Quek Ser Leang Quek.SerLeang@uobgroup.com Heng Koon How Heng.KoonHow@uobgroup.com Global Economics & Markets Research Email: GlobalEcoMktResearch@uobgroup.com URL: www.uob.com.sg/research Chart Of The Day GBP/USD: 1.4000 Still neutral; broad consolidation phase could last for a while more. As highlighted yesterday (19 Feb), the rapid up-move in GBP last week appears to be running ahead of itself. However, a move above last Friday s 1.4145 peak is not ruled out but a sustained move above 1.4200 is not expected for now. In other words, the neutral phase that started 3 weeks ago (see update on 30 Jan, spot at 1.4075) is still intact and the price action since then is viewed as part of a rather broad consolidation phase that could last for a while more. Looking further ahead, a clear break below the bottom of the currently expected 1.3920/1.4200 consolidation range would suggest a retest of the 1.3764 low seen earlier this month. The 1.3764 low sits near the rising trend-line support and a break of this rather strong level would indicate that GBP could head much lower in the subsequent weeks. 1 P a g e
OVERVIEW FX and Rates Market consolidated around familiar levels with US away for holiday. Fairly quiet day overnight in both currency and rates market overnight with both the US and China away for holidays. The USD made the best of the quiet holiday trading to stabilize, with the USD Index (DXY) consolidating just above 89.00. Concurrently, the EUR/USD pair consolidated around 1.2400. The increased verbal intervention from Japanese authorities managed to somewhat stabilize USD/JPY above 106, leading to USD/JPY inching higher above 106.50 to 106.70. For today, the Reserve Bank of Australia (RBA) is scheduled to release its February Meeting minutes. This is largely to be a non-event with the RBA reiterating that it is in no hurry to follow the US Federal Reserve and other global central banks to normalize monetary policy anytime soon. We can expect AUD/USD to remain capped under 0.80 over the near term. Asian currencies largely held their ground with China still away for holiday. Offshore USD/CNH held its ground above 6.30 at 6.3080. Thailand announced a softer than expected 4Q GDP growth of +4.0% YoY, moderating from +4.3% YoY growth in 3Q. Nonetheless, Thailand s GDP still managed a strong +3.9% YoY pickup in 2017, compared to +3.3% YoY in 2016. We maintain our forecast of +3.9% YoY growth for 2018, mainly driven by exports, tourism and public infrastructure spending. For more details, kindly refer to Macro Note, Thailand s Economy Picks Up with 3.9% Growth in 2017, dated 19 Feb 2018. USD/THB was largely unchanged just above 31.40. Meanwhile the PHP remains weak, after last week s surprise 1% cut by Philippines central bank to its Reserve Requirement Ratio (RRR). As a result, USD/PHP continues to trade higher to a new decade high of 52.30. Similarly, USD/SGD consolidated around familiar levels above 1.31 as the pair traded marginally higher to 1.3140. Singapore announced its 2018 Budget that focused on strategies to cope with rising expenditure, particularly from increasing healthcare needs and infrastructure spending. As widely expected, Goods and Services Tax will be hiked from 7% currently to 9%, sometime in 2021 to 2025. For more details, kindly refer to Macro Note, Singapore Budget 2018 Brief: Strategies to cope with an aging society, dated 19 Feb 2018. The budget announcement was largely a non-event for SGD. The S$NEER continues to trade at a +0.4% premium above the estimated mid-point. In the background, US rates continued to inch higher, with 3M US Libor adding 1 bps to 1.88%. Focus will be the new series of issuance from the US Treasury as US markets return tonight. The US Treasury market will reopen to a busy Tuesday (20 Feb) with the US Treasury conducting the usual 3-month, 6-month T-bills and the 4-week T-bills auction while the long-dated UST note auction will be a US$28bn 2-year note auction. A weaker than expected bid-to-cover ratio, particularly for the 2Y note will reinforce the uptick in US rates. In Singapore, as mentioned above, the 2018 Budget was largely a non-event for financial markets. As such, both 3M Sibor and 3M SOR were relatively unchanged at 1.13% and 1.07% respectively. Recent publications: 19 Feb 18: Thailand's Economy Picks Up With 3.9% Growth In 2017 19 Feb 18: Japan: Strong Exports Cushion January Deficit 19 Feb 18: Indonesia: Bank Indonesia Kept Rates Unchanged 19 Feb 18: Indonesia: Trade Deficit Widened At The Start Of 2018 15 Feb 18: Singapore: Strong Jan NODX, But Electronics Continue To Disappoint 14 Feb 18: Malaysia: Current Account Widens To Highest Level Since 2015 14 Feb 18: Thailand: Year Starts With Policy Rate On Hold 14 Feb 18: Malaysia: 4Q17 GDP Growth Moderates But Momentum Stays Strong 14 Feb 18: Singapore: Slower But More Broad-Based Growth For 2018 12 Feb 18: Singapore 2018 Budget Preview: Higher Taxes To Keep Pace With Rising Expenditure 12 Feb 18: Indonesia: BOP Ended 2017 With Strong Surplus Position 2 P a g e
USD/SGD: 1.3115 Immediate bias is for a probe higher towards the top of the expected 1.3100/1.3160 consolidation range. USD traded sideways as expected albeit at a much narrower range than anticipated. The consolidation phase appears incomplete even though the improved undertone suggests that the immediate bias is for a probe higher towards the top of the expected 1.3100/1.3160 sideway trading range. Neutral (since 15 Feb 18, 1.3140): Immediate downward pressure but weakness is likely part of a broad 1.3000/1.3200 range. There is not much to add to the Chart of the Day update from yesterday (reproduced below). Our recent bullish expectation (see update on 09 Feb) was proven wrong as USD slumped below the key 1.3165 support last week. The rapid and sharp decline came as a surprise and has shifted the immediate pressure to the downside. That said, we are not convinced that the current weakness is the start of a bearish phase. However, further downside probe towards 1.3000 would not be surprising but at this stage, a sustained move below this major support is not expected. In other words, any further weakness is viewed as part of a broad 1.3000/1.3200 consolidation range. On the upside, only a clear break back above 1.3200 would indicate that the immediate downward pressure has eased. S1: 1.3100 S2: 1.3060 R1: 1.3160 R2: 1.3200 1.3117 1.3146 1.3103 1.3136 +0.14% -0.70% -0.37% -1.75% 3 P a g e
EUR/USD: 1.2420 Another attempt to move towards 1.2360 seems likely before a more sustained recovery can be expected. In line with expectation, EUR moved below last Friday s 1.2392 low but the down-move was checked by the 1.2360 support (overnight low has been 1.2367). Despite the bounce from the low, the undertone is still weak and another attempt to move towards 1.2360 seems likely (before a more sustained recovery can be expected). Further down, the next support at 1.2320 is unlikely to come into the picture. is at 1.2435 followed by 1.2470. Neutral (since 06 Feb 18, 1.2375): EUR strength unlikely to be sustained. No change in view, see update from yesterday below. EUR edged above the January s 1.2536 top last Friday but slumped after briefly touching a high of 1.2555. The rally from late last week appears to be running ahead of itself and we are not convinced that the up-move can be sustained. The neutral phase that started more than a week is still intact and we view the current movement as part of a broad 1.2320/1.2555 consolidation range. Looking further ahead, EUR has to punch clearly above 1.2555 in order to suggest that it has enough momentum to continue to march higher in the coming days and weeks. At this stage, the odds for such a move are not high. S1: 1.2360 S2: 1.2320 R1: 1.2470 R2: 1.2555 1.2409 1.2435 1.2367 1.2407 +0.02% +0.94% +1.19% +3.33% 4 P a g e
GBP/USD: 1.4000 Undertone has softened somewhat but any weakness from here is viewed as part of a 1.3960/1.4050 consolidation range. While GBP traded sideways as expected, the registered range was much narrower than anticipated. The undertone has softened somewhat but any weakness from here is viewed as part of a 1.3960/1.4050 consolidation range and not the start of a sustained downmove. Neutral (since 30 Jan 18, 1.4075): Still neutral; likely back in consolidation mode. See Chart of the Day on page 1. S1: 1.3960 S2: 1.3920 R1: 1.4050 R2: 1.4145 1.4019 1.4048 1.3960 1.3998-0.21% +1.14% +0.07% +3.70% 5 P a g e
AUD/USD: 0.7910 Further range trading is expected, likely within a 0.7880/0.7940 range. We highlighted yesterday that AUD is likely to consolidate its gains and trade sideways. However, the registered range of 37 pips between 0.7898 and 0.7935 was much narrower than expected (it is the smallest 1-day range so far this year). Indicators are mostly flat which suggest further range trading, albeit unlikely at such tight intraday range. Expected range for today; 0.7880/0.7940. Neutral (since 15 Feb 18, 0.7925): In a consolidation phase. There is not much to add as AUD traded in a tight 37 pips range between 0.7898 and 0.7935 yesterday (the smallest 1-day range so far this year). We continue to hold a neutral stance and view the current movement as part of a consolidation range. From here, we expect AUD to trade sideways, likely within a 0.7820/0.8020 range. S1: 0.7880 S2: 0.7820 R1: 0.7940 R2: 0.8020 0.7905 0.7935 0.7898 0.7912 +0.06% +0.62% -1.30% +1.46% 6 P a g e
NZD/USD: 0.7375 Undertone has weakened somewhat but any decline is viewed as part of a lower 0.7340/0.7400 consolidation range. NZD registered a range of 0.7353/0.7409 yesterday, relatively close to our expected 0.7355/0.7420 sideway trading range. The undertone has weakened somewhat but any decline from here is viewed as part of a lower 0.7340/0.7400 consolidation and not the start of sustained down-move. Neutral (since 05 Feb 18, 0.7280): Shift to bullish if NY closing is above 0.7435/40. No change in view, see update from yesterday below. The strong surge that started in the middle of last week tested the January s peak of 0.7437 last Friday but failed to break through (exact high of 0.7437 on Friday). While upward momentum has improved considerably, only a NY closing above 0.7435/40 would indicate that a move towards 0.7500 (and possibly beyond) has started. The odds for such a move are not high at this stage but would continue to improve as long as the key 0.7310 support is not taken out in the next few days. S1: 0.7340 S2: 0.7310 R1: 0.7410 R2: 0.7440 0.7386 0.7409 0.7353 0.7372-0.27% +1.44% +0.60% +3.93% 7 P a g e
USD/JPY: 106.60 Scope for a move above the overnight high of 106.72 but a sustained move above 107.00 seems unlikely. USD traded sideways as expected albeit at a narrower range than anticipated. The daily closing is on the strong side and there is scope for a move above the overnight high of 106.72 even though a sustained move 107.00 seems unlikely (next resistance is at 107.30). is at 106.40 followed by 106.10. Bearish (since 14 Feb 18, 107.80): Severely oversold but room for extension to 105.00. While the recovery from last Friday s 105.52 low was more resilient than expected, it is too soon to expect an end to the current bearish phase. Only a move back above 107.30 would indicate that a short-term low is in place. Until there, despite being severely oversold, there is still room for the current decline in USD to extend lower towards the next major support at 105.00. S1: 105.50 S2: 105.00 R1: 107.00 R2: 107.30 106.32 106.72 106.08 106.59 +0.27% -1.88% -3.89% -5.38% b 8 P a g e
EUR/SGD: 1.6295 Scope for a move higher towards 1.6340 but a sustained up-move is not expected for now. We expected EUR to trade sideways within a 1.6250/1.6320 range yesterday. EUR registered a range of 1.6249/1.6310 before ending the day on a positive note. The improved undertone suggests that there is scope a move higher towards 1.6340 but a sustained move above this level is not expected for now. On the downside, 1.6250 is acting as a solid support (next support is at 1.6220). Neutral (since 07 Feb 18, 1.6325): EUR has moved into a consolidation phase, expected to trade sideways for now. No change in view, see update from yesterday below. We have been neutral on EUR for more than a week (see update on 07 Feb, spot at 1.6325) and there is no change to the view. EUR tested the top end of our expected 1.6180/1.6400 consolidation on Friday but dropped sharply after touching a high of 1.6402. We remain neutral for now and expect further sideway consolidation within the range mentioned above. S1: 1.6220 S2: 1.6180 R1: 1.6340 R2: 1.6400 1.6277 1.6310 1.6249 1.6295 +0.14% +0.20% +0.79% +1.47% 9 P a g e
GBP/SGD: 1.8390 Neutral indicators suggest further range trading, expected to be within 1.8350/1.8400. GBP traded in a muted manner yesterday and indicators are mostly still neutral. In other words, the consolidation phase appears incomplete and further range trading is expected from here, likely within a 1.8350/1.8440 range. Neutral (since 09 Feb 18, 1.8550): Further choppy trading is expected. There is not much to add as GBP continues to chop around. We continue to hold a neutral view and expect GBP to trade within a broad 1.8200/1.8600 range. S1: 1.8295 S2: 1.8200 R1: 1.8440 R2: 1.8635 1.8407 1.8417 1.8339 1.8392-0.14% +0.47% -0.28% +1.81% 10 P a g e
AUD/SGD: 1.0395 AUD is expected to trade sideways, likely between 1.0370 and 1.0420. In line with expectation, AUD traded mostly sideways yesterday. Indicators are mostly flat which suggest further range trading, likely between 1.0370 and 1.0420. Bearish (since 06 Feb 18, spot at 1.0430): Downward momentum is beginning to show signs of slowing. No change in view, see update from yesterday below. While AUD dipped below the major 1.0300 support last week, the down-move was not sustained (low of 1.0290). The outlook for AUD is still deemed as bearish but downward momentum continues to wane and from here, a move above 1.0450 would indicate that the current bearish phase has ended. Until then, another push towards 1.0280/90 is not ruled out but the odds are not high. S1: 1.0345 S2: 1.0280 R1: 1.0420 R2: 1.0450 1.0376 1.0407 1.0350 1.0390 +0.13% -0.09% -1.72% -0.34% 11 P a g e
JPY/SGD: 1.2320 Downside appears to be more vulnerable but a sustained move below the expected 1.2275/1.2350 range seems unlikely. Against our expected, JPY slipped without testing last Friday s 1.2376 high. However, the decline from a high of 1.2355 is viewed as part of a consolidation phase and not the start of a sustained down-move. From here, further sideway trading seems likely even though the downside appears to be more vulnerable. That said, a sustained move below the expected 1.2275/1.2350 sideway trading range seems unlikely. Bullish (since 09 Feb 18, spot at 1.2240): Overbought but room for extension to 1.2420. No change in view, see update from yesterday below. The bullish phase that started on 09 Feb (spot at 1.2240) is still intact as JPY hit a high of 1.2376 on Friday. The rally is in overbought territory but there is room for further extension to 1.2420. Only a move back below 1.2220 would indicate that the current bullish phase has ended. S1: 1.2260 S2: 1.2220 R1: 1.2375 R2: 1.2420 1.2337 1.2355 1.2294 1.2320-0.13% +1.19% +3.63% +3.79% 12 P a g e
UOB FX & Interest Rate Outlook FX Outlook 1Q18 2Q18 3Q18 4Q18 Rates Outlook 1Q18 2Q18 3Q18 4Q18 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 0.50% 0.50% 0.50% 0.75% AUD/USD 0.82 0.83 0.84 0.85 AU 1.50% 1.50% 1.50% 1.75% NZD/USD 0.74 0.74 0.75 0.75 NZ 1.75% 1.75% 1.75% 1.75% USD/JPY 105 109 111 113 JP -0.10% -0.20% -0.20% -0.20% USD/SGD 1.29 1.30 1.32 1.33 SG 1.50% 1.70% 1.70% 1.85% USD/MYR 3.88 3.85 3.80 3.80 MY 3.25% 3.25% 3.25% 3.25% USD/THB 31.3 31.5 31.8 32.0 TH 1.50% 1.50% 1.75% 1.75% USD/CNY 6.30 6.35 6.40 6.50 CN 4.60% 4.85% 4.85% 4.85% USD/IDR 13,300 13,300 13,400 13,500 ID 4.25% 4.25% 4.25% 4.50% USD/PHP 50.0 50.5 51.0 52.0 PH 3.00% 3.25% 3.25% 3.25% USD/INR 63.0 63.5 64.5 65.0 IN 5.75% 5.75% 5.75% 5.75% USD/TWD 28.5 29.0 29.5 29.8 TW 1.38% 1.38% 1.38% 1.38% USD/HKD 7.80 7.80 7.80 7.80 HK 2.00% 2.25% 2.25% 2.50% USD/KRW 1,060 1,070 1,080 1,090 KR 1.75% 2.00% 2.00% 2.00% Updated on 08 Dec 17 Updated on 26 Jan 18 US 1.75% 2.00% 2.00% 2.25% 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) - - - tba - - - - - 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) tba tba tba tba 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. 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