EM FX Technical Picture

MindMkts Blog ICON-FX TechPic

After the sharp sell-off due to the Brexit vote, EM gained traction. This traction was driven largely by the perceived improvement in the global liquidity backdrop. This theme was already in place after the May jobs shocker, but it was cemented by subsequent BOE and BOJ dovishness post-Brexit. As a result, many EM assets went on to challenge recent highs from April/May.

Yet it appears that the EM rally has run out of steam. Recent US data has been stronger than expected, and this has caused the markets to start reassessing their uber-dovish take on the Fed. Indeed, many EM currencies appear to have topped out last Friday, due to a combination of strong US retail sales data and the Turkish coup attempt.

Bottom line: A dovish (for now) Fed outlook should keep EM from selling off too sharply, but weakness and turbulence is likely to return. Recent Turkish political developments also serve as a reminder to investors that investing in EM comes with heightened risks. With this in mind, we identify possible EM FX retracement objectives from the post-Brexit rally.

Note that MSCI EM made new highs for this move yesterday near 871. This fully recouped the post-Brexit drop and falls just short of the November high near 873. The retracement objectives from the post-Brexit rally come in near 841 (38%), 832 (50%) and 822 (62%).

Latin America

Brazil: USD/BRL has retraced over a third of the post-Brexit drop. The retracement objectives from that move come in near 3.2840 (38%), 3.3150 (50%), and 3.3460 (62%). The 200-day MA comes in near 3.7165.

Chile: USD/CLP has retraced less than a quarter of the post-Brexit drop. The retracement objectives from that move come in near 661 (38%), 666 (50%), and 670 (62%). The 200-day MA comes in near 690.

Colombia: USD/COP has retraced about a quarter of the post-Brexit drop. The retracement objectives from that move come in near 2950 (38%), 2971 (50%), and 2992 (62%). The 200-day MA comes in near 3096.

Mexico: USD/MXN has retraced nearly a third of the post-Brexit drop. The retracement objectives from that move come in near 18.65 (38%), 18.8150 (50%), and 18.98 (62%). The 200-day MA comes in near 17.73.

Peru: USD/PEN has retraced around a third of the post-Brexit drop. The retracement objectives from that move come in near 3.2980 (38%), 3.3060 (50%), and 3.3140 (62%). The 200-day MA comes in near 3.36.

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, but it did spike to around 27.20 right after the Brexit vote. We see the floor remaining in place until mid-2017. The 200-day MA comes in near 27.04.

Hungary: EUR/HUF has retraced about a quarter of the post-Brexit drop. The retracement objectives from that move come in near 316 (38%), 317 (50%), and 318 (62%). The 200-day MA comes in near 313.

Poland: EUR/PLN has retraced less than a quarter of the post-Brexit drop. The retracement objectives from that move come in near 4.43 (38%), 4.45 (50%), and 4.47 (62%). The 200-day MA comes in near 4.34.

Israel: USD/ILS has retraced over a third of the post-Brexit drop. The retracement objectives from that move come in near 3.8660 (38%), 3.8755 (50%), and 3.8850 (62%). The 200-day MA comes in near 3.8650.

Russia: USD/RUB has retraced less than a quarter of the post-Brexit drop. The retracement objectives from that move come in near 64.40 (38%), 64.95 (50%), and 65.50 (62%). The 200-day MA comes in near 68.70.

South Africa: USD/ZAR has retraced less than a quarter of the post-Brexit drop. The retracement objectives from that move come in near 14.75 (38%), 14.93 (50%), and 15.11 (62%). The 200-day MA comes in near 15.05.

Turkey: USD/TRY has fully retraced the post-Brexit drop. USD/TRY made a new high for this move Friday around 3.05, which it tested today. This fell just shy of the all-time high near 3.0750 from last September. We expect the dollar to test the 2016 high near 3.06, followed by new all-time highs. The 200-day MA comes in near 2.92.

Asia

China: USD/CNY did not really react to the Brexit vote, and has instead drifted steadily higher to levels not seen since 2010. The pair was basically pegged around 6.84 from mid-2008 to mid-2010, and that area appears to be the next target. The 200-day MA comes in near 6.50.

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 trade near the bottom.

India: USD/INR has retraced about a quarter of the post-Brexit drop. The retracement objectives from that move come in near 67.37 (38%), 67.53 (50%), and 67.69 (62%). The 200-day MA comes in near 66.78.

Indonesia: USD/IDR has barely retraced any of the post-Brexit drop. The retracement objectives from that move come in near 13237 (38%), 13294 (50%), and 13350 (62%). The 200-day MA comes in near 13487.

Korea: USD/KRW has barely retraced any of the post-Brexit drop. The retracement objectives from that move come in near 1153 (38%), 1159 (50%), and 1166 (62%). The 200-day MA comes in near 1173.

Malaysia: USD/MYR has retraced over a third of the post-Brexit drop. The retracement objectives from that move come in near 4.02 (38%), 4.05 (50%), and 4.08 (62%). The 200-day MA comes in near 4.15.

Philippines: USD/PHP moved higher on the Brexit vote, and has largely drifted sideways since. The 200-day MA comes in near 46.92.

Singapore: USD/SGD has retraced nearly half of the post-Brexit drop. The retracement objectives from that move come in near 1.3565 (50%) and 1.3600 (62%). The 200-day MA comes in near 1.3855.

Taiwan: USD/TWD has retraced a quarter of the post-Brexit drop. The retracement objectives from that move come in near 32.15 (38%), 32.24 (50%) and 32.33 (62%). The 200-day MA comes in near 32.70.

Thailand: USD/THB has retraced a quarter of the post-Brexit drop. The retracement objectives from that move come in near 35.16 (38%), 35.24 (50%) and 35.31 (62%). The 200-day MA comes in near 35.53.