DAILY FX OUTLOOK. Thursday, October 08, 2015 Major FX Themes. FX Strategy/Trading Ideas. Asian FX

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1 DAILY FX OUTLOOK Thursday, October 08, 2015 Major FX Themes In spite of firmer UST yields, the USD ended mixed against the majors on Wednesday. Improved risk appetite saw the antipodeans gaining against the greenback as well as across the board while the EUR (note disappointing German Aug industrial production at -1.2% mom) and the CHF weakened in sympathy. Meanwhile, the lack of undue bearishness out of the BOJ MPC and Kuroda s subsequent comments, coupled with doubts surrounding the Fed s liftoff, pulled the USD-JPY lower. Today, look to the FOMC minutes while the BOE MPC is also on tap while Asian markets will also look to China equity performance after the hiatus. On other fronts, Fed speak will alos be scrutinized, with Bullard, Kocherlakota and Williams due to make appearances. FX Strategy/Trading Ideas Corporate FX & Structured Products Tel: / 1881 Fixed Income & Structured Products Tel: Investments & Structured Product Tel: The FXSI (FX Sentiment Index) fell back into Risk-Neutral territory on Wednesday after 6 consecutive sessions of declines on positive US equities and despite a capitulation of commodity prices. Note also generally softer short-end FX vols in addition to compressing EM risk premiums. We initiate a tactical long AUD-USD on the back of the pickup in risk appetite and the dollar s broad retreat. Caveat to this view is if negative news flow from the China space re-ignites. With a spot ref at , we target and place a stop at Asian FX Interest Rate Derivatives Tel: Treasury Research & Strategy Tel: Emmanuel Ng ngcyemmanuel@ocbc.com EM currencies were also a mixed bag against the dollar on Wednesday but note that the ACI (Asian Currency Index) crashed lower as long USD positioning (spot and forwards) in the region continued to be expunged (led by the MYR and the IDR). China markets come back online today after the extended break with investors likely to take cues from the asset markets and the USD-CNY mid-point (note continued heaviness in the USD-CNH). On the macro front, Taiwan s trade numbers were all round negative with disappointing exports and imports, while Malaysia chalked up a significantly larger than expected trade surplus on the back of collapsing imports. China reported a drop in foreign reserves to USD3.514tn in Sep from USD3.557bn the previous month while Malaysia and Indonesia continued to print declines in foreign reserves in the same month.

2 03/03/ /05/ /07/ /09/ /11/ /01/ /03/ /05/ /07/ /09/2015 NEER-implied USD-SGD thresholds are appreciably lower in the wake of global dollar developments while the descent of the USD-SGD (note the SGD curve is also softer primarily from the front-end on the back FX price action) has also pushed the SGD NEER firmer within its fluctuation band. At current levels, the SGD NEER stands at around -1.55% below its perceived parity (1.3875) with the -2.00% lower NEER extreme estimated at around Technically, the next meaningful support is expected towards the 55- day MA (1.4045) Asian Currency Index SGD NEER % deviation USD-SGD Current % Parity % G7 EUR-USD Improved risk sentiment and slightly less encouraging EZ data flow in the last two sessions may put a lid on the EUR-USD but borad dollar weakness may still remain the overarching theme. As such, expect supports at , the 55-day MA (1.1176) and the 200-day MA (1.1151). On the top side, the pair would have to clear /50 to make any meaningful impact on the upside. USD-JPY Investors continue to look towards a potential for further easing by the BOJ at the end of the month (when growth and inflation forecasts are expected to be revised lower) despite the central bank remaining static at yesterday s meeting and with the BOJ s Kuroda sounding fairly neutral. This morning, the markedly disappointing Aug machine orders (-3.5% yoy) may see near term support for the pair. Fed rhetoric and FOMC minutes are expected to be the primary driver intra-day with the pair still seen moored in the vicinity of AUD-USD We turn tactically bullish on the pair given a more appetizing risk appetite backdrop with the USD still seen on the defensive. The AUD- USD is now sitting atop its 55-day MA (0.7180) with the next resistance of significance expected towards before GBP-USD Better than expected UK industrial production numbers (+1.9% yoy) further aided the GBP-USD higher while the BOE MPC (1100 GMT) may grant further impetus to the pair. In the interim, the pair may be reluctant to test significantly above its 200-day MA (1.5321) ahead of while downside support is expected on approach of Treasury & Strategy Research 2

3 11-Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr-15 FX Sentiment Index RISK OFF RISK ON M Correlation Matrix DXY USGG10 CNY SPX MSELCA CRY JPY CL1 VIX ITRXEX DXY CHF SGD THB TWD MYR KRW PHP IDR CAD CCN12M CNH CNY INR NZD JPY USGG GBP AUD EUR Source: Bloomberg Immediate technical support and resistance levels S2 S1 Current R1 R2 EUR-USD GBP-USD AUD-USD NZD-USD USD-CAD USD-JPY USD-SGD EUR-SGD JPY-SGD GBP-SGD AUD-SGD Gold Silver Treasury & Strategy Research 3

4 RUB COP NZD KRW IDR INR MYR AUD TRY CLP ZAR SEK PHP CAD MXN TWD HUF CHF SGD EUR THB PLN CNY NOK JPY GBP BRL ARS FX performance: 1-month change agst USD 10.0 % Source: Bloomberg G10 FX Heat Map AUD NZD EUR GBP JPY CAD USD SGD AUD NZD EUR GBP JPY CAD USD SGD Asia FX Heat Map USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR Treasury & Strategy Research 4

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