EM FX Technical Picture

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After the surprise US election outcome, EM has sold off sharply. Given the expected fiscal stimulus from the next administration, the odds of the Fed hiking next month have risen to near certainty. Furthermore, the outlook for 2017 has tilted more hawkish as well, with two more hikes now close to consensus.

Bottom line: A more hawkish Fed outlook should keep this EM sell off going for now, with turbulence likely to persist near-term. This is especially true if the long end of the US continue to underperform. So far, this current edition of the Taper Tanturm is taking a toll on EM. Below, we identify retracement targets of the EM FX rally from the June post-Brexit lows to this month’s highs.

MSCI EM made a new high for 2016 in September near 930. The swoon since the election has seen a break of the 62% retracement objective of the June-September move near 845. Break of the 845 area sets up a test of the June 28 low near 792. The 200-day MA comes in near 847.

Latin America

Brazil: USD/BRL has fully retraced the post-Brexit drop. The pair is now trading at the highest level since mid-June. Using the larger May-October drop, the 62% retracement objective near 3.4830 has been broken, which sets up a test of the May 31 high near 3.64. The 200-day MA comes in near 3.4450.

Chile: USD/CLP has retraced nearly three quarters of the post-Brexit drop. The pair is on target to test the June 24 high near 684. Break above that would set up a test of the May 19 high near 700. The 200-day MA comes in near 672.

Colombia: USD/COP has fully retraced the post-Brexit drop. The pair is now trading at the highest level since mid-March. Using the larger February-May drop, retracement objectives come in near 3135 (50%) and 3210 (62%). The 200-day MA comes in near 3016.

Mexico: USD/MXN has fully retraced the post-Brexit drop. The pair has gone on to make a new all-time high near 21.40 on November 11. The 200-day MA comes in near 18.4650.

Peru: USD/PEN has fully retraced the post-Brexit drop. The pair is now trading at the highest level since mid-March. Using the larger February-April move, the 62% retracement objective comes in near 3.4265. Break of that level would set up a test of the February 24 high near 3.5440. 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 last 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 27.03.

Hungary: EUR/HUF has retraced less than half of the post-Brexit drop. The retracement objectives for that move come in near 310 (38%), 313 (50%), and 3.15 (62%). The 200-day MA comes in near 311.

Poland: EUR/PLN has retraced nearly three quarters of the post-Brexit drop. Break of the June 24 high near 4.54 sets up a test of the December 2011 high near 4.60. The 200-day MA comes in near 4.3444.

Israel: USD/ILS has retraced nearly three quarters of the post-Brexit drop. Break of the June 24 high near 3.9150 sets up a test of the January 22 high near 4.0. The 200-day MA comes in near 3.8235.

Russia: USD/RUB retraced the entire post-Brexit move before falling back a bit. Using the larger August-October drop, the 62% retracement objective comes in near 65.30. Break above that sets up a test of the August 2 high near 67.45. The 200-day MA comes in near 66.15.

South Africa: USD/ZAR has retraced nearly half of the post-Brexit drop. The retracement objectives from the June-November drop come in near 14.43 (50%) and 14.72 (62%). The 200-day MA comes in near 14.59.

Turkey: USD/TRY has retraced the entire post-Brexit drop. The pair has since gone on to make a new all-time high near 3.33 today. The 200-day MA comes in near 2.96.

Asia

China: USD/CNY was retraced the entire post-Brexit drop. The pair is now trading at the highest level since 2008. Using the larger 2005-2014 (post-unpegging) move, retracement objectives come in near 6.8940 (38%), 7.16 (50%), and 7.4220 (62%). The 200-day MA comes in near 6.61.

Hong Kong: The USD/HKD peg will remain in place for the foreseeable future. After a brief spike to 7.77 back in June, the pair has since returned to trade near the bottom of the 7.75-7.85 trading band.

India: USD/INR has retraced nearly the entire post-Brexit drop. Break above the 68.2150 high from June 24 sets up a test of the February 26 high near 68.80. The 200-day MA comes in near 67.10.

Indonesia: USD/IDR has retraced the entire post-Brexit drop. The pair traded as high as 13873 on November 11 before falling back. Break of the May high near 13705 sets up a test of the January high near 14000 and then the December high 14125. The 200-day MA comes in near 13210.

Korea: USD/KRW has retraced over three quarters of the post-Brexit drop. Break of the June 27 high near 1188 sets up a test of May high near 1200 and then the February high near 1245.  Using the larger February-September move, retracement objectives come in near 1167 (50%), and 1186 (62%). The 200-day MA comes in near 1151.

Malaysia: USD/MYR has retraced the entire post-Brexit drop. The pair is now trading at the highest level since January. Break of the January 7 high near 4.44 would set up a test of the September 2015 high near 4.48. The 200-day MA comes in near 4.07.

Philippines: USD/PHP has retraced the entire post-Brexit drop. The pair is now trading at the highest level since December 2008. The November 2008 high near 50.17 is the next target, followed by the June 2006 high near 53.65. The 200-day MA comes in near 47.12.

Singapore: USD/SGD has retraced the entire post-Brexit drop. The pair is now trading at the highest level since February, and the January high near 1.4444 is the next target. Break above that would set up a test of the March 2009 high near 1.5580. The 200-day MA comes in near 1.3660.

Taiwan: USD/TWD has retraced over half of the post-Brexit drop. The 62% retracement objective comes in near 32.00. Break above that targets the June 27 high near 32.62. The 200-day MA comes in near 32.13.

Thailand: USD/THB has retraced the entire post-Brexit drop. Using the larger January-August move, the 62% retracement objective comes in near 35.69. Break above that targets the January high near 36.42. The 200-day MA comes in near 35.11.