DAILY FX OUTLOOK FX Themes/Strategy/Trading Ideas Wednesday, February 28, 218 The USD firmed against all G1 peers on Tuesday, following Powell s testimony to the House Financial Services Committee. The DXY surfaced above 9, and looks to consolidate around the 9.2 region. US Treasury yields were also firmer across the curve. Powell s prepared testimony stuck close to the language in the January FOMC. The Q&A session provided the fireworks, with Powell noting that his personal outlook for the economy is now more optimistic than in December. However, notice that Powell s comments were focused more on growth, rather than his inflation outlook, which will have more bearing on the rate hikes. Powell also refused to pre-judge the full committee on the rate hike path. For the median view in the FOMC to shift to four hikes in the upcoming March dot plot, we will need four members to upgrade their rate hike projections from December. Even though data prints have been firm since, this may be a tall order given the short time-frame. Overall, it may be early days yet to impute a fourth rate hike. Watch for 4Q GDP (133 GMT) and PCE data (1 March, 133 GMT) for further cues. Meanwhile, Weidmann s explicit call for the ECB to end its asset purchase programme, and his refusal to rule out a rate hike in mid-219, was comparatively overlooked. Note that Weidmann sounded more activist than Draghi on Monday. Overall, this may yet sustain some hawkish market expectations on the ECB front. On the data front, watch for US 4Q GDP (133 GMT), US Chicago Business Barometer (1445 GMT) and a series of Eurozone GDP, PPI and CPI numbers (starting 6 GMT). In terms of Fed-speak, Kashkari (195 GMT) is on schedule. Asian FX Treasury Research & Strategy Terence Wu +65 653 4367 TerenceWu@ocbc.com With a negative lead from global equities (US, European and EM equities all in the red), the FXSI (FX Sentiment Index) ticked higher but stayed in Risk- Neutral territory. Asian equities starting the day on the back foot, together with China February manufacturing PMI coming weaker than expected, may pressure the ACI (Asian Currency Index) higher in today s session. On the net portfolio inflow front, net bond inflows continued to firm up for
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 28 February 218 Daily FX Outlook South Korea, Thailand, and Indonesia. Accelerating outflows, on both the equity and bond front, continued to plague India. We note selective pockets of recovery in the Asian portfolio flows environment, but sustained inflow momentum is still absent. SGD NEER: The SGD NEER softened to levels around -.5% below its perceived parity (1.3243). NEER-implied USD-SGD thresholds are also stronger for the day. Expect the basket to be led by broad USD sentiments following the Powell testimony, and ply a range between -.1% (1.3256) and +.2% (1.3217). 12 118 116 114 112 11 18 16 14 12 1 Asian Currency Index SGD NEER % deviation USD-SGD Current 124.24 -.1 1.3246 +% 126.74 1.2985 Parity 124.26 1.3244 % 121.77 1.3515 CFETS RMB Index: The USD-CNY mid-point rose (slightly more than expected) on Wednesday to 6.3294 from 6.3146 yesterday. This took the CFETS RMB Index higher to 96.44 from 95.22. 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
28 February 218 Daily FX Outlook USD-Asia VS. Net Capital Flows South Korea Taiwan 1 145 7 28.8 8 6 4 2 165 185 115 1125 1145 1165 1185 5 3 1-1 29.8 3.8 31.8 32.8-2 -4 125 1225-3 -5 33.8 34.8 NFB: Bond & Eq 2D RS USD-KRW NFB: 2d RS USD-TWD India Indonesia 63. 5 129 8 3-2 -7-12 64. 65. 66. 67. 68. 69. 3 1-1 -3-5 131 133 135 137 139 NFB: Bond & Eq RS 2D USD-INR Bond & Equity: 2D RS USD-IDR Philippines Thailand 6 4 2-2 -4-6 46. 47. 48. 49. 5. 51. 52. 53. 25 2 15 1 5-5 -1-15 -2 31. 32. 33. 34. 35. 36. NFB: RS2 USD-PHP Net bond & equity WTD RS2 USD-THB Malaysia 15 3.85 1 3.95 5 4.5 4.15-5 4.25-1 -15 4.35 4.45 Equity 2D RS USD-MYR Treasury & Strategy Research 3
Mar-16 May-16 Sep-16 Nov-16 Mar-17 May-17 Sep-17 Nov-17 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 28 February 218 Daily FX Outlook ACI VS. Net Capital Flows FX Sentiment Index 1.5 1. z-score 4wk MA Stronger Asia FX 1m% -4-3 3.5 3. 2.5 RISK OFF.5-2 2.. -.5-1. -1 1 1.5 1..5. -1.5-2. -2.5 Weaker Asia FX 2 3 4 -.5-1. -1.5-2. RISK ON Total Net Flows (2D RS) ACI (RHS) 1M Correlation Matrix DXY USGG1 CNY SPX MSELCAPF CRY JPY CL1 VIX ITRXEX CNH EUR DXY.237.33 -.598 -.521 -.518.11 -.465.494.415.535 -.973 SGD.894.243 -.51 -.81 -.597 -.69.26 -.5.71.42.563 -.833 CHF.87 -.14 -.71 -.251 -.239 -.23.286 -.184.267.86.523 -.855 CAD.7.79.289 -.557 -.556 -.46 -.526 -.467.313.754.362 -.751 THB.675.29.137 -.773 -.67 -.619.33 -.528.74.294.571 -.576 IDR.621.767.398 -.635 -.733 -.645 -.68 -.693.316.93.237 -.594 MYR.615.242.191 -.734 -.811 -.85 5 -.827.465.677.28 -.532 INR.612.746.272 -.384 -.434 -.31 -.475 -.334.114.699.265 -.66 CNH.535.58.614 -.36 -.17 -.176.31 -.222.163.126 -.58 KRW.521.128 -.168 -.849 -.699 -.671.285 -.547.855.392.53 -.385 TWD.495.363.181 -.86 -.896 -.835 -.125 -.779.716.722.127 -.374 USGG1.237.354 -.374 -.553 -.461 -.645 -.541 -.37.79.58 -.217 JPY.11 -.645 -.691.41.238.176.35.256 -.646.31.37 CNY.33.354 -.23 -.85 -.97 -.691 -.267 -.265.44.614 -.97 PHP -.73.742.6 -.126 -.261 -.221 -.832 -.363 -.24.67.15.39 AUD -.767 -.655 -.58.789.72.641.283.581 -.569 -.745 -.323.752 GBP -.852 -.422 -.162.79.796.752.168.717 -.654 -.693 -.387.815 NZD -.86.69.59.559.337.393 -.39.275 -.584 -.168 -.558.826 EUR -.973 -.217 -.97.523.452.435.37.387 -.427 -.387 -.58 Source: Bloomberg Technical support and resistance levels S2 S1 Current R1 R2 EUR-USD 1.22 1.2213 1.222 1.23 1.2519 GBP-USD 1.38 1.3819 1.3896 1.39 1.4168 AUD-USD.7759.7784.7789.78.7889 NZD-USD.7192.72.7229.7246.73 USD-CAD 1.2691 1.27 1.2775 1.2779 1.28 USD-JPY 15.55 17. 17.25 18. 11.4 USD-SGD 1.32 1.324 1.3259 1.33 1.3318 EUR-SGD 1.6166 1.62 1.622 1.63 1.6418 JPY-SGD 1.2159 1.23 1.2363 1.24 1.244 GBP-SGD 1.8292 1.84 1.8426 1.85 1.8599 AUD-SGD 1.297 1.3 1.328 1.4 1.444 Gold 135.88 137. 1317.9 132.42 1355.69 Silver 16.13 16.3 16.34 16.4 16.79 Crude 62.12 62.6 62.66 62.7 66.16 G1 FX Heat Map AUD NZD EUR GBP JPY CAD USD SGD MYR AUD 1 2 2 1 2 1 1 1 NZD 1 1 9 1 2 1 1 9 EUR 2 1 9 1 2 1 1 9 GBP 2 9 9 1 2 1 1 1 JPY 1 1 1 1 1 1 2 2 CAD 2 2 2 2 1 2 1 1 USD 1 1 1 1 1 2 2 2 SGD 1 1 1 1 2 1 2 2 MYR 1 9 9 1 2 1 2 2 Asia FX Heat Map USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR USD 1 2 2 2 2 2 2 2 2 2 JPY 1 1 2 2 2 1 2 2 2 2 CNY 2 1 2 1 1 1 1 9 2 2 SGD 2 2 2 2 1 1 1 9 2 2 MYR 2 2 1 2 1 1 1 1 9 9 KRW 2 2 1 1 1 2 2 9 1 2 TWD 2 1 1 1 1 2 9 2 2 2 THB 2 2 1 1 1 2 9 2 2 2 PHP 2 2 9 9 1 9 2 2 2 2 INR 2 2 2 2 9 1 2 2 2 1 IDR 2 2 2 2 9 2 2 2 2 1 Treasury & Strategy Research 4
28 February 218 Daily FX Outlook Government bond yield changes 7. 6. 5. 3. US 3. -7. Eurozone -1-15. -2-25. Japan UK Australia Canada 1 9 8 7 6 5 4 3 2 1-8. -1-1 -1 3. -1-16. 3M 12M 2Y 3Y 5Y 7Y 1Y China Korea Taiwan -.5 -.1-8. -.15-1 -1-7. -8. -.2-1 6M 12M 3Y 5Y 1Y -9. 3M 6M 12M 2Y 3Y 5Y 1Y -.25 2Y 5Y 1Y 6. India 2 18. Indonesia 25. Singapore 16. 2 1 1 15. 1 1 8. 6. 5. -8. 3M 6M 12M 2Y 3Y 5Y 1Y 1Y 2Y 3Y 5Y 7Y 1Y -1 3M 6M 12M 2Y 5Y 1Y Thailand 3. Malaysia 7 6 5 Philippines 4 3 2 1-1 -2 3M 6M 12M 2Y 3Y 5Y 1Y 3M 7M 12M 2Y 3Y 5Y 7Y 1Y -3 Treasury & Strategy Research 5
28 February 218 Daily FX Outlook FX Trade Ideas Inception B/S Currency Spot Target Stop/Trailing Stop Rationale TACTICAL 1 22-Feb-18 B USD-CAD 1.2696 1.296 1.256 Post FOMC minutes, rising implied valuations for the pair STRUCTURAL 2 19- B EUR-USD 1.2274 1.2865 1.1975 ECB likely to alter its forward guidance into the spring 3 31- S USD-JPY 18.67 12.35 111.85 Market fixation on USD weakness, despite mitigating factors and the BOJ 4 15-Feb-18 B GBP-USD 1.414 1.4855 1.359 Borad dollar vulerability coupled with hawkish BOE expectations. RECENTLY CLOSED TRADE IDEAS Inception Close B/S Currency Spot Close Rationale P/L (%)* 1 27-Nov-17 26- B GBP-USD 1.3344 1.4135 Investors may imputebrexit talks in December. Prevailing USD weakness. 2 16-2-Feb-18 S USD-SGD 1.323 1.3175 Heay dollar, positive risk appetite, SGD NEER not excessively strong +5.56 +.39 3 15-7-Feb-18 B EUR-USD 1.2199 1.235 "Hawkish" ECB expectations, positive German poloitical news flow 4 12-Feb-18 14-Feb-18 S AUD-USD.7829.7915 Unstable equity/risk appetite environment. Less than hawkish RBA 5 9-Feb-18 15-Feb-18 B USD-CAD 1.26 1.247 Softer crude and fragile appetite towards the cyclicals +.72-1.9-1.3 **of notional Treasury & Strategy Research 6
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