EM FX Technical Picture

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Given what we see as the continuation of the ongoing long-term bearish EM move, we thought it would be a good idea to take a step back to see how EM FX has performed after the recent price action.

Given what we see as the continuation of the ongoing long-term bearish EM move, we thought it would be a good idea to again take a step back to see how EM FX has performed after the recent price action.  Most have already revisited the March lows, and many are on track for multi-year and/or all-time lows.  We remain bearish on EM FX.

We see the major drivers for ongoing EM weakness remaining intact: 1) the dollar has resumed appreciating against the majors; 2) global growth remains weak; 3) commodity prices remain soft; and 4) the looming Fed tightening cycle that will lead to higher rates in the US.

Given this backdrop, we retain a defensive posture with regards to EM and would recommend investors remain selective.  We expect further volatility and weakness ahead for most of EM FX, and so dedicated EM investors should look for relative value opportunities.  Divergences within EM will continue to be seen, especially in light of the renewed drop in commodity prices.  In general, we continue to favor Asia, with EMEA next and Latin America last.

Latin America

Brazil:  USD/BRL has fully retraced all of the March-April drop and is making new multi-year highs.  Using a long-term time frame, charts suggest a test of the October 2002 all-time high near 4.00.

Chile:  USD/CLP has fully retraced the March-May drop and is making new multi-year highs.  Using a long-term time frame, charts suggest a test of the November 2008 high near 686 and then the October 2002 all-time high near 760.

Colombia:  USD/COP has fully retraced the March-May drop and is making new multi-year highs.  Using a longer time frame, charts suggest a test of the January 2003 all-time high near 2980.

Mexico:  USD/MXN has retraced fully retraced the March-April drop and is making new all-time highs.  The top of an upward sloping channel on the monthly charts dating back to the 1994 devaluation comes in above 18.

Peru:  USD/PEN has fully retraced the March drop and is making new multi-year highs.  Using a longer timeframe, charts suggest a test of the January 2006 high near 3.4555.  Break of 3.23 is needed to set up a test of the September 2002 all-time high near 3.66.

EMEA

Czech:  EUR/CZK has not really traded with the rest of EM ever since the CNB instituted the floor “near” 27 back in November 2013.  The pair has drifted lower this year from 28 to near 27 currently, and has led the central bank to undertake some FX intervention.

Hungary:  EUR/HUF has retraced less than half of the January-April drop.  Retracement levels for that move come in near 311.60 (50%) and 315.40 (62%).  Break above 315.40 would put it on track to test the January 15 all-time high near 327.60.
Poland:  EUR/PLN has retraced less than half of the January-April drop.  Retracement levels for that move come in near 4.12 (38%), 4.1675 (50%), and 4.2150 (62%).  Break above 4.2150 would put it on track to test the January 15 high near 4.3675.

Israel:  USD/ILS has retraced less than a quarter of the March-June drop.  Retracement levels for that move come in near 3.8685 (38%), 3.9065 (50%) and 3.9445 (62%).  Break above 3.9445 would put it on track to test the March 20 high near 4.07.  Using a longer timeframe, break above that would suggest a test of the July 2012 high near 4.10 and then the April 2009 high near 4.2760.

Russia:  USD/RUB has retraced nearly half of the January-May drop.  Break above 60 and then 62.75 would put it on track to test the January high near 71.80.

South Africa:  USD/ZAR has fully retraced the March-April drop and is testing the multi-year high set last month near 12.71.  Using a longer time frame, the pair is on track to test the December 2001 all-time high near 13.84.

Turkey:  USD/TRY has retraced all of the March drop and made a new all-time high last month near 2.81.  That level is about to be tested.  Using a longer time frame, the top of an upward sloping weekly channel dating back to the 2012 comes in near 2.95 currently.

Asia

China:  USD/CNY has retraced less than a third of the March drop.  Retracement levels for that move come in near 6.22 (38%), 6.23 (50%), and 6.24 (62%).  Break above 6.24 would put it on track to test the March 2 high near 6.28.

Hong Kong:  The USD/HKD peg will remain in place for the foreseeable future. 

India:  USD/INR has fully retraced the January drop and made new multi-year highs in June.  The pair is on track to test the June 16 high near 64.30.  Break above 64.83 is needed to signal a test of the all-time from August 2013 near 68.85.

Indonesia:  USD/IDR has fully retraced the March-April drop and is making new multi-year highs.  Using a longer timeframe, charts suggest a test of the June 1998 all-time high near 16950.

Korea:  USD/KRW has fully retraced the March-April drop and is making new multi-year highs.  Using a longer time frame, charts suggest a test of the May 2012 high near 1185.  After that is the October 2011 high near 1208.  Break above 1175 would target the May 2010 high near 1278.

Malaysia:  USD/MYR has retraced all of the March-May drop and is making new multi-year highs.  The pair has broken above the 3.80 peg rate that held from 1998-2005.  Using a longer timeframe, retracement objectives from the big 1998-2011 drop come in near 3.91 (50%) and 4.14 (62%).  Break above 4.14 is needed to signal a test of the 1998 all-time high near 4.8850.

Philippines:  USD/PHP has retraced all of the March-April drop and is making new multi-year highs.  The 2010 high near 47.13 lies ahead.  Looking at a longer timeframe, the last major retracement objective from the big 2008-2013 drop comes 46.49 (62%).  Break above that targets the 2008 high near 50.175.

Singapore:  USD/SGD has retraced nearly three quarters of the March-April drop, and is on track to test the March 13 high near 1.3940.  Using a longer time frame, retracement objectives from the 2009-2011 drop come in near 1.3790 (50%) and 1.4210 (62%).  Break above 1.4210 is needed to signal a test of the 2009 high near 1.5580.

Taiwan:  USD/TWD has retraced nearly all of the March-May drop, and is on track to test the March 12 high near 31.77.  Using a longer time frame, retracement objectives from the 2009-2011 drop come in near 31.866 (50%) and 32.666 (62%).  Break above 32.666 is needed to signal a test of the 2009 high near 35.25.

Thailand:  USD/THB has retraced all of the March-April drop and is making new multi-year highs.  It is on track to test the 2009 high near 36.44.  Using a longer time frame, retracement objectives from the 2005-2013 drop comes in near 35.40 (50%) and 37.00 (62%).  Break of 37.00 is needed to signal a test of the July 2005 high near 42.20.