FX daily outlook: The second consecutive of sharp decline in the yuan on Wed weighed on Asian equities at mid-week and even Shanghai Comp took a hit. EU bourses were not spared with Euro Stoxx down 3.4%. Wall Street started in the red as well but equities recovered on the back of rising oil prices as well as a shift of focus back on to US data. The DXY fell against the majors amid speculation that the recent yuan devaluation could mean a later rate hike, last seen around 96.38. NOK was the top gainer, up +1.5%, followed by CHF and NZD at 1.3% each.
The central bank holds press conference today at 1015 (SGT), presumably to discuss on the yuan. In a statement released with the fixing on Wed, PBOC assured that there “is no basis for persistent depreciation of RMB”. There were also speculations that intervention was done in the spot market at the close on Wed to ensure a close of 6.3858. Risk sentiments were negative and JPY gained 0.7% against the greenback. On the other end, IDR, MYR and KRW were the worst hit, down -1.4%, 1.3% and -1% respectively.
Commentary on key FX pairs:
EUR/USD – Same Old Story. EU equities fell, with DAX down -3.4% overnight. Decline was attributed to the impact of CNY devaluation on demand for European goods in China. EUR remains a “funding currency” play. This is supported by a pattern we have been highlighting – risk-on sees EUR lower while risk-off sees EUR higher. Technicals continue to suggest EUR is mild bias to the upside, next resistance to watch at 1.1230 (23.6% fibo retracement), before 1.1370 (200 DMA). Interim support at 1.1080/90 levels (50 DMA and 38.2% fibo of Mar low to May high), before 1.1040 (100 DMA).
USD/JPY – Range-Bound. USD/JPY plunged to close below the 124-figure overnight on the back of dollar weakness but has since rebounded back above the 124-figure at 124.30 as the dollar rebounds. Intraday MACD and slow stochastics continue to show bearish bias, suggesting that further uptick could be capped. Pair is also now trapped within an intraday ichimoku cloud, which suggests that price action ahead could be rangy. Sentiments are likely to remain cautious as markets watch the PBOC’s next moves. Look for range of 123.80-124.50 to hold intraday. We need to see a firm close above 124.50 for bullish extension towards 125.85.
USD/SGD – Range-Bound. USD/SGD climbed higher yesterday to touch a high not seen since Apr 2009 at 1.4165 and has eased back below the 1.40-figure, helped by dollar weakness overnight. Market whispers also suggested that the MAS was in the market to smooth out volatilities. Pair is now inching lower at 1.3986 with intraday MACD showing no strong momentum, and stochastics bearish bias, suggesting range-bound trades are likely ahead. Sentiments remain cautious ahead of the USD/CNY fixing with another dramatic move by the PBOC possibly pushing the pair back towards 1.4170. 1.3872 (50DMA) should be supportive today.
AUD/SGD - Bias Upside. AUDSGD was unable to achieve a close above the 100-DMA (1.0345) and hovered around 1.0300 as we write this morning. Bias is to the upside as indicated by momentum indicators. This cross is still underpinned by the 50-DMA at 1.0215, mainly due to SGD weakness. With RSI showing near overbought conditions, upmove is still a grind. A clearance of the 1.0300-figure is necessary for further upside extension. We continue to reiterate our earlier caution for technical rebound.
SGD/CNY – Rally. SGD/CNY is now on the upmove, last seen around 4.5800 this morning with upside still meeting resistance around 4.5940 as we write, underpinned by the weaker CNY fixing against the USD and stronger SGD. Key barrier is seen around 4.5943 (61.8% Fibonacci retracement of Jun-Aug drop). Daily MACD is positive and we expect more choppy action with risks to the upside. Support is seen at 4.5400.