EM FX Technical Picture

MindMkts Blog ICON-FX TechPic

Given the extreme price action seen this week in EM currencies, we thought it would be a good idea to again take a step back to see how EM FX has performed in light of these moves.  Many currencies established multi-year and/or all-time lows before recovering.  We see this most recent bounce as short-covering in an extremely oversold market.  As such, we look for a continuation of the ongoing long-term bearish EM move.

Why?  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 still 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 made a new all-time high this week around 4.25.  The previous high was near 4.0 from October 2002.   The top of an upward sloping channel dating back to the 1999 devaluation comes in near 4.35, while the top of an upward sloping channel dating back to 2013 comes in near 4.60.

Chile:  USD/CLP made a new high for this cycle this week near 710, the highest since 2003.  Using a long-term time frame, charts suggest a test of the October 2002 all-time high near 760.

Colombia:  USD/COP made a new all-time high last month around 3266.  The previous high was near 2980 from January 2003.  The top of an upward sloping channel dating back to 1992 comes in near 3650.

Mexico:  USD/MXN made a new all-time high this week near 17.35.  The previous high was near 15.60 from March 2009.  The top of an upward sloping channel on the monthly charts dating back to the 1994 devaluation comes in around 18.60.

Peru:  USD/PEN made a new high for this cycle in August near 3.31, the highest since 2006.  Using a long-term time frame, charts suggest a test of the January 2006 high near 3.46 and then 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 made a new all-time high near 328 back in January.  The previous high was near 324 from January 2012.  After falling back this year, charts suggest the pair will test that 328 high.  The top of an upward sloping channel dating back to 2012 comes in near 335.

Poland:  EUR/PLN has retraced nearly two thirds of the December-April drop.  Break above the 4.2350 area would put it on track to test the December high 4.40.  After that is the 2012 high near 4.5240 and then the December 2011 high near 4.60.

Israel:  USD/ILS has retraced nearly two thirds of the March-June drop.  Break above the 3.9450 area would put it on track to test the March high 4.07.  After that is the July 2012 high near 4.10 and then the April 2009 high near 4.2760.

Russia:  USD/RUB has retraced nearly two thirds of the December-May drop.  Break above 67.3150 would put it on track to test the December all-time high near 80.

South Africa:  USD/ZAR made a new all-time high this week near 14.08, just edging out the previous high from August.  Before that, the previous all-time high was near 13.84 from December 2001.  The top of an upward sloping channel dating back to 2010 comes in near 15.

Turkey:  USD/TRY made a new all-time high this week near 3.0750.  Using a long-term time frame, the top of an upward sloping weekly channel dating back to the 2001 comes in near 3.15.

Asia

China:  USD/CNY last month traded at highs not seen since 2011.  Break above the 6.53 area would put it on track to test the quasi-peg near 6.8350 that held from 2008-2010.

Hong Kong:  The USD/HKD peg will remain in place for the foreseeable future.  Despite broad-based EM FX weakness, HKD remains near the strong end of its 7.75-7.85 trading band due to inflows from mainland China.

India:  USD/INR made a new high for this cycle this month near 67, the highest since 2013.  The pair is on track to test the all-time from August 2013 near 68.85.

Indonesia:  USD/IDR made a new high for this cycle this week near 14750, the highest since 1998.  Using a long-term time frame, charts suggest a test of the June 1998 all-time high near 16950.

Korea:  USD/KRW made new highs for this cycle this month near 1209, the highest since 2011 and matching the October 2011 high near 1208.  Using a long-term time frame, a test of the May 2010 high near 1278 is likely, followed by the 2009 high near 1600.  Yet the pair remains far below the all-time high from 1997 near 2000.

Malaysia:  USD/MYR made a new high for this cycle this week near 4.40, the highest since 1998.  Long-term charts point to a test of the January 1998 all-time high near 4.8850.

Philippines:  USD/PHP made a new high for this cycle this month near 47.00, the highest since 2010 and matching the May 2010 near 47.13.  Looking at a long-term time frame, charts suggest a test of the 2008 high near 50.175.

Singapore:  USD/SGD made a new high for this cycle this week near 1.43, the highest since 2009.  Using a long-term time frame, a test of the March 2009 high near 1.5580 appears likely.

Taiwan:  USD/TWD made a new high for this cycle this week near 33.14, the highest since 2009.  Using a long-term time frame, a test of the March 2009 high near 35.25 appears likely.

Thailand:  USD/THB made a new high for this cycle this week near 36.38, the highest since 2009 and matching the March 2009 high near 36.44.  Using a long-term time frame, a break above the 37.00 area is needed to signal a test of the July 2005 high near 42.20.