EM FX Technical Picture

MindMkts Blog ICON-FX TechPic

In light of the May jobs shocker and Yellen’s perceived dovish tilt this month, the global liquidity outlook has turned back in favor of EM. As a result, EM assets are back to challenging the recent highs from April/May.

Bottom line: A dovish (for now) Fed outlook should keep this EM bounce alive but turbulence is likely to return later this year. Several EM currencies have fully retraced the May selloff, and we expect more to join this group. With this in mind, we identify possible objectives that in many cases go back to broader EM moves that started back to last autumn. For some, we will need to go back even further to around mid-2015.

Note that MSCI EM has retraced over three quarters of its April-May drop. A break above the April 21 high near 856 would set up a test of the November high near 873 and then the mid-July high near 946. MSCI EM has now retraced nearly two thirds of the July-January drop, and the last major retracement objective comes in 847 (62%).

Latin America

Brazil: USD/BRL has fully retraced the May rise and is making new lows for the year. The break below the April 29 low near 3.43 sets up a test of the mid-July low near 3.1150. The 200-day MA comes in near 3.7845.

Chile: USD/CLP has retraced nearly two thirds of the May rise. A clean break of the 62% retracement objective near 673 would set up a test of the April low near 655. The 200-day MA comes in near 693.

Colombia: USD/COP has retraced three quarters of the May rise. A break below the May 2 low near 2817 would set up a test of the November low near 2785 and then the June 2015 low near 2508. The 200-day MA comes in near 3109.

Mexico: USD/MXN has retraced around a third of the May rise. Retracement objectives from that rise come in near 18.09, 17.89, and 17.69. A break below 17.69 would set up a test of the April 29 low near 17.05. The 200-day MA comes in near 17.47.

Peru: USD/PEN has retraced nearly all of the May rise. A break of the April 29 low near 3.2665 would set up a test of the October low near 3.21 and then the September low near 3.18. The 200-day MA comes in near 3.35.

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 mid-2017, as the central bank just extended its forward guidance. The 200-day MA comes in near 27.05.

Hungary: EUR/HUF has retraced three quarters of the May rise. A break below the April 20 low near 309 and then the February low near 307 would set up a test of the April 2015 low near 295. The 200-day MA comes in near 312.50.

Poland: EUR/PLN has retraced nearly three quarters of the May rise. Break below the April 21 low near 4.26 would set up a test of the November low near 4.2075 and then the September low near 4.18. The 200-day MA comes in near 4.3150.

Israel: USD/ILS has retraced over a third of the May rise. Retracement levels from that rise come in near 3.81 (50%) and then 3.79 (62%). A break of the 3.79 area would set up a test of the May low near 3.73. The 200-day MA comes in near 3.87.

Russia: USD/RUB has retraced the entire May rise and is making new lows for the year. Charts suggest a test of the November low near 62.34 and then the October low near 60.59. The 200-day MA comes in near 68.90.

South Africa: USD/ZAR has retraced nearly three quarters of the May rise. A break below the April low near 14.1150 would set up a test of the November low near 13.7240 and then October low near 13. The 200-day MA comes in near 14.88.

Turkey: USD/TRY has retraced over half of the May rise. A break of the 62% retracement objective for that move near 2.8750 would set up a test of the May 2 low near 2.79. Break of the 2.79 area would set up a test of the November low near 2.7580 and then the July low near 2.63. The 200-day MA comes in near 2.9270.

Asia

China: USD/CNY has retraced about a quarter of the May rise. Retracement objectives from that move come in near 6.5440 (38%), 6.5285 (50%) and 6.5125 (62%). The 200-day MA comes in near 6.4625.

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 back in January, 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 three quarters of the May rise. A break below the May 3 low near 66.23 would set up a test of the October low near 64.70. The 200-day MA comes in near 66.56.

Indonesia: USD/IDR has retraced three quarters of the May rise. A break below the May 3 low near 13123 would set up a test of the March low near 12984 and then the April 2015 low near 12810. The 200-day MA comes in near 13646.

Korea: USD/KRW has retraced around two thirds of the May rise. A break below the May 3 low near 1133 would set up a test of the October low near 1121 and then the June 2015 low near 1097. The 200-day MA comes in near 1176.

Malaysia: USD/MYR has retraced over a third of the May rise. Retracement objectives from that move come in near 4.0375 (50%) and then 4.00 (62%). A break below the 4 area would set up a test of the April low near 3.84 and then the July 2015 low near 3.73. The 200-day MA comes in near 4.1850.

Philippines: USD/PHP has retraced nearly the entire April-May rise. A break below the April low near 45.90 would set up a test of the October 2015 low near 45.44 and then the mid-June 2015 low near 44.87. The 200-day MA comes in near 46.90.

Singapore: USD/SGD has retraced nearly the entire May rise. A break below the April low near 1.3350 would set up a test of the June 2015 low near 1.3285 and then the May 2015 low near 1.3165. The 200-day MA comes in near 1.3950.

Taiwan: USD/TWD has fully retraced the entire May rise and is making new lows for the year. A break below the October low near 32 would set up a test of the August low near 31.55 and then the June 2015 low near 30.675. The 200-day MA comes in near 32.77.

Thailand: USD/THB has retraced nearly three quarters of the May rise. A break below the May low near 34.82 would set up a test of the June 2015 low near 33.56 and then the April 2015 low near 32.32. The 200-day MA comes in near 35.66.