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 JPY/SGD: 1.3255 Bearish; target a move to 1.3155. We shifted from a bullish to neutral stance on Monday (see on 29/8/16) and were of the view that the pull-back in JPY has scope to extend lower towards the 1.3250 support. The anticipated decline has been more impulsive than expected and the strong pick-up in downward momentum suggests that the current JPY weakness has room to extend further towards the major 1.3155 support. In order to maintain the current bearish momentum, any rebound should not move above 1.3360 even though from a shorter-term perspective, 1.3300 is already a strong resistance. 1 P a g e
OVERVIEW Tuesday s session was highlighted by stronger-than-expected Conference Board consumer confidence, which saw a 4.4pt rise in the headline index to 101.1 in August, the best reading since September last year. The improvement was equally shared by the present conditions index, which rose 4.2pts to 123.0 (a nine-year high), and the expectations index, which rose 4.4pts to 86.4 (the best since October last year). Stocks on Wall Street ended marginally lower as markets analyzed strong consumer data whilst awaiting Friday's key jobs report. US Treasuries were little changed, though some light selling occurred at the longerend of the curve. The dollar pushed higher against the major currencies, whilst commodities were weighed by the greenback s strength. Focus today will clearly be on the ADP employment report (consensus looking for a print of +175k) as analysts look to fine-tune their estimates for Friday s payrolls report. We will also receive the August Chicago PMI and July pending home sales reports. The Fedspeak includes Boston Fed s Rosengren and Chicago Fed s Evans, participating in a panel discussion in China (the topic is Business Cycles, Financial Markets and Monetary Policy with Special Application to China ). Minneapolis Fed s Kashkari will be speaking on the structure of the Fed in the US. Latest Flash Note: After The Talk, Focus Now On The Jobs http://bit.ly/2bvtqpw 2 P a g e
31-Aug-16 Summary of Views FX Pairs Spot Outlook Since/ Rate Target Trailing-Stop Support Resistance USD/SGD 1.3635 Bullish 25 Aug 16 1.3540 1.3750 1.3645 1.3550 1.3500 S1: 1.3585 S2: 1.3550 R1: 1.3680 R2: 1.3750 EUR/SGD 1.5200 Neutral 1.5230 - - S1: 1.5170 S2: 1.5100 R1: 1.5240 R2: 1.5300 GBP/SGD 1.7840 Bullish 24 Aug 16 1.7835 1.8015 1.7940 1.7750 1.7700 S1: 1.7750 S2: 1.7700 R1: 1.7860 R2: 1.7910 AUD/SGD 1.0255 Neutral 18 Aug 16 1.0270 - - S1: 1.0220 S2: 1.0160 R1: 1.0290 R2: 1.0330 JPY/SGD 1.3255 *Bearish 31 Aug 16 1.3255 1.3155 1.3360 S1: 1.3200 S2: 1.3155 R1: 1.3300 R2: 1.3360 USD/MYR # Neutral 01 Aug 16 4.0350 - - S1: 4.0100 S2: 3.9800 R1: 4.0500 R2: 4.0850 USD/THB 34.62 Neutral 34.68 - - S1: 34.55 S2: 34.51 R1: 34.71 R2: 34.80 USD/CNH 6.6955 Bullish 6.6990 6.7170 6.6750 6.6650 S1: 6.6860 S2: 6.6750 R1: 6.7025 R2: 6.7170 CNH/SGD 0.2039 Neutral 0.2032 - - S1: 0.2030 S2: 0.2026 R1: 0.2039 R2: 0.2046 EUR/USD 1.1150 *Bearish 31 Aug 16 1.1150 1.1070 1.1210 S1: 1.1100 S2: 1.1070 R1: 1.1185 R2: 1.1210 GBP/USD 1.3110 Neutral 30 Aug 16 1.3110 - - S1: 1.3050 S2: 1.2980 R1: 1.3140 R2: 1.3210 AUD/USD 0.7520 Bearish 0.7550 0.7485 0.7600 0.7630 S1: 0.7485 S2: 0.7425 R1: 0.7570 R2: 0.7600 NZD/USD 0.7230 Bearish USD/JPY 102.90 Bullish * Shift in outlook. #Malaysia is closed for public holiday. 0.7230 102.00 0.7170 0.7310 104.00 102.80 101.50 101.00 S1: 0.7200 S2: 0.7170 S1: 102.40 S2: 101.50 R1: 0.7260 R2: 0.7310 R1: 103.50 R2: 104.00 FX Pairs Ranges for 30-Aug-16 Performance* Open High Low Close 1-day 1-week 1-month YTD** USD/SGD 1.3600 1.3650 1.3586 1.3647 +0.36% +0.97% +1.68% -3.82% EUR/SGD 1.5209 1.5229 1.5176 1.5202-0.05% -0.45% +1.52% -1.26% GBP/SGD 1.7820 1.7881 1.7780 1.7850 +0.21% +0.11% +0.97% -14.6% AUD/SGD 1.0282 1.0309 1.0226 1.0248-0.37% -0.35% +1.36% -0.65% JPY/SGD 1.3335 1.3350 1.3221 1.3251-0.65% -1.67% +1.12% +12.4% USD/MYR 4.0340 4.0560 4.0310 4.0480 +0.13% +0.57% +0.65% -5.64% USD/THB 34.56 34.62 34.51 34.59 +0.05% -0.05% -0.48% -3.91% USD/CNH 6.6890 6.6970 6.6863 6.6927 +0.05% +0.53% +0.69% +1.88% EUR/USD 1.1187 1.1196 1.1128 1.1141-0.42% -1.43% -0.16% +2.64% GBP/USD 1.3101 1.3120 1.3060 1.3081-0.18% -0.89% -0.71% -11.1% AUD/USD 0.7569 0.7580 0.7500 0.7510-0.76% -1.36% -0.34% +3.15% NZD/USD 0.7255 0.7265 0.7204 0.7220-0.44% -0.96% +0.64% +5.85% USD/JPY 101.90 103.13 101.73 102.95 +1.03% +2.71% +0.55% -14.4% * 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-15. 3 P a g e
USD/SGD: 1.3635 USD/SGD rose to post-brexit high of 1.3649 on Tuesday and ended on a strong note at 1.3647. The trade-weighted SGD NEER is trading at around 0.3% above the midpoint this morning. We expect the SGD NEER to remain between the midpoint and 0.5% above the midpoint, implying the USD/SGD range of 1.3620 1.3690 based on current FX levels. Data on Singapore s bank loans and money supply for July will be released at 10 am. Latest Flash Note: 23 Aug 16 Headline Deflation Persisted For Nearly 2 Years, But Core Inflation Still Holding On - http://bit.ly/2bmilcr The underlying strength for USD is more robust than anticipated as the recent up-move continues to power higher instead of trading sideways first. The up-move tested the major 1.3645/50 resistance and while a move above this level would not be surprising, the current rally appears to be running ahead of itself and a sustained move 1.3675/80 seems unlikely, at least for today. Strong support is at 1.3610 but only a move back below 1.3585 would indicate that the current upward pressure has eased. Bullish: 1.3645/50 target met; to take partial profit ahead of 1.3750. The 1.3645/50 target that was first highlighted last Thursday (see Chart of the Day update on 25/8/16) was met yesterday with a high of 1.3650. This a strong resistance but based on the current impulsive momentum, a break above this level would not be surprising and would quickly shift the focus to 1.3745/50, the high seen on the day of Brexit. 1.3745/50 is another major resistance and those who are long may like to take some profit ahead of this level (say near 1.3720/25). Stop-loss is adjusted higher to 1.3550 from 1.3500. 4 P a g e
EUR/SGD: 1.5200 EUR traded sideways as expected and further range trading seems likely for today. That said, downward momentum is showing sign of improving and the immediate bias is for a probe lower towards the 1.5170 support first. Strong resistance is at 1.5240. Neutral: In a 1.5100/1.5300 range. [No change in view, see previous update below] We just adopted a neutral stance on EUR yesterday and there is no change to the view. Last week s 1.5305 peak is likely a short-term top and the current movement is deemed as part of a broader consolidation range. From here, we continue to expect sideway trading, likely within a 1.5100/1.5300 range. GBP/SGD: 1.7840 GBP rebounded without testing the major 1.7750/55 support. However, the up-move fizzled out quickly after touching a high of 1.7880. A retest of the high would not be surprising but the next resistance at 1.7910 is a rather strong level and a move above this level seems unlikely for now. Support is at 1.7800, ahead of the key 1.7750 level. Bullish: Diminished odds for further GBP strength. While the stop-loss for our bullish GBP view at 1.7750 is still intact, the recent price action continues to suggest deteriorating momentum outlook. This pair has to punch above the strong 1.7910 resistance before further sustained gains can be expected. Further consolidation below this level would lead to a rapid loss in momentum and greatly increase the odds of a break below 1.7750. AUD/SGD: 1.0255 AUD resumed its recent weakness but the down-move was thwarted by the major 1.0220 support (low of 1.0226). Downward momentum has eased off with the rapid rebound from the low but barring a move back above 1.0285/90, another attempt lower towards 1.0220 seems likely. JPY/SGD: 1.3255 The rapid acceleration lower was unexpected as JPY plunged to an overnight low 1.3221. Further weakness is expected but oversold conditions would likely slow down the pace of any further decline and a sustained move below the next support at 1.3200 seems unlikely. Resistance is at 1.3275 ahead of the stronger level at 1.3300. Neutral: Downward bias but bearish only if clearly below 1.0220. As highlighted in the Chart of the Day update yesterday, the immediate pressure for this pair is on the downside but only a clear break below 1.0220 would indicate that the current neutral outlook has shifted to bearish. Despite the quick rebound from the overnight low of 1.0226, the bias is still on the downside and the downward pressure would persist unless AUD can move and stay above 1.0285/90 within these few days. Shift from neutral to bearish: Target a move to 1.3155. [See Chart of the Day on page 1] 5 P a g e
USD/MYR: 4.0480 Malaysia s markets will be closed for National Day today. Latest Flash Note: 24 Aug 16 July CPI +1.1%; Puts Inflation On The Backburner http://bit.ly/2bcpbmq Malaysia is away on National Day holiday. Malaysia is away on holiday today but as highlighted yesterday, a daily closing above 4.0450 would shift the recent neutral outlook to bullish (USD closed at 4.0480 yesterday). We will provide further updates tomorrow. USD/THB: 34.62 THB rose 0.1% to 34.57/USD on Tuesday and is seen now above the 34.62-levels. Thailand s July balance of payments will be due at 3.30 pm later today. In news, the Board of Trade will soon meet with the governor of the Bank of Thailand to discuss the currency situation, which could affect this year s exports, while indicating that the acceptable exchange rate for the baht is 34.50 per US dollar. The discussion will involve measures to deal with currency volatility that could have negatives impacts on Thai exporters. Latest Flash Note: 26 Aug 16 July Trade Data Continues To Disappoint http://bit.ly/2c0xk8a Neutral: Rebound has room to extend further to 34.80. [No change in view, see previous update below] We shifted from bearish to neutral USD yesterday and expected the recovery from last Friday to extend higher to 34.80. USD touched a high of 34.70 yesterday and the sharp pull-back from the top has dented the shorter-term upward momentum. That said, as long as the recent low of 34.51 is intact, another attempt to move higher cannot be ruled out even though the odds are not very high at this stage. A clear break below 34.51 would shift the focus to the downside once again. USD/CNH: 6.6955 The PBoC set the CNY central parity firmer on Tuesday at 6.6812/USD, up from its 5-week low fixing on Monday at 6.6856/USD. CNY firmed slightly to 6.6807/ USD from 6.6830 on Monday while offshore CNH failed to retest the 6.70 level on Tuesday. China s President Xi Jinping called for solid efforts to push forward reform plans at the meeting of the Central Leading Group for Deepening Overall Reform on Tuesday. Bullish: Target a move to 6.7170. The current movement is viewed as a short-term consolidation phase and further USD strength is still expected in the days ahead. In other words, the bullish phase that started on Monday is still intact and we continue to target a move to 6.7170. Stoploss is adjusted higher to 6.6750 from 6.6650. CNH/SGD: 0.2037 Neutral: Bullish only if clearly above 0.2039. The anticipated CNH strength has been more rapid and robust than expected. The major and strong 0.2039 resistance (July s high) was tested yesterday but held and from here, a clear break above this level would indicate further CNH strength in the coming days. Overall, this pair is expected to stay underpinned with 0.2030 acting as a solid support. 6 P a g e
EUR/USD: 1.1150 The BoE reported a decline in mortgage approvals to 60.9k in July from 64.2k in June, which was the least since January 2015. This is not surprising given the uncertainty surrounding the UK referendum. Real estate prices in the UK have started to swell strongly in recent months, after slowing towards the end of 2014, as the supply of new housing remains limited. The down-move in EUR is more resilient than expected by easily taking out Monday s low of 1.1156 (overnight low of 1.1128). The weak daily closing suggests further downward pressure but at this stage, any further weakness is likely limited to 1.1100. The resistance at 1.1185/90 is likely strong enough to cap any intraday rebound. Shift from neutral to bearish: Target at 1.1065/70. The clear break below 1.1160 finally shifted the outlook for EUR to bearish. From here, we have an immediate objective of 1.1065/70. In order to maintain the current momentum, any short-term rebound should not move back above 1.1210. 7 P a g e
GBP/USD: 1.3085 The BoE reported a decline in mortgage approvals to 60.9k in July from 64.2k in June, which was the least since January 2015. This is not surprising given the uncertainty surrounding the UK referendum. Real estate prices in the UK have started to swell strongly in recent months, after slowing towards the end of 2014, as the supply of new housing remains limited. While the initial dip in GBP held above 1.3050 as expected (low of 1.3060), the anticipated recovery did not reach the 1.3140 target (high of 1.3120). The subsequent rapid pullback from the top has resulted in a mixed outlook and this pair is expected to trade sideways at these lower levels, likely between 1.3030 and 1.3130. Neutral: In a 1.2980/1.3210 range. We shifted to a neutral stance for GBP yesterday and there is no change to the view. The outlook for the next couple of weeks appears to be neutral and we expect GBP to trade sideways, likely within a broad 1.2980/1.3210 range. That said, the immediate bias is on the downside and the odds for a move to 1.2980 first is higher than a move to 1.3210. 8 P a g e
AUD/USD: 0.7520 Although AUD slipped against the USD, the pair is still above the 0.75-figure. All eyes will now turn to retail sales data for July on Thursday. Expectation for a stronger rebound in AUD was wrong as the break of the 0.7545 resulted in a sharp drop to an overnight low of 0.7500. While a move below 0.7500 would not be surprising, the next support at 0.7485 is a major level and is unlikely to yield so easily. Resistance is at 0.7545 but only a move above 0.7570 would indicate that a short-term low is in place. Bearish: Immediate target of 0.7485. The bearish phase that started on Monday is still clearly intact and the immediate target highlighted previously at 0.7485 appears to be within reach. A clear break below this level would shift the focus to the next support at 0.7420/25. Stop-loss is adjusted lower to 0.7600 from 0.7630. 9 P a g e
NZD/USD: 0.7240 Business confidence in New Zealand eased this month and inflation expectations fell. A net 15.5% of New Zealand firms were optimistic in August, according to ANZ s Business Outlook Survey, down from 16.0% in July. The activity outlook improved this month though, rising from 31.4 to 33.7, whilst export intentions were more than three points higher. Employment intentions also rose in August, but profitability expectations fell. The same survey found that inflation expectations eased from 1.49% for the year ahead in July to 1.44% in August, whilst pricing intentions fell to a four-year low. Whilst the RBNZ is currently expected to cut a further 25bps, under a scenario where inflation expectations continues to decline, the outlook for the OCR will be more dovish. Instead of trading sideways, NZD broke below the 0.7240 support to touch a low of 0.7204. The subsequent rapid and sharp rebound from the low suggests that the strong downward pressure has eased and the current recovery appears to have scope to extend higher to 0.7260. At this stage, a sustained move above this level is not expected. The 0.7204 low is acting as a solid intraday support. Bearish: Target a break below 0.7170. There is not much to add and we continue to stay bearish NZD and expect a break below the major 0.7170 support. A move below this level would shift the focus towards the 0.7085/90 low seen in early August. Stop-loss remains unchanged at 0.7310 for now. 10 P a g e
USD/JPY: 102.90 Industrial production was flat in July, compared with the previous month, coming in weaker than expectations for a 0.7% growth. Compared with July 2015, industrial output fell 3.8% last month, more than double the 1.5% rate decline seen in June. The lack of industrial output is just one of the many concerning signs that suggest the Japanese economy is flagging. Meanwhile, USD/JPY continues to climb and is now currently above the 103-figure. On Tuesday, Japanese Chief Cabinet Secretary Yoshihide Suga told Reuters in an interview that the government will respond "appropriately" to unwelcome JPY gains that hurt economic growth. Latest Flash Note: 18 Aug 16 Exports Woes Continue For The 10th Straight Month In July http://bit.ly/2brsgql The ease of which successive strong resistance levels were taken out took us by surprise. While further USD strength seems likely in the days ahead, the current short-term rally appears to be over-extended and even if there is a move above the overnight high of 103.13, the next resistance at 103.50 is not expected to yield so easily. Overall, USD is expected to stay underpinned from here with solid support at 102.40. Bullish: Next target at 104.00. While we were of the view that USD could continue to advance, the sudden acceleration higher that sliced through the major 102.80 resistance was unexpected. The outlook for USD is still clearly bullish and from here, the target has shifted to 104.00 (falling trend-line resistance & the minor low in late July). Stop-loss is adjusted higher to 101.50 from 101.00 even though from a shorter-term perspective, 102.40 is already a strong support. y= 11 P a g e
UOB FX & Interest Rate Outlook FX Outlook 3Q16 4Q16 1Q17 2Q17 Rates Outlook 3Q16 4Q16 1Q17 2Q17 EUR/USD 1.09 1.07 1.06 1.05 EU 0.00% 0.00% 0.00% 0.00% GBP/USD 1.28 1.24 1.20 1.16 UK 0.25% 0.10% 0.10% 0.10% AUD/USD 0.75 0.76 0.78 0.80 AU* 1.50% 1.50% 1.50% 1.50% NZD/USD 0.72 0.73 0.75 0.75 NZ** 1.75% 1.75% 1.50% 1.50% USD/JPY 105 106 109 110 JP -0.20% -0.20% -0.30% -0.30% USD/SGD 1.37 1.38 1.41 1.42 SG 0.90% 1.10% 1.35% 1.50% USD/MYR 4.15 4.15 4.10 4.08 MY 3.00% 3.00% 3.00% 3.00% USD/THB 36.0 36.5 37.0 37.0 TH 1.50% 1.50% 1.75% 2.00% USD/CNY 6.70 6.60 6.59 6.62 CN 4.10% 3.85% 3.85% 3.85% USD/IDR 13,200 13,200 13,300 13,400 ID 5.00% 5.00% 5.00% 5.00% USD/PHP 47.0 46.0 45.0 43.0 PH 3.00% 3.00% 3.25% 3.25% USD/INR 70.0 71.1 72.2 71.1 IN 6.50% 6.50% 6.75% 6.75% USD/TWD 32.7 32.4 32.1 31.8 TW 1.38% 1.38% 1.38% 1.38% USD/HKD 7.80 7.80 7.80 7.80 HK 0.75% 1.00% 1.00% 1.25% USD/KRW 1190 1200 1220 1230 KR 1.00% 1.00% 1.00% 1.00% Last updated on 18 Jul 16 * Last updated on 03 Aug 16 ** Last updated on 11 Aug 16 US 0.50% 0.75% 0.75% 1.00% Quarterly Global Outlook: 3Q 2016 http://bit.ly/2aotsdh * Central Bank Meetings 2016 Central Bank Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Federal Reserve (FOMC) 27-16 27-27 - 21-02 14 European Central Bank (ECB) 21-10 21-02 21-08 20-08 Bank of England (BOE) 14 04 17 14 12 16 14 04 15 13 03 15 Reserve Bank of Australia (RBA) - 02 01 05 03 07 05 02 06 04 01 06 Reserve Bank of New Zealand (RBNZ) 28-10 28-09 - 11 22-10 - Bank of Japan (BOJ) 29-15 28-16 29-21 - 1 Bank Negara Malaysia (BNM) 21-09 - 19-13 - 07-23 - Bank of Thailand (BOT) - 03 23-11 22-03 14-09 21 Monetary Authority of Singapore (MAS) - - - 14 - - - - 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