K O L

DAILY FX OUTLOOK
Thursday, November 06, 2014
Major FX Themes – Whatever it takes, again

The confluence of the Republican victory in the mid-terms (garnering control
over both houses of Congress), flat to positive US data releases (Oct ADP
at a better than expected +230k), and the string of negative headlines
stacking up for the majors sucked the dollar higher on Wednesday. Earlier
in the global day, BOJ governor started the ball rolling by sounding
nonchalant towards yen weakness on the wires and promised to do more by
taking a leaf out of Draghi’s playbook and stating that “There are no limits to
our policy tools, including the purchases of Japanese government bonds”.
Note that this morning, BOJ MPC minutes also showed internal concerns
that core inflation may dip temporarily below 1.0% while the weak yen was
still viewed as net positive for the economy.

On the growth front, the October HSBC services and composite PMIs for
China weakened to 52.9 and 51.7 respectively, helping to drag the
antipodeans lower against the USD as well as across G7 space. Global
sentiment was also undermined after the Russian central bank revealed that
it would limit its intervention efforts on a daily basis, with the RUB hitting an
all-time low as a result. Meanwhile, the CBI (Central Bank of Iceland)
surprised with a 25bp rate cut to 5.75%. On other fronts however, oil-linked
currencies like the CAD and NOK enjoyed a respite as crude stabilized.

Today, the ECB meeting is expected to hold the market’s attention although
no fresh policy initiatives are expected just yet despite the latest string of
less than inspiring EZ data points. Note also that the BOE is expected to
remain static with respect to its policy parameters at its MPC today.
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FX Strategy/Trading Ideas

With firmer short-end FX vols (both G7 and EM) overriding positive EZ/US
equities, the FXSI (FX Sentiment Index) ticked higher again within Risk-Off
territory on Wednesday. Into the end of the week and ahead of the ECB
meeting today and the US labor market numbers tomorrow, the dollar may
continue to hold an edge, especially if headlines from the other major
economies remain less than encouraging.

With Asian currencies still expected to be tethered to broad dollar moves and
recent market murmurs that the MAS may be inclined to lighten up on its
gradual and modest stance for the SGD NEER if global conditions remain
soft, we look to a long USD-SGD (spot ref: 1.2924) targeting 1.3065 with a
stop placed at 1.2850.
Treasury Research &
Strategy
Tel: 6530-4887
Emmanuel Ng
+65 6530 4073
[email protected]
6 November 2014
Daily FX Outlook
Asian FX

Despite a slightly positive equity landscape, Asian currencies may continue
to look towards the broad dollar for cues with the ACI (Asian Currency
Index) gaining this morning for the sixth consecutive session. To this end,
look for the KRW to continue to lead the charge lower given JPY-KRW
sensitivities and the fact that speculation towards a further BOK rate cut has
been mounting.

On the Asian data front, apart from the HSBC China PMIs, the 3Q GDP
numbers for Indonesia proved underwhelming (+5.01% yoy) while the Bank
of Thailand came across as dovish after holding steady at 2.00%. BNM
today is expected to keep its OPR at 3.25% but any hawkish slant is
expected to be essentially watered down – potentially impinging on MYR
prospects further.

For the USD-SGD, NEER-implied USD-SGD thresholds are significantly
higher compared to yesterday morning while the NEER continues to skate
near implied parity (1.2970). Expect market vigilance towards the upside for
the pair to heighten, given also that volatility of the spot itself has also been
slightly more visible in recent sessions. On a structural note, while the
forward NEER remains at a premium on a 3-6 month horizon, markets may
continue to toy with the notion that the authorities may relent and ‘permit’
the basket to drift below its implied parity – potentially uncovering basket
trade opportunities. Meanwhile, SGD forwards out to 6M are however at a
premium but at this juncture, this may plausibly be more due to recent spot
moves rather than any significant expectations of an eventual softening in
monetary stance.
Asian Curreny Index
106
105
104
103
102
101
Current
SGD NEER % deviation
122.70
0.22
USD-SGD
1.2935
15/10/2014
15/09/2014
15/08/2014
15/07/2014
15/06/2014
15/05/2014
15/04/2014
15/03/2014
15/02/2014
15/01/2014
100
+2.00%
Parity
-2.00%
124.88
122.43
119.98
1.2714
1.2969
1.3233
Source: OCBC Bank
G7

Treasury & Strategy Research

EUR-USD
The string of EZ PMIs released yesterday (note also the
German growth forecast downgrade from the Ifo) failed to yield any strong
positive surprises and the pair is expected to remain lead footed into the
ECB later today (1245 GMT). Going ahead, if the pair becomes unhinged
from the 1.2500 level on a sustained basis, 1.2400 and then 1.2350 may
continue to beckon in the near term.
2
6 November 2014
Daily FX Outlook

USD-JPY
Kuroda’s latest comments coupled with firmer UST yields
may keep the USD-JPY near the 115.00 ceiling in the near term with
markets keen to push the envelope. The pair continues to exemplify
diametrically opposing monetary policy directions and the upside risk
remain visible despite recent up moves.

AUD-USD
This morning, the AUD-USD blipped higher temporarily on
the back of the better than expected October labor market numbers but the
pair has since reverted lower. With the commodity complex still in disarray
and if the pair fails to reclaim the 0.8600 handle in the current environment,
expect a further decay towards the pivotal 0.8500 neighborhood.

GBP-USD
The pair is now trading on the wrong side of 1.6000 and
potential EUR vulnerability may also continue to bleed over onto the pound,
especially if hawkish BOE expectations continue to be watered down going
ahead. In our view, the 1.5900 floor remains fair game in the current
environment.
FX Sentiment Index
3.5
3.0
2.5
RISK OFF
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
RISK ON
-1.5
3-Oct-14
3-Apr-14
3-Oct-13
3-Apr-13
3-Oct-12
3-Apr-12
3-Oct-11
3-Apr-11
3-Oct-10
3-Apr-10
3-Oct-09
3-Apr-09
3-Oct-08
3-Apr-08
3-Oct-07
3-Apr-07
3-Oct-06
3-Apr-06
3-Oct-05
-2.0
Source: OCBC Bank
Treasury & Strategy Research
3
6 November 2014
Daily FX Outlook
1M Correlation Matrix
DXY USGG10
1.000
0.585
0.938
0.572
0.928
0.349
0.897
0.768
0.819
0.600
0.686
0.536
0.664
-0.080
0.585
1.000
0.530
-0.334
0.501
0.238
0.426
-0.231
-0.025
-0.200
-0.101
0.108
-0.115
0.419
-0.125
-0.258
-0.248
0.417
-0.611
-0.141
-0.637
0.052
-0.887
-0.674
-0.958
-0.665
DXY
JPY
SGD
CHF
THB
TWD
MYR
USGG10
CAD
KRW
PHP
INR
IDR
CNH
CCN12M
CNY
AUD
GBP
NZD
EUR
CNY
-0.248
-0.301
-0.366
0.058
-0.012
0.128
-0.551
0.417
-0.508
0.264
-0.383
0.074
0.499
0.898
0.019
1.000
-0.022
0.403
0.049
0.163
SPX MSELCA
0.719
0.822
0.822
0.874
0.631
0.751
0.685
0.718
0.586
0.689
0.412
0.497
0.464
0.608
0.648
0.536
0.048
0.321
0.012
0.206
0.060
0.249
-0.106
-0.081
-0.344
-0.271
-0.301
-0.378
-0.434
-0.409
-0.287
-0.423
0.088
-0.145
-0.152
-0.392
-0.608
-0.698
-0.742
-0.795
CRY
-0.277
-0.360
-0.443
0.074
-0.028
-0.081
-0.700
0.526
-0.780
0.013
-0.614
-0.081
0.477
0.713
-0.097
0.818
0.194
0.365
-0.023
0.155
GC1
-0.906
-0.946
-0.887
-0.814
-0.915
-0.809
-0.692
-0.686
-0.417
-0.676
-0.452
-0.062
-0.116
0.044
0.275
0.099
0.481
0.434
0.797
0.836
CL1
-0.284
-0.353
-0.466
0.059
-0.097
-0.019
-0.687
0.559
-0.720
0.020
-0.506
0.016
0.410
0.860
0.085
0.911
0.106
0.485
0.027
0.156
VIX
-0.538
-0.632
-0.397
-0.628
-0.395
-0.294
-0.208
-0.681
0.131
0.140
0.130
0.138
0.436
0.171
0.362
0.124
-0.134
-0.037
0.495
0.645
ITRXEX
-0.272
-0.187
-0.020
-0.510
-0.179
-0.235
0.254
-0.787
0.310
0.025
0.203
-0.033
0.019
-0.655
-0.181
-0.535
0.166
-0.167
0.392
0.422
Source: Bloomberg
Immediate technical support and resistance levels
EUR-USD
GBP-USD
AUD-USD
NZD-USD
USD-CAD
USD-JPY
S2
1.2440
1.5900
0.8500
0.7685
1.1300
113.95
S1
1.2466
1.5923
0.8565
0.7700
1.1385
114.00
Current
1.2480
1.5962
0.8577
0.7711
1.1396
114.66
R1
1.2500
1.6000
0.8600
0.7713
1.1400
114.84
R2
1.2784
1.6180
0.8645
0.7800
1.1467
115.00
USD-SGD
EUR-SGD
JPY-SGD
GBP-SGD
AUD-SGD
1.2900
1.6039
1.1200
2.0554
1.1026
1.2903
1.6100
1.1271
2.0600
1.1073
1.2936
1.6144
1.1283
2.0648
1.1095
1.2977
1.6200
1.1300
2.0658
1.1100
1.3000
1.6228
1.1313
2.0700
1.1307
1100.00
15.12
1137.10
15.30
1141.70
15.36
1146.11
15.40
1200.00
15.53
Gold
Silver
Source: OCBC Bank
FX performance: 1-month change agst USD
2.0
%
0.0
-2.0
-4.0
-6.0
-8.0
Source: Bloomberg
Treasury & Strategy Research
4
ZAR
RUB
PLN
TRY
HUF
ARS
CLP
MXN
BRL
COP
CNY
TWD
INR
KRW
PHP
IDR
THB
MYR
SEK
SGD
JPY
NOK
CHF
NZD
CAD
AUD
GBP
-12.0
EUR
-10.0
6 November 2014
Daily FX Outlook
G10 FX Heat Map
AUD
NZD
AUD
EUR
GBP
1
9
2
2
2
2
1
9
2
2
2
2
2
2
2
2
2
2
2
2
2
NZD
2
EUR
1
1
GBP
9
9
JPY
1
1
JPY
2
2
2
2
CAD
2
2
2
2
2
USD
2
2
2
2
2
SGD
2
2
2
2
CAD
USD
2
SGD
2
1
2
2
2
2
1
2
2
Source: OCBC Bank
Asia FX Heat Map
USD
USD
JPY
CNY
SGD
MYR
KRW
TWD
THB
PHP
INR
IDR
2
2
2
2
9
9
2
1
1
1
2
1
1
2
2
1
1
1
1
1
1
9
9
2
1
1
1
2
9
1
9
1
1
1
1
1
1
1
1
1
9
9
2
2
1
2
1
1
1
1
1
1
9
1
JPY
2
CNY
2
2
SGD
2
1
1
MYR
2
1
1
2
KRW
9
2
9
9
1
TWD
9
2
9
1
1
9
THB
2
1
2
9
1
9
2
PHP
1
1
1
1
1
2
1
1
INR
1
1
1
1
1
2
1
1
9
IDR
1
1
1
1
1
1
1
1
1
1
1
Source: OCBC Bank
Treasury & Strategy Research
5
6 November 2014
Daily FX Outlook
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