EM FX Technical Picture

MindMkts Blog ICON-FX TechPicAfter the initial selloff after the surprise US election outcome, EM was able to get some traction.  This occurred in large part to delays in identifying and implementing planned infrastructure spending, which in turn pushed out Fed tightening expectations.  That calm may be over.

Recent strength in the US economic data and hawkish Fed comments has led to a rethink.  As measured by Bloomberg, the market perceives the odds of a March hike at 90% now, up from 32% at the start of February.  Whether the Fed hikes in March or May makes little difference in the long run.  What matters is that US rates are likely to rise faster than in the previous two years, and EM FX typically does not do well in a rising US rate environment.

Technical indicators for many of the EM currencies suggest overbought conditions.  With the technical largely lining up with the fundamentals, we believe further EM FX weakness will be seen in the coming days.  Below, we identify retracement targets of the EM FX rally from the November post-election lows to last month’s highs.

Note that MSCI EM fully retraced the post-election drop and made new cycle highs before reversing.  Using the December-February rise, the major retracement objectives come in near 912 (38%), 898.50 (50%), and 885 (62%).   The 200-day MA comes in near 881.

Latin America

Brazil:  USD/BRL fully retraced the post-election rise and made new cycle lows before reversing.  Using the December-February drop, the major retracement objectives come in near 3.2135 (38%), 3.2665 (50%), and 3.3200 (62%).  The 200-day MA comes in near 3.2750.

Chile:  USD/CLP fully retraced the post-election rise and made new cycle lows before reversing.  Using the December-February drop, the major retracement objectives come in near 652.25 (38%), 657.35 (50%), and 662.45 (62%).  The 200-day MA comes in near 663.

Colombia:  USD/COP fully retraced the post-election rise and made new cycle lows before reversing.  Using the November-February drop, the major retracement objectives come in near 2982 (38%), 3025.55 (50%), and 3068.65 (62%).  The 200-day MA comes in near 2970.

Mexico:  USD/MXN retraced nearly two thirds of the post-election rise before stalling out.  Using the January-February drop, the major retracement objectives come in near 20.5365 (38%), 20.8230 (50%), and 21.1100 (62%).  The 200-day MA comes in near 19.55.

Peru:  USD/PEN fully retraced the post-election rise and made new cycle lows before reversing.  Using the January-February drop, the major retracement objectives come in near 3.2950 (38%), 3.3150 (50%), and 3.3350 (62%).  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 last November, but it did spike to around 27.11 right after the election.  We see the floor remaining in place until mid-2017.  The 200-day MA comes in near 27.03.

Hungary:  EUR/HUF nearly retraced the entire post-election rise before stalling out.  Using the December-January drop, the major retracement objectives come in near 309.55 (38%), 310.70 (50%), and 311.85 (62%).  The 200-day MA comes in near 310.

Poland:  EUR/PLN has fully retraced the post-election rise and made new cycle lows before stalling out.  Using the December-February drop, the major retracement objectives come in near 4.3625 (38%), 4.3900 (50%), and 4.4175 (62%).  The 200-day MA comes in near 4.3575.

Israel:  USD/ILS fully retraced the post-election rise and made new cycle lows before reversing.  Using the January-March drop, the major retracement objectives come in near 3.7250 (38%), 3.7545 (50%), and 3.7840 (62%).  The 200-day MA comes in near 3.81.

Russia:  USD/RUB fully retraced the post-election rise and made new cycle lows before reversing.  Using the November-February drop, the major retracement objectives come in near 60.00 (38%), 61.03 (50%), and 62.08 (62%).  The 200-day MA comes in near 62.95.

South Africa:  USD/ZAR fully retraced the post-election rise and made new cycle lows before reversing.  Using the November-February drop, the major retracement objectives come in near 13.50 (38%), 13.72 (50%), and 13.94 (62%).  The 200-day MA comes in near 14.00.

Turkey:  USD/TRY did not retrace any of the post-election rise and went on to make new all-time highs.  Using the January-February drop, the major retracement objectives come in near 3.6915 (38%), 3.7335 (50%), and 3.7755 (62%).  The 200-day MA comes in near 3.23. 

Asia

China:  USD/CNY retraced nearly two thirds of the post-election rise before reversing.  Using the January drop, the major retracement objectives come in near 6.8820 (38%), 6.9000 (50%), and 6.9135 (62%).  The 200-day MA comes in near 6.7440.

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

India:  USD/INR retraced nearly the entire post-election rise before stalling out.  Using the November-February drop, the major retracement objectives come in near 67.50 (38%), 67.75 (50%), and 68.00 (62%).  The 200-day MA comes in near 67.28.

Indonesia:  USD/IDR retraced three quarters of the post-election rise before reversing.  Using the December-January drop, the major retracement objectives come in near 13379 (38%), 13423 (50%), and 13467 (62%).  The 200-day MA comes in near 13251.

Korea:  USD/KRW retraced the entire post-election rise before reversing.  Using the December-February drop, the major retracement objectives come in near 1160 (38%), 1170 (50%), and 1180 (62%).  The 200-day MA comes in near 1148.

Malaysia:  USD/MYR retraced only a quarter of the post-election rise before reversing.  Using the January-February drop, the major retracement objectives come in near 4.45 (38%), 4.46 (50%), and 4.47 (62%).  The 200-day MA comes in near 4.22.

Philippines:  USD/PHP retraced about a third of the post-election rise before reversing to make new cycle highs.  The pair is now trading at the highest level since September 2006.  Clean break of the 50.26 area sets up a test of the July 2005 high near 56.45.  The June 2006 high near 53.65 is an intermediate target.  The 200-day MA comes in near 48.28.

Singapore:  USD/SGD retraced three quarters of the post-election rise before reversing.  Using the January-February drop, the major retracement objectives come in near 1.42 (38%), 1.4260 (50%), and 1.4330 (62%).  The 200-day MA comes in near 1.3870.

Taiwan:  USD/TWD retraced the entire post-election rise and made new cycle lows before stalling out.  Using the January-February drop, the major retracement objectives come in near 31.34 (38%), 31.55 (50%), and 31.76 (62%).  The 200-day MA comes in near 31.72.

Thailand:  USD/THB retraced the entire post-election rise before reversing.  Using the December-February drop, the major retracement objectives come in near 35.28 (38%), 35.44 (50%), and 35.60 (62%).  The 200-day MA comes in near 35.17.