Morning Dew - 26 June 2014

BI OK with IDR Weakness

JCI fell again on Wednesday as lack of positive catalysts continue to limit the upside potential of the index. Depreciating IDR also put the index under pressure.

Bank Indonesia said on Wednesday that it would allow IDR to depreciate in exchange for boosting competitiveness of exports. This would help improving the country’s trade balance, it stated. IDR has been dogged by several factors such as rising oil prices, Federal Reserve exit strategy from low-rate environment as well as political uncertainties ahead of July 9th presidential election.

Finance Minister Chatib Basri forecast the trade balance will be at US$500 million of surplus in May as CPO exports improved both in terms of price and volume. In April the trade balance hit a deficit of US$1.96 billion.

USDIDR pushed through the 12k mark to 12,027 on Wednesday, up from 12,000 a day earlier.

As for Inflation...

BI Deputy Governor expects inflation to be around 0.3% to 0.5% in June against the month’s historical average.

On annual basis, inflation is seen to ease to 6.6% or 6.7% in June, from 7.32% recorded in May.

As the statistical impact from the last year’s fuel price hike dissipates, the second half of 2014 inflation is seen lower compared to last year’s.

For the entire 2014, the government aims at inflation rate of 5.3% compared to Bank Indonesia’s target range of 3.5% to 5.5%.

Technically Speaking...

JCI erased Tuesday’s gains as it returned to the lower 4,800s. It still risks heading towards the next EMA support: the 100-day EMA at 4,775-4,780.

Prior 50-day EMA has turned into resistance at 4,870 while the next one lies at 4,909, followed by 5k and subsequently at 5,091. Beyond the latter the index will aim at 5,251 – the all-time high seen last year.

Next support is now seen at 4,800 and 4,775-4,780 afterwards where the 100-day EMA lies.

MACD inched slightly higher but still below the zero line while RSI has turned lower again heading towards the oversold zone. Volume went down a bit as well.

No additional recommendation for now.

Day Ahead

Depreciation of IDR is now seen as an additional factor capping the upside potential for JCI. Moreover, as expected JCI continues to be under pressure on Wednesday even after the index bounced on Tuesday. This could weaken the index further to 4,770-4,800 due to lack of fresh catalysts and domestic political landscape which continues to heat up ahead of the July 9th election day.

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