December 8, 2014 / 11:33 PM / 3 years ago

IFR Markets ForexWatch Asia Regional Daily Briefing

SYDNEY, Dec 9 (IFR) - 
    
News and data out of Europe on Monday
* EZ Dec SENTIX index rises to -2.5 vs prev -11.9. -10.5 exp
* CH Oct Retail sales 0.3% y/y vs prev 0.5% rvsd
* CH Nov CPI 0.0%, -0.1% vs prev 0.0%/0.0%. 0.0%/0.0% exp 
* Swiss sight deposits fall in w/e Dec 5 to 314.699bln fm prev 319.103
* ECB Nowotny: expect lower inflation rates in Q1 2015
* DE Govt spokesman: Italy in reform, requires patience and Merkel's supp
 
News and data out of North America
* Fed's Lockhart low inflation a sign US econ may remain slack, still sees 2015
rate liftoff, lack of wage growth a concern, low oil could hurt US inv in short
run but a long run boost for the econ
* ECB's Coeure GC agreed unanimously last Thursday to assess early next year how
& when to react to downside risks to inflation
* BOE's Weale slower productivity would imply need for higher interest rate in
ST
* EZ FinMins to tell Italy add'l measures needed to improve structural effort,
cut deficit by 0.5% of GDP in '15
* EZ FinMins tell France to take add'l consolidation measures on structural
deficit (Dijsselbloem)
* Eurogroup Pres Dijsselbloem EZ countries remain in favor of a credit line for
Greece after bailout ends
* Dutch economy to grow 0.8% in '14, rising to 1.5% in '16, Budget deficit
falling to 1.8% in '16
* Mexico's CB will start USD auction to help cushion peso slump (200/day at 1.5%
abv prev day's fix)
* Mexico's Carstens interest rates may rise  if MXN depreciation is sustained &
affects inflation target
* Moody's low deficits & moderate debt growth drive stable outlook for Mexican
states
* US Employment trends  Nov 123.24, 122.8-prev
* CA House Starts, Ann  Nov 195.6k, f/c 195.0k, 183.7k-prev
* CA Building Permits MM.  Oct       0.7%, f/c -1.4%, 12.5%-prev
* Reuters Poll Banks to take up EUR 130b of TLTRO this week (150b in Nov 24
poll)
 
Themes
 
* The main themes across markets on Monday were: 1) Another huge fall in the oil
price with both Brent and NYMEX Crude down over 4.0% late in the US session 2) A
correction lower on Wall Street due to a slide in energy shares and a
reemergence of global growth concerns following weak Japanese GDP and sluggish
China trade data and 3) A reversal lower in the US dollar against the JPY and
EUR for no obvious reason
 
* Brent Crude was fell over 4.0% to a fresh 5-year low around after the chief
executive of Kuwait's national oil company said oil prices were likely to remain
around 65 USD for at least the next 6 months.
 
* The S&P energy index was down around 4.0% and dragged the S&P close to 1.0% as
of late in the US session while the Dow was down close to 150 points or 0.83%
lower with over an hour to go before the close.
 
* The steep fall in the oil price and subsequent fall on Wall Street pushed
longer-dated US Treasury yields lower and late in the US session the 10-year
Treasury yield was trading at 2.26% down 4 BPS from Friday's close at 2.30%.
 
* The fall in the 10-year Treasury yield and the jolt to risk appetite caused by
the steep fall in the oil price sent the VIX index soaring over 20% higher from
Friday's close. The VIX was trading at 14.24 late in the US session after
closing at 11.82 on Friday.
 
* The sharp rise in risk aversion led to a steep selloff in JPY-funded carry
trades and unwinding of long USD positions against the JPY, EUR and GBP.
 
* The NZD/JPY was down close to 1.5% late in the US session while the AUD/JPY
was down around 1.0% and the CAD/JPY was down 1.10%.
 
* The JPY was the strongest currency on the day due in part to the rise in risk
aversion; in part due to the fall in the 10-year US Treasury yield and in part
due to the fact the market was extremely long USD/JPY and the fall steep fall in
the oil price encouraged liquidation of profitable positions in the portfolios
of large fund managers.
 
* The USD/JPY was trading at 120.49 late in the US session - down 0.85% from
Friday's close at 121.53 and the Asia high at 121.86 -which was a 7-year peak.
 
* The liquidation of long USD/JPY positions spilled over to the EUR/USD. The
EUR/USD fell as low as 1.2247 (fresh 2-year low) following dovish comments from
the ECB's Nowotny who warned of "massive" economic weakness for the EZ economy
and buying government bonds could help.
 
* The EUR/USD reversed higher when the USD/JPY fell sharply and the FX market
went into square-up mode. The EUR/USD was trading at 1.2325 late in the US
session - up 0.35% on the day.
 
* The commodity currencies fell across the board due to the unwinding of
JPY-funded carry trades and falls in key commodities - led by the big slide in
the oil price.
 
* The NZD was the worst performing currency on Monday and was trading at 0.7669
late in the US session - down 0.61% from Friday's close.
 
* The slide in the oil price weighed on the CAD - as the USD/CAD was trading at
1.1465 late in the US session - up 0.26% from Friday's close.
 
* The AUD/USD fell as low as 0.8260 at one stage, but the USD fall against the
other major currencies encouraged short covering. Late in the US session the
AUD/USD was hovering around 0.8300 - down 0.13% from Friday's close.
 
* The steep slide in the oil price and weaker China trade data weighed on other
key commodities. Late in the US session NY copper was down 0.55% while iron ore
was fixed 1.69% lower at 69.70. Gold was the exception, as the reversal lower in
the USD against the JPY, GBP and EUR helped to push the price up 10 bucks to
1,203.
 
* Late in the session the US dollar index was trading at 89.05 down 0.31% from
Friday's close at 89.33 
 
Wrap up
There has been a fairly significant mood change in the market since Friday. The
positive afterglow of the strong US nonfarm payroll data has been replaced by
caution and some uncertainty. This mood change is evidenced by the 20%-plus rise
in the VIX index since Friday's close. Some leading US investors are a bit
concerned that the obvious recovery taking place in the US economy might be
short-circuited by the weaker global environment.
 
The steep falls in the energy sector are having ramifications in other markets.
Funds that have tried to pick a bottom in the oil price and energy related
stocks have been punished and there is talk that a few have liquidated
profitable positions in other assets to compensate for the losses in energy
strategies. The market is very long USD against the EUR and JPY so there might
be more consolidation/correction - even though falling commodities are usually
USD positive. If the market does pare back USD longs against the EUR and JPY -
it should present excellent USD buying opportunities. The Fed is far less
concerned by falling energy prices and the impact it may have on inflation in
the short-term. Meanwhile the ECB and BOJ are likely to still be in an easing
cycle while the Fed is commencing a tightening cycle. This is certainly USD
positive.
 
The key in Asia today will be the reaction in Tokyo to the steep fall in the
USD/JPY and bigger falls in the AUD/JPY, NZD/JPY and CAD/JPY. The Nikkei will
likely have a bad hair day and this might further weigh on the JPY-funded carry
trade strategies - as it could ramp up risk aversion.  
John.noonan@thomsonreuters.com
 
Asian Currency Outlook
 
USD/Asians to open lower, but risk off, China slowdown fears and sell-off in the
CNY, CNH to weigh limit falls. Markets swirled with rumours of all sorts on
China markets late yesterday - which led to panic dumping in CNY, CNH and CNY
bonds - trade numbers yesterday triggered increased talks of a PBOC RRR cut.
USD/CNH flew to 6.1814 high overnight, up from 6.1514 Asian low. Pair last
indicated at 6.1710-40. NDF curve all shifted right overnight. Correction lower
in global stock markets to spill into Far East, which will further weigh on
regional currencies. USD/MYR to remain a buy on dips, extended sell-off in oil
and commodity prices continues to bode ill for Malaysian exports. IDR not likely
to fare better too, as Indonesia's exports are likewise dented by plunge in
mineral prices. Strong corporate yearend and repatriation demands, mass protests
by unions and workers to further undermine the IDR. USD/KRW in for rock and
roll, may test 1110 handle as JPY/KRW mired in steep bearish tunnel. INR likely
to remain star in Asia on strong inflows, econ optimism.
 
USD/KRW risks choppy ride amid 1110-1115. Sell-off in NDFs overnight, JPY/KRW
interests to continue to weigh on pair. Rate cut expectation, trade worries to
underpin. Should see strong BOK intervention should 1110 be tested intraday.
USD/KRW ended locally at 1117.7 yesterday, after failure above 1120. Pair
whacked lower from early high at 1121.7 on heavy JPY/KRW selling. The cross
tanked to 9.1900 low vs 9.2230 high, last indicated at 9.2100. Short covering
interests following retreat in USD/JPY stalled selling overnight. KRW NDFs
traded 1113-1118.4 rg o/n, clsd at 1114.2-1114.7 in NY.
 
USD/SGD backed off overnight high at 1.3245 on profit taking, followed profit
taking in USD/JPY. Buy dips remain preferred strategy though, as growth worries,
China slowdown continue to underpin. China jitters - sell-off in the CNY, CNH,
CNY bonds, rate cut rumours to impace SGD sentiment too. Nearby support at
1.3180, stronger at 1.3160, Dec 4 high. USD/SGD traded 1.3184-1.3245 range
overnight, closed at 1.3197 in NY. Topside resistance at 1.3260, then 1.3300,
next psychological hurdle.
 
USD/MYR to remain a buy on dips, never mind the mild correction overnight -
which only provides better entry levels to add to longs. Expect pair to see 3.55
next, if not 3.60 nearterm. Erosion of oil and commodity prices weigh heavy on
MYR, still. Jitters in CNY, CNH to add to MYR woes. MYR NDFs traded
3.4975-3.5070 range o/n, clsd at 3.4980-10 in NY.
 
USD/THB may see sideways dealings amid 33.00-33.10. Sell-off in stock markets,
China worries likely to underpin. Break above yesterday's high at 33.11 needed
before chance of test at 33.14 ytd high. USD/THB traded low at 32.99 overnight,
last at 33.01-33.03.
 
USD/IDR likely to remain supported on dips below 12350. Trade worries to
underpin - Indonesia's exports are further dented by plunge in mineral prices.
Strong corporate yearend and repatriation demands, mass protests by unions and
workers to further undermine the IDR. Expect the USD/IDR to trade 12340-12380
intraday. NDFs traded 12440-12475 rg overnight, closed at 12440-12475 in NY.
 
USD/PHP may range 44.60-44.80.  Strong OFW inflows to continue to cap rallies
but China worries, bullish USD theme to underpin. May see pair consolidate amid
44.60-45.0 into the yearend. Damage to economy from Typhoon Hagupit may add to
support for USD/PHP too. PHP NDFs traded 44.70-80 range o/n, clsd at 44.70-75 in
NY.
 
USD/TWD to continue higher, bullish technical and politics underpin. Defeat of
Taiwan's ruling party in local elections raised concerns an anti-China govt may
cause jitters amongst foreign investors, outflows. Weak China trade data to
further weigh on TWD - note 40% of Taiwan's exports went to China last year.
USD/TWD likely to trade 32.25-32.50 intraday. Pair closed at 31.285 yest. NDFs
traded 31.115-31.18 o/n, clsd at 31.11-31.13 in NY.
 
USD/CNY in for more whippy trades today - stop buys, rumours of RRR to dominate.
Markets brushed aside crazy low fix at 6.1282 by the PBOC yesterday, contraction
in imports dominate. USD/CNY shot up to 6.1725 high yest, up from 6.1480 early
low. Pair closed onshore at 6.1730. USD/CNH raced to 6.1814 on heavy short cover
o/n, last indicated at 6.1710-45. NDFs curve all shifted higher in NY dealings.
1 mth closed at 6.1490-10 vs 6.1380-00 last; 6mths at 6.2205-6.2235  vs
6.2135-70 previous. 1year rallied to 6.2960-90 from 6.2830-60. Expect the repo
and bond yield curves to continue higher today. 
 
USD/INR likely to see further sideways dealings amid 61.80-62.00. Strong FII
inflows to continue to cap rallies. Pair ended at 61.845 yesterday, after range
amid 61.835-61.98 intraday. Foreign institutional investors remain net buyers in
local bonds and stocks. NDFs traded 62.12-62.21 range o/n, clsd at 62.14-18 in
NY. Catherine.tan@thomsonreuters.com

OVERNIGHT RANGES----------------------------INTRADAY RANGES - Close 21:00GMT
NDFS OPEN   HIGH    LOW     LAST       VOL  CURRENCY   HIGH    LOW     CLOSE
IDR  12440  12475   12440   12445-75   Hi   USD/JPY   121.86  120.20  120.67
INR  62.14  62.21   62.12   62.14-18   Hi   EUR/USD   1.2344  1.2247  1.2312
KRW  1114.8 1118.4  1113    1114.2-4.7 Hi   EUR/JPY   149.79  148.20  148.55
MYR  3.4975 3.5070  3.4975  3.4980-10  Hi   GBP/USD   1.5679  1.5541  1.5646
PHP  44.78  44.80   44.70   44.70-75   Hi   USD/CAD   1.1485  1.1419  1.1480
TWD  31.13  31.18   31.115  31.11-13   Hi   AUD/USD   0.8324  0.8260  0.8290
CNY  1-mth  6.1435  6.1310  6.1389-10       NZD/USD   0.7707  0.7624  0.7658
CNY  6-mth  Dealt   6.2240  6.2205-35       USD/SGD   1.3245  1.3184  1.3197
CNY  1-yr   No      Trades  6.2960-90       USD/THB    33.11   32.99   33.00
 
Equities  Close   Change  %Change  UST(Yields)    Close    Previous
DJIA      17852     -106    -0.59  10-year        2.26%      2.31%
S&P 500    2060      -15    -0.73  2-year         0.63%      0.64%
Nasdaq     4741      -40    -0.84  30-year        2.90%      2.96%
FTSE       6672      -71    -1.05  Spot Gold($) 1203.50    1192.00
DAX       10015      -72    -0.72  Nymex          62.99      65.84
Nikkei    17936      +15    +0.08  Brent          66.19      69.07
  
    

 (Reporting by John Noonan, Catherin Tan and Peter Whitley)

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