inflow environment,usd fragility 2 27-Nov-17 B GBP-USD 1.3344 1.3655 1.3185 Investors may imputebrexit talks in December. Prevailing USD weakness. STRUCTURAL 3 9-May-17 B GBP-USD 1.2927 1.37 1.2535 USD skepticism, UK snap elections, positioning overhang, hawkish BOE? 4 7-Nov-17 Bullish 2M 1X2 USD-JPY Call Spread Rate differential complex Spot ref: 114.15; Strikes: 113.78, 118.31; supportive of the USD, BOJ static Exp: 4/1/18; Cost:.9% RECENTLY CLOSED TRADE IDEAS Inception Close B/S Currency Spot Close Rationale P/L (%)* 1 2-Nov-17 8-Dec-17 S USD-JPY 112.7 113.25 Background risk aversion, little expectaions of hawkish surprises from the Fed 2 24-Nov-17 8-Dec-17 B EUR-USD 1.1868 1.1755 Supportive EZ data stream, German political concerns on hold, near term USD vulnerability -1.14-1.19 3 7-Nov-17 13-Dec-17 S AUD-USD.7671.759 RBA on hold, no inflation or rate hike urgency +.78 Treasury & Strategy Research 9
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