DAILY FX OUTLOOK FX Themes/Strategy/Trading Ideas Wednesday, January 3, 218 Despite firmer UST yields (curve bear steepened), the DXY began the year by slumping below 92. on Tuesday. With Fed rate hike prospects static and near term dollar positivity from any fiscal impetus likely ephemeral for now, expect any increased attention on global reflation once again(or more accurately, global monetary policy divergence relative to the Fed) to continue to keep the greenback under pressure. This week, the calendar includes FOMC minutes on Wednesday, global services/composite PMIs in the latter part of the week, with US December NFP numbers due on Friday. EM equities popped higher on the first day of the year on improved investor sentiment as December global manufacturing PMIs pointed to synchronized and sustained improvements in manufacturing activity. On this front, the December Caixin China PMI improved to 51.5 from 5.8 (over the weekend, the official manufacturing PMI slipped to 51.6 from 51.8 in November), buffering global risk appetite levels. Asian FX Treasury Research & Strategy Emmanuel Ng +65 653 473 ngcyemmanuel@ocbc.com Beyond the China PMIs however, note that the December manufacturing PMIs were mixed compared to previous month (India and Taiwan improved, South Korea, Malaysia, Indonesia, Philippines weakened) although this did not detract from the soft dollar. In the interim, USD-Asia may continue to remain reactive to a vulnerable greenback while awaiting a return of actual net portfolio inflows. In the interim, Asian currencies may be further aided by positive risk appetite, with the FXSI (FX Sentiment Index) starting the year yesterday in Risk-On territory. As such, the ACI (Asian Currency Index) may continue to tilt south at this juncture. SGD NEER: 4Q 17 GDP printed at a 3.1% yoy expansion with full year growth coming in at 3.5%. Today, the December PMI is due (13 GMT) and in the interim, the SGD NEER is firmer on the day at around +1.22% above its perceived parity (1.3448). At current levels, the +1.3% threshold is estimated at around 1.3275 with +1.1% at 1.332. In line with the rest of the regional pairs, expect USD-SGD to remain top heavy in the current USD environment after failing to re-take its 2-week MA (1.355) in mid- December.
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 3 January 218 Daily FX Outlook 12 118 116 114 112 11 18 16 14 12 1 Asian Currency Index SGD NEER % deviation USD-SGD Current 125.75 1.2 1.3291 +2.% 126.74 1.3184 Parity 124.26 1.3448-2.% 121.77 1.3722 CFETS RMB Index: The USD-CNY mid-point was set largely in line with expectations at 6.492 this morning compared to 6.579 yesterday. This took the CFET RMB Index slightly lower to 94.98 from 95.1 on Tuesday. After bouncing off its lows in mid-217, the CFETS RMB Index managed to end the year relatively unchanged, and relative stability is expected to be the mainstay into 218. The implication then is that the bilateral nominal exchange rates of the renminbi complex may continue to track broad dollar gyrations going ahead. 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
4-Jan-16 4-Mar-16 4-May-16 4-Jul-16 4-Sep-16 4-Nov-16 4-Jan-17 4-Mar-17 4-May-17 4-Jul-17 4-Sep-17 4-Nov-17 4-Jan-16 4-Mar-16 4-May-16 4-Jul-16 4-Sep-16 4-Nov-16 4-Jan-17 4-Mar-17 4-May-17 4-Jul-17 4-Sep-17 4-Nov-17 4-Jan-16 4-Mar-16 4-May-16 4-Jul-16 4-Sep-16 4-Nov-16 4-Jan-17 4-Mar-17 4-May-17 4-Jul-17 4-Sep-17 4-Nov-17 4-Jan-16 4-Mar-16 4-May-16 4-Jul-16 4-Sep-16 4-Nov-16 4-Jan-17 4-Mar-17 4-May-17 4-Jul-17 4-Sep-17 4-Nov-17 3 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 Apart from a supportive EZ manufacturing PMI, the ECB s recent rhetoric (latest being from Coeure) continues to indicate comfort with the cessation of the QE program in September as planned. Short term implied valuations for the pair have pooped higher since late December and may continue to prove supportive on dips, although expect some cause for pause towards 1.21 in the near term. Actual Fitted 123 118 113 18 13 98 USD-JPY USD-JPY USD-JPY may continue to stay repressed in line with heavy short term implied valuations despite firmer US yields as investors focus on generalized USD vulnerability at this juncture. BOJ rhetoric has also of late refrained from encouraging any hawkish expectations on the monetary policy front. Expect an initial floor towards the 1-day MA (112.7) with 112.6 seen capping intra-day. Actual Fitted.8.78.76.74.72.7 AUD-USD AUD-USD Amidst a supported commodity complex and positive vibes from the China front, the AUD-USD may continue to remain supported in line with its short term implied valuations. In the interim, expect support towards the 1-day MA (.7776) with.785 capping for now..68 Actual Fitted 1.47 1.42 1.37 1.32 1.27 1.22 1.17 GBP-USD Actual Fitted GBP-USD With the broad dollar tripping lower, investors disregarded the weaker than expected December manufacturing PMI on Tuesday. However, Brexit remains a conspicuous overhang for the pound beyond the short term and upside progress on the GBP-USD may remain cautious to say the least. In the interim, short term implied valuations have also ticked higher. In the near term however, expect a ceiling towards 1.3657 if 1.36 is breached. Treasury & Strategy Research 3
4-Jan-16 4-Mar-16 4-May-16 4-Jul-16 4-Sep-16 4-Nov-16 4-Jan-17 4-Mar-17 4-May-17 4-Jul-17 4-Sep-17 4-Nov-17 3 January 218 Daily FX Outlook 1.44 1.39 1.34 1.29 1.24 1.19 USD-CAD USD-CAD Boosted by firming crude in recent weeks and the soggy USD complex, short term implied valuations for the USD-CAD remain decidedly heavy. Although BOC rhetoric has endeavored to remain neutral, the market remains generally positive towards the central bank s prognosis. In the interim, expect the 1.25 floor (ahead of 1.245) to remain under threat. Actual Fitted Treasury & Strategy Research 4
3 January 218 Daily FX Outlook USD-Asia VS. Net Capital Flows South Korea Taiwan 1 8 6 4 2 145 165 185 115 1125 1145 7 5 3 1 1165-1 -2 1185 125 1225-3 -4-5 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 -5 NFB: Bond & Eq RS 2D USD-INR Bond & Equity: 2D RS USD-IDR Philippines Thailand 6 4 2 46. 47. 48. 25 2 15 1 32.4 32.9 33.4 33.9-2 -4-6 49. 5. 51. 52. 5-5 -1-15 -2 34.4 34.9 35.4 35.9 36.4 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 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 3 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 -.336.898 -.422 -.822 -.916.438 -.829 -.292.198.94 -.988 SGD.966 -.467.925 -.6 -.874 -.889.377 -.85 -.117.133.936 -.957 CHF.947 -.218.784 -.484 -.88 -.85.538 -.734 -.215.31.85 -.927 CAD.935 -.244.849 -.264 -.715 -.93.38 -.835 -.433.454.855 -.92 KRW.919 -.65.975 -.677 -.882 -.933.174 -.932.64.231.972 -.93 TWD.91 -.36.873 -.518 -.88 -.849.377 -.794.2.35.849 -.896 CNH.94 -.61.985 -.679 -.872 -.95.155 -.933.17.154 1 -.921 CNY.898 -.595 1 -.619 -.849 -.923.137 -.937 -.26.189.985 -.911 MYR.864 -.216.756 -.228 -.641 -.72.488 -.653 -.217.1.77 -.854 INR.797 -.598.841 -.783 -.893 -.747.175 -.781.218 -.114.873 -.826 PHP.786 -.6.93 -.753 -.897 -.767 -.139 -.938.183.167.939 -.813 CCN12M.685 -.663.8 -.89 -.847 -.622.8 -.758.363 -.136.845 -.713 IDR.493.95.354.414.3 -.371.322 -.355 -.452.565.32 -.494 JPY.438.466.137.26 -.6 -.14 1.29 -.488 -.263.155 -.341 THB.167.795 -.81.435.332.441.732.178 -.155 -.63 -.126 -.39 USGG1 -.336 1 -.595.732.591.486.466.62 -.359 -.173 -.61.451 NZD -.74.519 -.822.84.877.649 -.161.766 -.27.69 -.875.745 GBP -.843 -.67 -.593 -.47.453.615 -.613.512.448 -.97 -.59.798 AUD -.87.515 -.899.732.89.826 -.296.847.51 -.95 -.935.865 EUR -.988.451 -.911.482.839.922 -.341.846.219 -.236 -.921 1 Treasury & Strategy Research 6
ZAR CLP NZD HUF SEK AUD TRY PLN NOK RUB KRW COP CNY TWD PHP EUR INR CHF CAD SGD MYR GBP THB IDR JPY BRL MXN ARS 3 January 218 Daily FX Outlook Source: Bloomberg Immediate technical support and resistance levels S2 S1 Current R1 R2 EUR-USD 1.179 1.2 1.254 1.258 1.281 GBP-USD 1.3568 1.36 1.361 1.363 1.37 AUD-USD.7695.78.7822.7845.7879 NZD-USD.6927.7.79.71.711 USD-CAD 1.247 1.25 1.2511 1.26 1.2751 USD-JPY 112. 112.1 112.32 112.88 113. USD-SGD 1.3291 1.33 1.332 1.34 1.353 EUR-SGD 1.5916 1.6 1.634 1.645 1.61 JPY-SGD 1.18 1.181 1.1843 1.19 1.1957 GBP-SGD 1.7977 1.8 1.892 1.81 1.8143 AUD-SGD 1.323 1.4 1.44 1.462 1.49 Gold 13. 1318.37 1318.9 1323. 14. Silver 17.1 17.16 17.19 17.2 17.28 Crude 57.5 6.4 6.41 6.5 6.74 FX performance: 1-month change agst USD 1. % 8. 6. 4. 2.. -2. -4. -6. Source: Bloomberg G1 FX Heat Map AUD NZD EUR GBP JPY CAD USD SGD MYR AUD 9 1 1 2 2 2 2 2 NZD 9 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 9 1 2 CAD 2 2 1 1 2 1 2 2 USD 2 2 2 2 9 1 1 9 SGD 2 2 2 1 1 2 1 2 MYR 2 2 2 2 2 2 9 2 Treasury & Strategy Research 7
3 January 218 Daily FX Outlook Asia FX Heat Map USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR USD 9 1 1 9 1 1 2 1 1 1 JPY 9 2 1 2 1 2 2 1 1 1 CNY 1 2 1 1 2 2 2 2 2 2 SGD 1 1 1 2 9 9 2 9 9 2 MYR 9 2 1 2 1 1 2 1 1 1 KRW 1 1 2 9 1 9 1 9 2 2 TWD 1 2 2 9 1 9 2 9 1 2 THB 2 2 2 2 2 1 2 1 1 1 PHP 1 1 2 9 1 9 9 1 1 2 INR 1 1 2 9 1 2 1 1 1 2 IDR 1 1 2 2 1 2 2 1 2 2 Treasury & Strategy Research 8
3 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
3 January 218 Daily FX Outlook This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC and/or its related and affiliated corporations may at any time make markets in the securities/instruments mentioned in this publication and together with their respective directors and officers, may have or take positions in the securities/instruments mentioned in this publication and may be engaged in purchasing or selling the same for themselves or their clients, and may also perform or seek to perform broking and other investment or securities-related services for the corporations whose securities are mentioned in this publication as well as other parties generally. Co.Reg.no.:193232W Treasury & Strategy Research 1