EM FX Technical Picture

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EM is enjoying a nice bounce to end the week. Surging oil is one factor, while further ECB (and potentially BOJ) stimulus is another. The Fed tightening, while still alive, has likely been pushed out a bit by the markets in terms of timing.  The global liquidity outlook has clearly moved in favor of EM, at least for now. 

Indeed, the million dollar question is:  Has EM bottomed?  Longer-term, the commodity situation remains murky as the supply-demand imbalance remains in place.  We have always felt that a halt to the commodity plunge was a necessary but not sufficient condition for overall EM sentiment to improve.  Fed tightening will eventually happen, and this will should put the broad-based dollar rally back on track.  Lastly, the global growth picture does not seem to favor EM just yet.  The IMF provided a reminder this week with its forecast revisions.

Bottom line:  enjoy this EM rally with a short-term timeframe in mind, with the idea that EM turbulence will likely return later this year.  With that in mind, we identify some possible retracement objectives from the most recent EM sell-off.  Many EM assets traded sideways for most of Q4 before coming under renewed pressure in late December.  For this piece, we will be looking at the moves from late December until this week.  For instance, MSCI EM fell 15% from December 24 until January 21.  Retracement objectives from this move come in near 732.50 (38%), 746.65 (50%), and 760.75 (62%).  It has not yet retraced 25% of this move.

Latin America

Brazil:  USD/BRL has retraced almost 25% of the December-January rise.  Retracement objectives from that move come in near 4.045 (38%), 4.00 (50%), and 3.9670 (62%).  Break below 3.9670 is needed to set up a test of the December 29 low near 3.84.

Chile:  USD/CLP has retraced over a third of the December-January rise.  Retracement objectives from that move come in near 711.40 (50%) and 706.40 (62%).   Break below 706.40 is needed to set up a test of the December 21 low near 690.

Colombia:  USD/COP has retraced almost over a third of the December-January rise.  Retracement objectives from that move come in near 3295 (38%), 3259 (50%), and 3225 (62%).   Break below 3225 is needed to set up a test of the December 30 low near 3112.

Mexico:  USD/MXN has retraced less than 25% of the December-January rise.  Retracement objectives from that move come in near 18.08 (38%), 17.85 (50%), and 17.63 (62%).  Break below 17.63 is needed to set up a test of the December 16 low near 16.90.

Peru:  USD/PEN has yet to retrace any of the December-January rise, and is trading near multi-year highs.  Retracement objectives from that move come in near 3.4175 (38%), 3.4080 (50%), and 3.3980 (62%).  Break of 3.3980 is need to set up a test of the December 16 low near 3.3665.

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 pretty much traded just above 27 since early November.    We see the floor remaining in place until late 2016/early 2017.

Hungary:  EUR/HUF has fully retraced the December-January rise.  Levels to look for are now are the December 3 low near 309.65 and the November 2 low near 308.60.

Poland:  EUR/PLN has retraced less than 25% of the December-January rise.  Retracement objectives from that move come in near 4.4015 (38%), 4.3675 (50%), and 4.3335 (62%).  Break below 4.3335 is needed to set up a test of the December 25 low near 4.2235.

Israel:  USD/ILS has yet to retrace any of the December-January rise.  Indeed, the pair continues to move higher, trading at levels not seen since April 2015.  Levels to look for are now are 2014 and 2015 highs near 4.00, followed by the March 2015 high near 4.0680.

Russia:  USD/RUB has retraced almost 50% of the December-January rise.  Retracement objectives from that move come in near 77.60 (50%) and 75.63 (62%).  Break below 75.63 is needed to set up a test of the December 24 low near 69.24.

South Africa:  USD/ZAR has retraced nearly 50% of the October-January rise.  Retracement objectives from that move come in near 16.36 (50%), and 16.00 (62%).  Break below 16 is needed to set up a test of the December 16 low near 14.81.

Turkey:  USD/TRY has retraced nearly a third of the December-January rise.  Retracement objectives from that move come in near 3.00 (38%), 2.98 (50%), and 2.96 (62%).  Break below 2.96 is needed to set up a test of the December 25 low near 2.90.

Asia

China:  USD/CNY has retraced less than 25% of the December-January rise.  Retracement objectives from that move come in near 6.5475 (38%), 6.5325 (50%), and 6.5175 (62%).  Break of 6.5175 is needed to set up a test of the December 25 low nears 6.47.

Hong Kong:  The USD/HKD peg will remain in place for the foreseeable future.  After a brief move to the top half of the 7.75-7.85 trading band, the pair has since returned to the bottom half.  Improved EM sentiment should keep it trading in the bottom half for now.

India:  USD/INR has retraced 25% of the December-January rise.  Retracement objectives from that move come in near 67.37 (38%), 67.13 (50%), and 66.88 (62%).  Break of 66.88 is needed to set up a test of the December 31 low near 66.09.

Indonesia:  USD/IDR has retraced about a third of the December-January rise.  Retracement objectives from that move come in near 13835 (38%), 13784 (50%), and 13732 (62%).  Break of 13732 is needed to set up a test of the December 22 low near 13565.

Korea:  USD/KRW has retraced over 25% of the December-January rise.  Retracement objectives from that move come in near 1196 (38%), 1189 (50%), and 1183 (62%).  Break of 1183 is needed to set up a test of the December 28 low near 1162.

Malaysia:  USD/MYR has retraced nearly all of the late December-January rise.  After the December 29 low near 4.2645, the next level to look for is the December 4 low near 4.19.

Philippines:  USD/PHP has retraced 25% of the January rise.  Retracement objectives from that move come in near 47.53 (38%), 47.39 (50%), and 47.26 (62%).  Break of 47.26 is needed to set up a test of the January 6 low near 46.82.

Singapore:  USD/SGD has retraced over a third of the December-January rise.  Retracement objectives from that move come in near 1.4285 (38%), 1.4235 (50%) and 1.4185 (62%).  Break of 1.4185 is needed to set up a test of the December 25 low near 1.4025.

Taiwan:  USD/TWD has retraced 25% of the December-January rise.  Retracement objectives from that move come in near 33.38 (38%), 33.26 (50%), and 33.13 (62%).  Break of 33.13 is needed to set up a test of the December 25 low near 32.72.

Thailand:  USD/THB has retraced virtually all of the late December-January rise.  After the December 30 low near 35.97, the next levels to look for are the December 16 low near 35.84 and then the December 4 low near 35.72.