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. Corporate FX & Structured Products Tel: 6349-1888 / 1881 Fixed Income & Structured Products Tel: 6349-1810 Investments & Structured Product Tel: 6349-1886 Interest Rate Derivatives Tel: 6349-1899 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 ngcyemmanuel@ocbc.com 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 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. 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