EM FX Technical Picture

MindMkts Blog ICON-FX TechPicThe EM washout continues.  Higher US rate outlook remains a major factor, while ongoing trade tensions are the other.  Yet this recent price action is simply a continuation of the trend that’s been seen all quarter. 

MSCI EM rallied for much of 2017, with the last leg up from early December until late January.  It peaked at 1279 on January 29.  Since then, it has retraced that entire leg and is trading at levels not seen since last August.  MSCI EM is set to test the August low near 1040 and then the July 7 low near 1002.  Looking further out, the break this week of the 1076 area sets up a test of the April 2017 low near 951.

Similarly, MSCI EM FX rallied for much of 2017, with the last leg up from early December until late March.  It peaked at 1732 on March 27.  Since then, it has retraced that entire leg and is trading at its lowest level since November 22.  MSCI EM FX is set to test the November low near 1620 and then the July 5 low near 1585.  A break of the 1630 area is needed to set up a test of the April 2017 low near 1568.

Nearly every EM currency is down in 2018 except for COP and MYR.  Most EM currencies saw their Q1 gains wiped out in Q2, and then some.  The worst performers are the high beta group ARS, TRY, BRL, ZAR and RUB.  With US rates likely to march higher and trade tensions still ratcheting up, we believe EM FX is likely to remain under pressure in H2.  We simply don’t get the sense that anyone wants to step in front of this freight train now.

Given this outlook, we look at some retracement objectives for individual EM currencies.  In most cases, currencies have already retraced the entire last leg of this rally while a few are holding up relatively better.

Latin America

Argentina:  USD/ARS traded at an all-time high near 28.40 this month.  The pair has fallen back slightly but we expect new highs to be established in H2.  The 200-day MA comes in near 19.8050.

Brazil:  USD/BRL traded at the highest level since March 2016 this month.  The pair should revisit the June high near 3.9660 and is on track to test the January 2016 high near 4.1720.  The 200-day MA comes in near 3.3410.

Chile:  USD/CLP has retraced three quarters of the December-February drop.  Break of the December high near 658 would set up a test of the July high near 668 and then the May 2017 high near 682.  The 200-day MA comes in near 619.

Colombia:  USD/COP has retraced nearly three quarters of the December-April drop.  A break of the December high near 3037 would set up a test of the November high near 3080.  The 200-day MA comes in near 2896.

Mexico:  USD/MXN retraced the entire December-April drop and then traded at its highest level since January 2017.  The pair has since retraced 38% of its April-June rise.  Next major retracement objectives of that rise come in near 19.45 (50%) and 19.09 (62%).  However, we still look for an eventual test of the January 2017 high near 22.0385.  The 200-day MA comes in near 18.98.

Peru:  USD/PEN has retraced nearly two thirds of the December-January drop.  It is on track to test the December high near 3.3075.  Break of 3.30 and 3.32 is needed to set up a test of the January 2017 high near 3.3975.  The 200-day MA comes in near 3.2480. 

EMEA

Czech Republic:  EUR/CZK has retraced the entire December-February drop and is trading at its highest level since October.  The pair is on track to test the September high near 26.163.  Break of the 26.0 area would set up a test of the late May 2017 high near 26.54.  The 200-day MA comes in near 25.568.

Hungary:  EUR/HUF has retraced the entire December-January drop and is trading at its highest level since January 2015.  The pair is on track to test that all-time high near 328.  The 200-day MA comes in near 313.

Poland:  EUR/PLN has retraced the entire December-January drop and is trading at its highest level since March 2017.  Break above the 4.3625 area would target the December 2016 high near 4.5065.  The 200-day MA comes in near 4.2250.

Israel:  USD/ILS has retraced the entire November-January drop and is trading at its highest level since April 2017.  The pair is on track to test that April high near 3.6855.  Break of 3.6925 would target the November 2016 high near 3.8860.  The 200-day MA comes in near 3.5145.

Russia:  USD/RUB has retraced two thirds of the April drop.  The pair is on track to test the April 11 high near 65.045.  Break of that level would target the November 2016 high near 66.87 and then the August 2016 high near 67.45.  The 200-day MA comes in near 59.0.

South Africa:  USD/ZAR has retraced nearly two thirds of the November-February drop.  The pair is on track to test that November high near 14.5740 and then the September 2016 high near 14.7525.  The 200-day MA comes in near 12.76.

Turkey:  USD/TRY has retraced the entire November-January drop and went on to make an all-time high near 4.9255 last month.  The pair gave back about half of the April-May rise, and we think the pair will eventually test that May high.  The 200-day MA comes in near 3.97.  

Asia

China:  USD/CNY has retraced nearly the entire November-March drop.  The break of the November high near 6.6515 would set up a test of the July high near 6.8070.  The 200-day MA comes in near 6.4625.

Hong Kong:  The USD/HKD peg at 7.80 will remain in place for the foreseeable future, as will the 7.75-7.85 trading band.  The pair has been bumping up against the top of that band since April.  It remains near 7.85 and the HKMA will continue intervening as needed to protect the band.

India:  USD/INR has retraced the entire November-January drop and is trading near its highest level since February 2017.  The pair is on track to test the November 2016 all-time high near 68.8625.  The 200-day MA comes in near 65.2460.

Indonesia:  USD/IDR has retraced the entire December-January drop and is trading at its highest level since October 2015.  The pair is on track to test the September 2015 high near 14828.  The 200-day MA comes in near 13627.

Korea:  USD/KRW has retraced the entire December-April drop and is trading at its highest level since November.  The pair is on track to test the October high near 1150 and then the July high near 1158.  The 200-day MA comes in near 1089.

Malaysia:  USD/MYR has retraced nearly three quarters of the December-April drop.  The pair is on track to test the December high near 4.0920.  The next major retracement objectives from the November-April drop come in near 4.05 (50%) and 4.10 (62%), break of which would set up a test of the November high near 4.2435.  The 200-day MA comes in near 4.0340.

Philippines:  USD/PHP has retraced the entire October-January drop and is trading at its highest level since 2006.  The pair is now testing the June 2006 high near 53.65 and should move on to test the July 2005 high near 56.48.  This is also around the all-time high of 56.50 from February 2004.  The 200-day MA comes in near 51.57.

Singapore:  USD/SGD has retraced nearly the entire December-January drop and is trading at its highest level since mid-November.  The pair is on track to test the October high near 1.3715 and then the June 2017 high near 1.3915 and May 2017 high near 1.4130.  The 200-day MA comes in near 1.3360.

Taiwan:  USD/TWD has retraced the entire December-February drop and is trading at its highest level since October.  The pair is on track to test the July 2017 high near 30.643 and then the March 2017 high near 31.143.  The 200-day MA comes in near 29.737.

Thailand:  USD/THB has retraced the entire December-March drop and is trading at its highest level since November.  The pair is on track to test the October high near 33.545.  Clean break of the 33 level would set up a test of the July high near 34.208.  After that is the May 2017 high near 34.83.  The 200-day MA comes in near 32.17.