SGD: TD Securities: Trading A Stronger Singapore Dollar NEER
TD Securities think “the Monetary Authority of Singapore (MAS) is not done with its tightening cycle and we expect another policy move in October. Given the upside risks to inflation and the current core inflation trajectory, we expect more gains in the S$NEER. Our analysis shows that the S$NEER historically trades towards the upper limit of the +/-2% policy band in a tightening cycle. We propose using a proxy S$NEER basket that includes only 6 currencies (CNY, USD, EUR, MYR, HKD, JPY) to trade the moves in the official S$NEER. Our G10 and EM forecasts suggest a possible retracement of the S$NEER by the end of Q3 and we see an opportunity to long the S$NEER proxy basket when the S$NEER trades back to 0.4-0.5% above the midpoint of the S$NEER band. We estimate that the S$NEER is currently trading at 1.24% above the midpoint of the band.”
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AUSSIE BONDS: Post-Holiday Selling Pressure
Australian yield curve bear steepens as cash trading re-opens after Easter holidays. Yields last seen 7.3bp-11.0bp, with Australia/U.S. 10-Year yield spread now at 23bp.
- Futures come under pressure as YM trades -3.5 & XM -4.5 as we type. Eurodollars run unch. to -4 ticks through the reds.
- The minutes from the RBA's most recent policy meet headline the local economic docket today, with participants on the lookout for any hints on policymakers' rate-hike plans.
JPY: Yen Remains In Free Fall
The yen continued to tumble on Monday despite another carefully calibrated escalation in official rhetoric on the matter. BoJ Gov Kuroda said that "very rapid" yen moves are problematic for businesses, while FinMin Suzuki reiterated that excessive FX volatility can be negative. But the Japanese currency was unfazed as hawkish Fed expectations kept pushing U.S. Tsy yields higher, with the BoJ sticking to its ultra-loose policy stance.
- USD/JPY changes hands at Y127.06 at typing, up 7 pips on the day. The rate has already penetrated the Y127.00 figure, which capped gains on Monday. Our technical analyst flags that the trend needle still points north.
- Further gains past nearby Fibonacci projections at Y127.16 (3.618 proj of the Dec 3 '21 - Jan 4 - 24 price swing) and Y127.71 (3.764 proj of the Dec 3 '21 - Jan 4 - 24 price swing) would open up May 17, 2002 high of Y128.15. Bears look for a pullback towards Apr 12 low of Y124.77.
- The final reading of Japan's industrial output will be published today, with trade balance coming up Wednesday and national CPI due Friday.
JGB TECHS: (M2) Trend Condition Remains Bearish
- RES 3: 151.13 - High Mar 3
- RES 2: 150.44 - High Mar 14
- RES 1: 150.14 - High Apr 1
- PRICE: 149.37 @ 13:08 BST Apr 18
- SUP 1: 148.72 - Low Mar 28
- SUP 2: 148.69 - 3.0% Lower Bollinger Band
- SUP 3: 148.01 - 1.0% 10-dma envelope
The primary downtrend in JGBs remains intact and the recent recovery between Mar 29 - Apr 1 appears to be a correction. The downtrend has breached the 61.8% Fib for the 2015 - 2020 rally at 149.65. The break here spells further losses toward 148.69/148.01, which marks both the 3.0% Lower Bollinger Band as well as the 1.0% 10-dma envelope. Resistance is at 150.14, Apr 1 high.
