FX Insights. Chart Of The Day EUR/USD: Outlook turn bullish but upside likely limited to Friday, 11 March

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Quek Ser Leang Lee Sue Ann Global Economics & Markets Research URL: Chart Of The Day
Quek Ser Leang Lee Sue Ann Global Economics & Markets Research URL: Chart Of The Day EUR/USD: Outlook turn bullish but upside likely limited to The strong overnight rally is accompanied by impulsive momentum and the outlook for EUR in the next 1 to 2 weeks has shifted to bullish from neutral. That said, it is very likely that we have seen a bulk of the move. The current price action is reminiscent of the rally last December where the one day surge to a high of led to a limited extension to (before quickly turning sideways). Only clear and sustained break above would indicate that a move towards has started. Support is at but only a move below would indicate that temporary top is in place. 1 P a g e OVERVIEW The U.S dollar lost ground versus most developed economies currencies after European Central Bank s Governor Mario Draghi cut rates, increased QE scope and targets but signaled the central bank is unlikely to cut rates further. This caused the Euro to jump to as high as , highest since 15-Feb and lifted most currencies against the dollar. U.S equities traded with cautious tone after the ECB meeting but still managed to close flat despite weak close of European stock indices. The Dow Jones closed lower by 5.23 pts to 16, while the S&P 500 index edged higher by 0.31 pts to 1, The Nasdaq finished pts lower to 4, World oil prices fell on Thursday as markets are increasingly doubtful about whether key producers led by Russia and Saudi Arabia would meet on 20 March to discuss crude output limits because Iran has not committed to freeze its output. The US Nymex WTI futures declined by US$0.45 to US$37.84, while the London Brent oil futures was down by a bigger US$0.93 but still closed above US$40 at US$ P a g e 11-Mar-16 Summary of Views FX Pairs Spot Outlook Since/ Rate Target Trailing-Stop Support Resistance USD/SGD Bearish S1: S2: R1: R2: EUR/SGD Neutral 09 Mar S1: S2: R1: R2: GBP/SGD Neutral S1: S2: R1: R2: AUD/SGD Bullish S1: S2: R1: R2: JPY/SGD Neutral 08 Mar S1: S2: R1: R2: USD/MYR Bearish S1: S2: R1: R2: USD/THB Bearish S1: S2: R1: R2: USD/CNH Bearish 07 Mar S1: S2: R1: R2: EUR/USD *Bullish 11 Mar S1: S2: R1: R2: GBP/USD Neutral S1: S2: R1: R2: AUD/USD Bullish S1: S2: R1: R2: NZD/USD Neutral 10 Mar S1: S2: R1: R2: USD/JPY Neutral * Shift in outlook. 16 Feb S1: S2: R1: R2: FX Pairs Ranges for 10-Mar-16 Performance* Open High Low Close 1-day 1-week 1-month YTD** USD/SGD % -0.61% -1.20% -2.59% EUR/SGD % +1.42% -2.17% +0.25% GBP/SGD % +0.15% -2.48% -5.59% AUD/SGD % +0.75% +4.17% -0.24% JPY/SGD % -0.13% +0.53% +3.59% USD/MYR % -0.96% -1.56% -4.66% USD/THB % -0.56% -0.45% -2.19% USD/CNH % -0.26% -0.92% -0.94% EUR/USD % +2.01% -1.01% +2.93% GBP/USD % +0.76% -1.31% -3.00% AUD/USD % +1.40% +5.43% +2.30% NZD/USD % -0.83% +0.46% -2.24% USD/JPY % -0.43% -1.66% -5.98% * 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 P a g e USD/SGD: USD/SGD kept prior day s range of The next key data for Singapore is retail sales next Tues. USD traded sideways as expected and the outlook remains mixed from here. However, a clear break below would indicate a move towards the major /30 support has started. On the upside, resistance is at ahead of the overnight high near Bearish: Took partial profit at , diminished odds for extension lower. [No change in view, see previous update below] There is not much to add as USD traded to a high of but held below the crucial stop-loss. As long as is intact, we will maintain our bearish USD view even though as mentioned previously, only a move below would indicate that the next lower towards /30 has started. 4 P a g e EUR/SGD: EUR traded in an extremely volatile manner by dropping to a low of before swinging higher to touch a high of The up-move appears to be severely overstretched but another leg higher to will not be surprising. Support is at and is likely strong enough to hold any pull-back. Neutral: Rebound could extend higher to EUR had a wild night yesterday, dropping to a low of before surging higher to and in the process registered the largest single day range since August last year. The strong closing suggests that the current rebound could extend higher but at this stage a move above appears unlikely. Support is at GBP/SGD: The outlook for this pair is mixed and GBP is expected to trade sideways at these higher levels. Expected range; / Neutral: Diminished odds for a rebound to We turned neutral GBP last Thursday and held the view that the prevalent current corrective rebound could extend higher to There is no change to the view but at this stage, a sustained move above appears unlikely. The undertone remains positive and the overnight low of is unlikely to come under threat for the next few days. AUD/SGD: The current consolidation phase appears incomplete and further range trading is expected for today, likely between and Bullish: Took partial profit at Stop-loss for rest at We suggested partial profit-taking at in view of overbought short-term conditions. Upward momentum is deteriorating but confirmation of a short-term top is only upon a break below Otherwise, another leg higher to the next key level of cannot be ruled out just yet even though the odds are not high. JPY/SGD: JPY dipped below the major support before rallying strongly. The up-move appears to have scope to extend higher but a sustained move is unlikely. Support is at ahead of the low. Neutral: In a broad / range. JPY continues to trade in a choppy manner and there is no change to our neutral view. The current movement is likely part of a broad consolidation phase between and P a g e USD/MYR: The Goods and Services Tax (GST) collection exceeded the government s expectation of MYR27bn, with over 400,000 business registered with the Customs Department. The government is confident of achieving its GST collection target of MYR39bn this year. The government has no plans to review the Goods and Services Tax (GST) rate as the current 6% is reasonable. Malaysia s industrial production index (IPI) will be released today at noon. Market expects January IPI at 2.1% y/y (UOB: 2.0%). Bearish: Took profit at , bearish phase appears to be close to an end. [No change in view, see previous update below] Rapidly waning downward momentum continues to suggest that the bearish USD phase that started last Thursday is nearing an end. However, confirmation is only upon a move above On the downside, a clear break would indicate the start of the next lower towards the recent low of even though the odds for an extension below are rather slim. USD/THB: The Thai Bond Market Association (TBMA) plans to offer a series of services to encourage brokers to play a greater role in the primary and secondary markets, aiming to attract more SMEs to raise funds through debt instruments. President Tada Phutthitada said the TBMA will roll out a bond trading platform with cheaper fees and targeted securities companies. Bloomberg offers a trading terminal for bonds, foreign exchange and interbank transactions, but the costs are relatively high for stockbrokers, which normally have a small bond trading volume. The cost prevents them from being more active in the market. Bearish: Took partial profit at 35.23, focus on next. As pointed out yesterday, despite the weakness in USD is not as impulsive as would likely and those who are short from last Thursday (see when spot was at 35.53) should look to take some profit at (low in February). The profit taking level was met in overnight trading and the focus has shifted to as the next key level. Stop-loss is unchanged at for now even though is likely strong enough to cap any short-term rebound. USD/CNH: China s CPI rose to 19-month high at 2.3% y/y in February (Bloomberg: 1.8%), up from 1.8% in January, led by the surge in food prices but non-food inflation moderated. The PPI fell for 48 consecutive months, coming in line with expectation at - 4.9% y/y from -5.3% in January. Reuters reported that China s PBoC is preparing regulations to allow commercial banks to swap non-performing loans of companies for equity in those firms. This would free up money for lending into infrastructure developments as NPLs continue to rise in China due to overcapacity in some sectors and slowing growth. NPL and special mention loans have increased from CNY2.2 tn in 2014 to more than CNY4.0 tn. As lenders and bond holders generally have priority claims over equity holders, this implies that the swap would reduce the bank s rank in terms of claims. The new regulations would get special approval from the State Council. Bearish: Immediate target is at the February low of We turned bearish USD on Monday and this pair is finally stirring to life. The break of the support earlier this morning indicates the start of the down-leg towards the immediate target at A break below this level would open up the way for a move to Stop-loss is adjusted lower to from P a g e EUR/USD: The ECB unexpectedly cut Refinancing Rate to 0.00% from 0.05% and also unexpectedly cut Marginal Lending Facility to 0.25% from 0.30%. The expected move was the 10bps cut for the Deposit Rate to -0.4%. The ECB also expanded monthly APP purchase to 80b from 60b and included investment grade bonds by non-bank corporates into the list of assets purchased. The ECB also introduced new series of 4 TLTRO (dubbed TLTRO II), each with maturity of 4 years to encourage bank lending. The market reaction to this package was initially positive, but the markets were let down by Draghi s subsequent communication about the tools and the ECB s forward guidance. In his post-decision press conference, Draghi said that he does not anticipate any need to cut rates further, but new facts can change the situation. (Some segments of the market attributed Draghi s comment on do not anticipate further rate cuts to the violent recovery in EUR/USD.) He lamented that loan growth remains too low in the Eurozone but he believes that TLTRO II will help address this problem. He also warned that the ECB cannot go as negative as we want to without negative consequences for banks. He also confirmed that the ECB has not discussed negative refi rate or helicopter money. Draghi sounded resigned when asked about euro-area fiscal policy (i.e. not expecting any anytime soon) and he said The measured driver of the economy and the recovery basically remains our monetary policy. While the stupendous rally from the low of is extremely overstretched, the up-move appears to have scope to extend higher to Support is at but only a move back below would indicate that a temporary top is in place. *Bullish: Outlook turn bullish but upside likely limited to [See Chart of the Day on page 1] 7 P a g e GBP/USD: The Sterling Pound tracked gains in Euro to finish higher by 0.45% to , highest since 22-Feb. Today, we are expecting U.K trade balance (est. deficit GBP 3bio). The strong rally in GBP appears incomplete but any further up-move is likely limited to Only a move back below would indicate that the immediate upward pressure has eased. Neutral: Recovery could extend further to As indicated yesterday, as long as is intact, another attempt higher to test the major resistance cannot be ruled out just yet. GBP dipped to a low of yesterday and the up-move from the low appears to be on track for a move to At this stage, we not expect a sustained move above this level. Overall, the undertone will remain positive unless there is a move back below P a g e AUD/USD: The Aussie was lower overnight to as the rally stalled again at 75 cents with a return of the risk-off sentiment. In line with expectation, the initial rebound in AUD held below the major /40 resistance with a high of The subsequent pull-back from the high exceeded the target with an overnight low of The price action is likely part of a consolidation phase and further sideway trading is expected for today, likely between and Bullish: target exceeded, next objective at [No change in view, see previous update below] The high of held just below the objective. The pull-back from the high is likely a short-term consolidation phase and the probability for a move above in the coming days appear to be quite high. The next resistance is at Stop-loss is adjusted higher to from P a g e NZD/USD: New Zealand s February manufacturing PMI eased lower to 56 (from 58 in Jan) while the February food prices declined - 0.6%m/m (after a +2.0%m/m increase in Jan). NZD edged below the support (low of ) before rebounding quickly. The recent downward pressure has eased and the current movement is likely the early stages of a consolidation phase albeit with a bias for a probe higher. Expected range; / Neutral: Pull-back likely limited to We just turned neutral NZD yesterday and there is no change to the view. The current movement is likely part of a corrective pull-back that is limited to P a g e USD/JPY: USD/JPY kept to the wide consolidative range between and , this time testing the top side of the range (session high ) before trading back lower to finish The sharp and rapid drop from the high of is gaining momentum and the pressure is clearly on the downside for today. Barring a move back above , the current USD weakness is expected to extend lower to retest the low seen two days ago. The next support is close-by at Neutral: Still neutral, back in a broad / range. We have held a neutral view since the middle of last month and at this stage, there is no change in our outlook. Further choppy can be expected, likely in a broad / range. 11 P a g e UOB FX & Interest Rate Outlook FX Outlook 1Q16 2Q16 3Q16 4Q16 Rates Outlook 1Q16 2Q16 3Q16 4Q16 EUR/USD EU 0.05% 0.05% 0.05% 0.05% GBP/USD UK 0.50% 0.50% 0.50% 0.75% AUD/USD AU 2.00% 2.00% 2.00% 2.00% NZD/USD # NZ 2.25% 2.00% 2.00% 2.00% USD/JPY JP -0.10% -0.10% -0.20% -0.20% USD/SGD SG 1.30% 1.50% 1.65% 1.75% USD/MYR MY 3.25% 3.25% 3.25% 3.25% USD/THB TH 1.50% 1.50% 1.50% 1.50% USD/CNY CN 4.10% 3.85% 3.85% 3.85% USD/IDR 13,500 13,400 13,300 13,200 ID 7.0% 6.75% 6.75% 6.75% USD/PHP PH 4.0% 4.0% 4.0% 4.0% USD/INR IN 6.75% 6.75% 6.75% 6.75% USD/TWD TW 1.50% 1.38% 1.38% 1.38% USD/HKD HK 0.75% 1.00% 1.00% 1.25% USD/KRW KR 1.25% 1.25% 1.25% 1.25% Last updated on 19 Feb 16 # Last updated on 10 Mar 16 US 0.50% 0.75% 0.75% 1.00% Central Bank Meetings 2016 Central Bank Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Federal Reserve (FOMC) European Central Bank (ECB) Bank of England (BOE) Reserve Bank of Australia (RBA) Reserve Bank of New Zealand (RBNZ) Bank of Japan (BOJ) Bank Negara Malaysia (BNM) Bank of Thailand (BOT) Monetary Authority of Singapore (MAS) TBA 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 Z
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