EM FX Technical Picture

MindMkts Blog ICON-FX TechPicAfter the initial selloff from the surprise US election outcome, EM was able to get some traction starting in early 2017.  There have been period bouts of weakness, as EM sold off ahead of the March 15 FOMC meeting and again in early April.  The period of calm for EM appears to have ended with the June 14 FOMC rate hike, which was compounded by recent comments from the ECB, BOE, BOC, and the Riksbank that signal a shift away from their super-dovish stances.

Despite weakness in the Q1 and some Q2 US economic data, the Fed hiked last month and signaled that it is on track to continue hiking rates.  As measured by Bloomberg, the market perceives the odds of another hike before year-end at nearly 60% now.  Whatever the timing, US rates are already rising faster than we’ve seen the previous two years, and EM FX typically does not do well in a rising US rate environment.

Add in plans for shrinking the Fed balance sheet as well as higher European rates, and there is a clear shift in the global liquidity backdrop that is likely to weigh on EM FX.  On the flip side, recent inflation data out of EM suggest EM policymakers are in no hurry hike rates, and so the interest rate differentials between DM and EM are likely to widen in H2, and so we believe further EM FX weakness will be seen in the coming weeks.  Below, we identify retracement targets of the EM FX rally from the post-election lows to recent highs.  

Latin America

Brazil:  USD/BRL has retraced about two thirds of the post-election drop.  Using the November-February drop, the last major retracement objective comes in near and 3.33 (62%).  Break above that would set up a test of the November high near 3.5075.  The 200-day MA comes in near 3.22.

Chile:  USD/CLP fully retraced the post-election drop in May before falling back last month.  Using the May-June drop, retracement objectives come in near 667 (38%), 670 (50%), and 673 (62%).  The 200-day MA comes in near 662.

Colombia:  USD/COP has retraced two thirds of the post-election drop.  Using the November-April drop, the last major retracement objective comes in near 3064 (62%).  Today’s break above that sets up a test of the November high near 3208.  The 200-day MA comes in near 2955.

Mexico:  USD/MXN has barely retraced any of the post-election drop.  Using the January-June drop, the major retracement objectives come in near 19.4245 (38%), 19.9235 (50%), and 20.4225 (62%).  The 200-day MA comes in near 19.5460.

Peru:  USD/PEN has barely retraced any of the post-election drop.  Using the November-February drop, the major retracement objectives come in near 3.3135 (38%), 3.3385 (50%), and 3.3635 (62%).  The 200-day MA comes in near 3.3150.

EMEA

Czech:  EUR/CZK has not really traded with the rest of EM, even after the CNB ended the floor “near” 27 back in April.  Using the 2013-2015 rise, the last major retracement objective (62%) near 26.65 has been broken and this sets up a test of the October 2013 low near 25.48.  A break below 25.90 would set up a test of the September 2012 low near 24.28.  The 200-day MA comes in near 26.855.

Hungary:  EUR/HUF has retraced about one third of the post-election drop.  Using the December-June drop, the major retracement objectives come in near 309.40 (38%), 310.55 (50%), and 311.75 (62%).  The 200-day MA comes in near 309.40.

Poland:  EUR/PLN has retraced about a quarter of the post-election drop.  Using the December-May drop, the major retracement objectives come in near 4.2920 (38%), 4.3330 (50%), and 4.3740 (62%).  The 200-day MA comes in near 4.3040.

Israel:  USD/ILS has barely retraced any of the post-election drop.  Using the November-June drop, the major retracement objectives come in near 3.6370 (38%), 3.6845 (50%), and 3.7320 (62%).  The 200-day MA comes in near 3.7135.

Russia:  USD/RUB has retraced over a third of the post-election drop.  Using the November-April drop, the major retracement objectives come in near 60.00 (38%), 61.30 (50%), and 62.60 (62%).  The 200-day MA comes in near 59.70.

South Africa:  USD/ZAR has retraced about half of the post-election drop.  Using the November-March drop, the major retracement objectives come in near 13.4815 (50%) and 13.7575 (62%).  The 200-day MA comes in near 13.4450.

Turkey:  USD/TRY has retraced almost a third the post-election drop.  Using the January-June drop, the major retracement objectives come in near 3.6535 (38%), 3.7085 (50%), and 3.7635 (62%).  The 200-day MA comes in near 3.5175.  

Asia

China:  USD/CNY has retraced almost a quarter of the post-election drop.  Using the December-June drop, the major retracement objectives come in near 6.8400 (38%), 6.8635 (50%), and 6.8875 (62%).  The 200-day MA comes in near 6.8470.

Hong Kong:  The USD/HKD peg at 7.80 will remain in place for the foreseeable future, including the 7.75-7.85 trading band.  Still, the pair has drifted higher to trade above 7.80 to its highest level since January 2016.  The high that month came in near 7.83.

India:  USD/INR has retraced about a quarter of the post-election drop.  Using the November-April drop, the major retracement objectives come in near 65.80 (38%), 66.40 (50%), and 67.00 (62%).  The 200-day MA comes in near 66.32.

Indonesia:  USD/ has retraced about a quarter of the post-election drop.  Using the November-April drop, the major retracement objectives come in near 13480 (38%), 13555 (50%), and 13630 (62%).  The 200-day MA comes in near 13300.

Korea:  USD/KRW has retraced over a third of the post-election drop.  Using the December-March drop, the major retracement objectives come in near 1161 (50%) and 1173 (62%).  The 200-day MA comes in near 1147.

Malaysia:  USD/MYR has retraced about a quarter of the post-election drop.  Using the January-June drop, the major retracement objectives come in near 4.3460 (38%), 4.3755 (50%), and 4.4050 (62%).  The 200-day MA comes in near 4.35.

Philippines:  USD/PHP never really retraced the post-election drop and has instead gone on 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 49.66.

Singapore:  USD/SGD has barely retraced any of the post-election drop.  Using the January-June drop, the major retracement objectives come in near 1.4030 (38%), 1.4130 (50%), and 1.4230 (62%).  The 200-day MA comes in near 1.4055.

Taiwan:  USD/TWD has retraced about a quarter of the post-election drop.  Using the January-May drop, the major retracement objectives come in near 30.89 (38%), 31.19 (50%), and 31.49 (62%).  The 200-day MA comes in near 31.04.

Thailand:  USD/THB has barely retraced any of the post-election drop.  Using the December-June drop, the major retracement objectives come in near 34.69 (38%), 34.96 (50%), and 35.23 (62%).  The 200-day MA comes in near 34.92.