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 USD/SGD: 1.3375 Outlook shift to neutral; USD has moved into a correction/consolidation phase. In the Chart of the Day update yesterday (10 May, spot at 1.3460), we were of the view that the bullish phase has room to extend further to 1.3540 and added that 1.3500 could temporarily check the advance in USD. USD subsequently touched a high of 1.3490 before plunging sharply and rapidly to edge below the stop-loss for our bullish view at 1.3365 (overnight low of 1.3364). The price action came as a surprise as such a deep decline after a fresh high is not common (note that the 126 pips range registered yesterday was the largest 1-day range since March 2017). That said, USD is deemed to have made a short-term top at 1.3490 yesterday and the current movement is viewed as the early stages of a correction/ consolidation phase. Near-term, there is scope a deeper pull-back but at this stage, any weakness in USD is viewed as part of a 1.3290/1.3440 consolidation range and not the start of a bearish reversal. 1 P a g e
OVERVIEW With last week s soft US wage data still in mind, financial markets, on Thursday, were confronted with a US CPI report that was also weaker than expected headline CPI rose 0.2% m/m in April, though annual inflation still edged up to 2.5% y/y. A 1.4% mom increase in energy prices and 0.3% m/m increase in food prices boosted headline inflation. Core CPI rose from a lower-than-expected 0.1% mm, leaving annual inflation steady at last month s 13-month high of 2.1% y/y. This is an outcome that might delay the median Fed participant from crossing the divide and forecasting four rate hikes this year when projections are next compiled in June. As a result, 10-year US Treasury yields have slipped 4bps to 2.96%, whilst US equities managed to end Thursday s session in the black. Understandably, the prospect of a less hawkish Fed has taken some gloss off the US dollar. Tonight, focus will turn to March import prices and the preliminary results of the University of Michigan s consumer survey for May. St Louis Fed President James Bullard will be speaking on the US Economy & Monetary Policy at 8.30pm SGT. The soft inflation data from the US was enough to ensure the latest 2018-low on the EUR/USD (at 1.1823 attained mid-week) remained unchallenged. On the data front, Italy reported a stronger-than-expected 1.2% m/m rise in industrial production in March, lifting annual growth to 3.6% y/y. This comes despite the steep decline in the country s manufacturing PMI since January. Today s data releases include Spain s March home sales and final HICP data for April. European Central Bank (ECB) President Mario Draghi will be speaking in Florence at 9.15pm SGT. As widely expected, the Bank of England (BoE) monetary policy committee (MPC) left all policy settings unchanged at this week s meeting, although two members Michael Saunders and Ian McCafferty still voted for a 25bps hike in the Bank rate. The weak preliminary 1Q GDP outcome was noted by the BoE. Whilst it expects this estimate to be revised higher, the Bank s growth forecast for this year was still revised down to 1.4% y/y. Further out, growth in 2019 and 2020 was cut by a tenth to 1.7% y/y a forecast that is still above the Bank s assessment of the economy s sustainable growth potential. Meanwhile, the Bank lowered its forecasts of inflation with year-end inflation revised down two-tenths to 2.2% and inflation expected to reach the Bank s target by 4Q20 sooner than projected previously. These forecasts assume a gradual tightening of monetary policy in line with market pricing, with Governor Mark Carney suggesting that a rate hike would still likely be required this year. Following the BoE s commentary, the market is now essentially 50/50 priced for a rate hike at the next Inflation Report meeting in August. We think a rate hike in August is contingent on growth bouncing back and negotiations on the Brexit front staying positive. Carney gave the GBP/USD only a modest and brief bounce later by saying he still expected a rate rise in 2018. EUR/GBP reversed from pressuring 0.8725-support to edge nearer to 0.8845-resistance. USD/JPY has twice this week run into a brick wall at 110.00. The post-cpi low was 109.29 and that was tested again later as UST yields fell after a strong 30-year auction. In Japan, the Economy Watchers Survey pointed to a modest improvement in sentiment in April, in keeping with the improvement in the PMI indices this month. The overall current conditions index edged up 0.1pts to 49.0, with the business sector index rising 1.2pts to 51.2. The overall expectations index also improved in April, rising 0.5pts to 50.1. Meanwhile after slowing over the previous eight months, the Bank of Japan (BoJ) reported that growth in total bank lending edged up a tenth to 2.1% y/y in April. AUD/USD outperformed with a break back over the 0.7500-mark. NZD is still the laggard after the dovish take on the Reserve Bank of New Zealand meeting. Earlier today, New Zealand has reported that home sales rose 6.6% y/y, although this outcome is flattered by this year s timing of the Easter break. The median sales price rose 1.9% y/y, which was similar to last month. CAD remains firm, with the USD/CAD pair unable to sustain a move above 1.2800 as crude eased. Canada s April employment report will be of interest later tonight. Asian currencies traded mixed against the greenback yesterday. The KRW was up 0.7% to 1072.95/USD, whilst the TWD gained 0.2% to close at 29.872/USD. SGD (1.3402/USD), THB (32.07/USD), and PHP (51.956/USD) traded flat. Overnight, the Bloomberg US Dollar Spot Index sank 0.6%, due to the weaker inflation data. This may arrest the drop seen in Asian currencies over the past couple of days. USD/SGD traded within a higher range of 1.3393 1.3490 and closed at 1.3402 during Asian hours yesterday. This morning, the SGD NEER has gone back up to trading at 0.25% above the mid-point. We expect the SGD NEER to trade between the midpoint and 0.5% above the midpoint, implying a USD/SGD range of 1.3410 1.3343 based on current FX levels. Data wise, China s consumer price index (CPI) rose at a slower pace of 1.8% y/y in the month of April, from 2.1% y/y a month ago. Producer price index (PPI) rose 3.4% y/y, inching higher from 3.1% y/y in March. On the central bank front, Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) unchanged at 3.25% on Thursday at its third monetary policy meeting this year. The decision was widely expected. The next monetary policy meeting is on 11 July. The overall tone of the statement was neutral. BNM expects the global economy to stay resilient though risks linger should trade and geopolitical tensions escalate. Financial markets could also turn more volatile. The Malaysian economy continues to expand, buoyed by private sector activity and exports. Prospects for the domestic economy remain strong, driven by domestic and external demand. BNM reassures that the financial sector is strong and monetary and financial conditions are supportive of economic growth in the postelection environment. 2 P a g e
Later today, Singapore is slated to release March retail sales data, whilst India is expected to report March industrial production (exp: 6.1% y/y, prev: 7.1% y/y). Hong Kong will release 1Q18 GDP results and Thailand will report May foreign reserves. Recent publications: 10 May 18: Malaysia: BNM Holds Rates At 3.25%, Signals Stability Post-Election 10 may 18: Malaysia: Voting For Change In GE14 09 May 18: BoE Preview: Carney Likely To Push Back Interest Rate Rise 09 May 18: Indonesia: Smaller-Than-Expected Decline In Foreign Reserves 08 May 18: China: Exports Returned To Positive Growth In April 08 May 18: Indonesia: Q1 2018 Growth Weaker Than Expected 07 May 18: US April NFP: Unemployment Rate Falls To 18-year Low Of 3.9% Even As Wage Growth Stays Benign 04 May 18: Malaysia: March Exports Pick Up 2.2%, Trade Surplus Widens 03 May 18: US May FOMC: No Change But 2 Mentions Of 'Symmetric' Suggests Fed's Tolerance For Inflation Overshoot 3 P a g e
USD/SGD: 1.3375 Scope for extension lower to 1.3350 before stabilization can be expected USD initially extended its gain and while the failure to break the major 1.3500 resistance was not unexpected (high of 1.3490 during early Asian hours), the subsequent sharp and rapid reversal that hit an overnight low of 1.3364 came as big surprise. The swift decline appears to be over-extended but there appears to be scope for extension to 1.3345 before stabilization can be expected (next support is at 1.3320). is at 1.3405 followed by 1.3440. The 1.3490 is not expected to come into the picture. Shift from bullish to NEUTRAL: USD has moved into a correction/consolidation phase. See Chart of the Day on page 1. S1: 1.3350 S2: 1.3290 R1: 1.3405 R2: 1.3440 1.3457 1.3490 1.3364 1.3371-0.63% +0.47% +2.13% +0.02% 4 P a g e
EUR/USD: 1.1915 Up-move appears to be running ahead of itself but a clear break of the strong 1.1960 level seems unlikely. The sudden and sharp rise in EUR that hit a high of 1.1946 was unexpected. While the up-move appears to be running ahead of itself, a test of the strong 1.1960 resistance would not be surprising. At this stage, a clear break of this level seems unlikely. is at 1.1875 followed by 1.1845. Bearish (since 01 May 18, 1.2075): Diminished odds for further EUR weakness. We highlighted yesterday that the next level to focus on is at 1.1800 but added that the Dec 2017 low of 1.1715 could be out of reach. The subsequent strong and sharp rebound that hit a high of 1.1946 was not expected (note that the +0.53% gain registered yesterday was the largest 1-day advance since late March). While the stop-loss for our bearish view at 1.1960 is still intact, the price action suggests that the odds for further weakness have diminished. In order to revive the rapidly waning downward momentum, EUR has to move and stay below 1.1845 within these 1 to 2 days or a break of the stop-loss at 1.1960 would not surprise at all. S1: 1.1845 S2: 1.1800 R1: 1.1960 R2: 1.2000 1.1850 1.1946 1.1841 1.1913 +0.53% -0.61% -3.56% -0.79% 5 P a g e
GBP/USD: 1.3520 GBP is expected to trade choppily, likely within a 1.3470/1.3580 range. The choppy swing in GBP yesterday came as a surprise. GBP rose initially to hit 1.3618 before plummeting to a low of 1.3460 (holding just above the year-to-date low of 1.3458). While downward momentum has eased somewhat with the subsequent bounce from the low, it is too soon to expect a sustained recovery. GBP is more likely to continue to trade in a choppy manner, likely within a 1.3470/1.3580 range. Bearish (since 01 May 18, 1.3765): Still bearish but odds for further weakness to 1.3458 are not high. No change in view, see update from yesterday below. Note that the 1.3460 low was just 2 pips above 1.3458 and the 1.3618 was not far from our stop-loss level of 1.3630. All in, it appears that GBP is trying to search for a short-term base. In the latest update on Tuesday (08 May, spot at 1.3560), we left off with the view that the outlook for GBP is still bearish but odds for further weakness to 1.3458 are not high. GBP subsequently traded sideways and shorter-term momentum has weakened further. From here, we continue to hold the view that the prospect for further weakness is not high. However, only a break of 1.3630 ( stop-loss level unchanged) would indicate that the bearish phase has ended. S1: 1.3500 S2: 1.3455 R1: 1.3605 R2: 1.3630 1.3547 1.3618 1.3460 1.3514-0.25% -0.44% -4.65% +0.16% 6 P a g e
AUD/USD: 0.7525 Immediate pressure is on the upside but strong 0.7560 level is unlikely to yield so easily. The sharp rise in AUD that hit a high of 0.7540 yesterday was not expected. The rapid swing higher has shifted the immediate pressure to the upside. That said, 0.7560 is a rather strong resistance and this level is unlikely to yield so easily (next resistance is at 0.7590). On the downside, we expect 0.7460 to be strong enough to hold any intraday pull-back (0.7490 is already a rather strong support). Shift from bearish to NEUTRAL: AUD has moved into a correction/consolidation phase. We highlighted yesterday (10 May, spot at 0.7460) that another attempt to move below 0.7400 is not ruled but odds are not high and added that AUD is likely searching for a short-term low. That said, the extent and rapid pace of the subsequent rebound in AUD that hit an overnight high of 0.7540 was not exactly expected (note that the +0.97% gain made yesterday was the largest 1-day advance since late March). While the stop-loss for our bearish view at 0.7550 is still intact, the price action is enough to indicate that AUD has found a short-term low at 0.7413 on Tuesday (09 May). The current movement is viewed as the early stages of a correction/consolidation phase. Near-term, the immediate bias is tilted to the upside but at this stage, any advance in AUD is viewed as part of a 0.7440/0.7600 consolidation range and not the start of a bullish reversal. S1: 0.7460 S2: 0.7440 R1: 0.7560 R2: 0.7600 0.7455 0.7540 0.7452 0.7534 +0.97% +0.03% -2.92% -3.51% 7 P a g e
NZD/USD: 0.6960 Recovery has room to extend higher but a clear break of 0.6990 is unlikely. We expected a lower NZD yesterday but were of the view that the support at 0.6900 is unlikely to yield so easily. In line with expectation, NZD dropped to a low of 0.6903 before rebounding. That said, the extent and sharp pace of recovery came as a surprise (overnight high of 0.6970). The subsequent strong daily closing suggests that the rebound has some fuel left to extend to 0.6990. At this stage, a clear break of this level is not expected. is at 0.6935 followed by the still very strong level of 0.6900. Bearish (since 02 May 18, 0.7005): NZD is expected to challenge the 0.6900 support. No change in view, see update from yesterday below. Note that NZD touched 0.6903 before rebounding. All in, the price action suggests that NZD is trying to form a short-term bottom (confirmed only if there is a break of 0.7005). In the latest update on Tuesday (08 May, spot at 0.7020), we highlighted the increasing risk of a short-term low and added that in order to revive the current flagging momentum, NZD has to stay below 0.7005 within these few days. NZD closed well below 0.7005 by the end of Tuesday and extended its decline to hit an overnight low of 0.6929 earlier this morning. From here, we are expecting NZD to challenge the next support at 0.6900 and a break of this level would shift the focus to 0.6865. Stop-loss is adjusted lower to 0.7005 from 0.7085 previously. S1: 0.6935 S2: 0.6900 R1: 0.6990 R2: 0.7005 0.6978 0.6978 0.6903 0.6963-0.38% -1.13% -5.43% -1.76% 8 P a g e
USD/JPY: 109.50 A dip below the overnight low of 109.29 would not surprise but a move below 109.00 is not expected. USD tried but failed to break clearly above 110.00 yesterday. The subsequent swift reversal from a high of 110.01 appears to be running ahead of itself. While a dip below the overnight low of 109.29 would not be surprising, we do not expect a move below the next support 109.00. is at 109.70 followed by the still very strong level of 110.00. Neutral (since 21 Feb 18, 107.35): Pressure shifted to the upside, a test of 110.45/50 would not surprise. USD tried but failed to move convincingly above 110.00 (high of 110.01 yesterday). Despite the pull-back from the high, there is still chance for USD to test the strong 110.45/50 resistance (before a more sustained pull-back can be expected). Only a break of 109.00 would indicate that the current mild upward pressure has eased. S1: 109.00 S2: 108.60 R1: 110.05 R2: 110.45 109.74 110.01 109.29 109.38-0.32% +0.18% +2.04% -2.87% 9 P a g e
EUR/SGD: 1.5945 EUR is expected to trade sideways, likely within a 1.5900/1.5980 range. The recovery target indicated at 1.6000 yesterday was not met as EUR eased off after touching a high of 1.5985. Indicators are mostly flat now and the current movement is viewed as part of a consolidation phase. In other words, EUR is expected to trade sideways for today, likely within a 1.5900/1.5980 range. Bearish (since 30 Apr 18, 1.6051): Still bearish but odds for extension to 1.5818 are not high. No change in view, see update from yesterday below. However, stop-loss level is at 1.6000 now (from 1.6055). In the latest update on Tuesday (08 May, spot at 1.5930), we highlighted that severely oversold conditions suggest that the odds for further extension to the December s low of 1.5818 are not high and added that there is another relatively strong support at 1.5860. EUR subsequently hit a low of 1.5866 but has since rebounded strongly. We continue to hold the view that the odds for further downward extension are not high but confirmation of a short-term low is only upon a break of 1.6055 ( stop-loss level unchanged). S1: 1.5900 S2: 1.5860 R1: 1.5980 R2: 1.6000 1.5947 1.5985 1.5901 1.5930-0.11% -0.11% -1.49% -0.72% 10 P a g e
GBP/SGD: 1.8090 A test of the overnight low near 1.8040 would not surprise but a break of 1.8000 seems unlikely. The sharp and rapid decline in GBP yesterday was not expected. The weakness appears to be running ahead of itself and while a test of the overnight low near 1.8040 would not be surprising, a break below the next support at 1.8000 seems unlikely. is at 1.8140 followed by 1.8200. Neutral (since 10 May 18, 1.8240): GBP has moved into a consolidation phase. We just shifted from a bearish to neutral stance yesterday and there is no change to the view. However, the subsequent rapid decline that moved below our expected 1.8050/1.8400 consolidation range was not exactly expected (low of 1.8039). Despite the rapid downmove, we still view the current price action as part of a consolidation range not the resumption of a bearish phase. That said, we are adjusting the expected consolidation range to 1.8000/1.8300 from 1.8050/1.8400 previously. Only a clear break below 1.8000 would indicate that a move towards 1.7900 has started. S1: 1.8040 S2: 1.8000 R1: 1.8200 R2: 1.8300 1.8228 1.8275 1.8039 1.8076-0.83% +0.08% -2.56% +0.15% 11 P a g e
AUD/SGD: 1.0070 AUD to trade sideways to slightly higher, likely within a 1.0040/1.0095 range. Expectation for sideway trading was wrong as AUD rose strongly to hit a high of 1.0082. While the advance appears to be running ahead of itself, there is no sign of weakness just yet and the risk of a sustained pull-back is not high. AUD is more likely to consolidate and trade sideways to slightly higher, expected to be within a 1.0040/1.0095 range. Neutral (since 05 Apr 18, 1.0115): AUD appears to be ready for a sustained recovery. We have expected AUD to trade sideways between 0.9965 and 1.0085 since last Thursday (03 May, spot at 1.0010). After touching a low of 0.9959 on Tuesday (09 May), AUD rallied strongly to hit an overnight high of 1.0082. While the expected consolidation range is intact (more or less), the price action suggests that AUD is ready to stage a more sustained recovery in the coming days. From here, we expect 0.9955/60 to act as a very solid support and barring a move below this level, a clear break of 1.0095 would indicate that a stronger rebound to 1.0140 (and possibly beyond) has started. S1: 1.0040 S2: 0.9965 R1: 1.0095 R2: 1.0140 1.0043 1.0082 1.0012 1.0072 +0.28% +0.54% -0.83% -3.48% 12 P a g e
JPY/SGD: 1.2215 JPY is expected to grind higher but 1.2300 is unlikely to yield so easily. JPY touched a high of 1.2276 yesterday, holding well below the major 1.2300 resistance. The subsequent sharp pull-back from the high was not exactly expected as JPY dipped to a low of 1.2209. While downward momentum is not strong, there is scope for a dip to 1.2170. At this stage, a clear break of this level seems unlikely. is at 1.2245 followed by 1.2275. Neutral (since 27 Feb 18, 1.2405): Anticipating a stronger rebound to 1.2330. We have been anticipating a stronger rebound to 1.2330 since Tuesday (08 May) and since then JPY has not been able to make much headway after touching a high of 1.2308. For now, the prospect for a stronger rebound is still in place even though the odds have diminished. Only a break of 1.2170 would indicate that the current mild upward pressure has eased. S1: 1.2200 S2: 1.2170 R1: 1.2300 R2: 1.2330 1.2262 1.2276 1.2190 1.2222-0.33% +0.32% +0.10% +3.00% 13 P a g e
UOB FX & Interest Rate Outlook FX Outlook 2Q18 3Q18 4Q18 1Q19 Rates Outlook 2Q18 3Q18 4Q18 1Q19 EUR/USD 1.25 1.27 1.29 1.29 EU 0.00% 0.00% 0.00% 0.00% GBP/USD 1.40 1.38 1.36 1.36 UK 0.75% 0.75% 0.75% 0.75% AUD/USD 0.79 0.81 0.83 0.83 AU 1.50% 1.50% 1.50% 1.75% NZD/USD 0.74 0.75 0.75 0.75 NZ 1.75% 1.75% 1.75% 2.00% USD/JPY 100 103 107 110 JP -0.10% -0.10% -0.10% -0.10% USD/SGD 1.29 1.30 1.32 1.33 SG 1.70% 1.70% 1.85% 1.85% USD/MYR 3.88 3.85 3.80 3.80 MY 3.25% 3.25% 3.25% 3.25% USD/THB 31.00 31.30 31.50 31.80 TH 1.50% 1.75% 1.75% 1.75% USD/CNY 6.30 6.35 6.40 6.50 CN 4.60% 4.60% 4.60% 4.60% USD/IDR 13,800 13,850 13,900 13,950 ID 4.25% 4.25% 4.50% 4.50% USD/PHP 52.50 53.00 53.50 54.00 PH 3.25% 3.25% 3.25% 3.50% USD/INR 65.0 65.30 65.60 66.00 IN 6.00% 6.00% 6.00% 6.00% USD/TWD 29.4 29.6 29.8 30.0 TW 1.38% 1.38% 1.38% 1.50% USD/HKD 7.85 7.85 7.83 7.80 HK 2.25% 2.25% 2.50% 2.75% USD/KRW 1,070 1,080 1,090 1,100 KR 1.75% 1.75% 2.00% 2.00% US 2.00% 2.00% 2.25% 2.50% Updated on 23 Mar 18 Central Bank Meetings 2018 Central Bank Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Federal Reserve (FOMC) 31-21* - 02 13* - 01 26* - 08 19* European Central Bank (ECB) 25-08 26-14 26-13 25-13 Bank of England (BOE) - 08 # 22-10 # 21-02 # 14-01 # 20 Reserve Bank of Australia (RBA) - 06 06 03 01 05 03 07 04 02 06 04 Reserve Bank of New Zealand (RBNZ) - 08^ 22-10^ 28-9^ 27-08^ - Bank of Japan (BOJ) 23** - 9 27** - 15 31** - 19 31** - 20 ** Monetary Authority of Singapore (MAS) - - - 13 - - - - - tba - - Bank Negara Malaysia (BNM) 25-07 - 10-11 - 05-08 - Bank of Thailand (BOT) - 14 28-16 20-08 19-14 19 Bank Indonesia (BI) 18 15 22 19 17 28 19 16 27 23 15 20 Bangko Sentral ng Pilipinas (BSP) - 08 22-10 21-09 27-15 13 Bank of Korea (BOK) 18 27-12 24-12 31-18 30 - Taiwan Central Bank (CBC) 22 21 27 20 Reserve Bank of India (RBI) 07 *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. 14 P a g e
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