#usdkrw

The USDKRW has completed a complex corrective pattern at support levels. We expect the USDKRW to rally well past the highs of 1244.30 on the weekly chart below. 

미국 달러환율 전망 2017년 9.4 – 9.9 주간환율 전망입니다.

미국 달러환율 전망입니다. 먼저 북한 핵실험 관련 뉴스입니다. 로이터통신 Reuters 에 따르면 문재인 대통령과 아베 총리는 북한에 대한 강력한 유엔제재를 촉구하는데 의견을 같이 했습니다. “양국 정상은 한미일간 긴밀하게 공조하기로 합의하고 북한에 대하여 가장 강력한 제재와 압력이 있어야 한다는데 이해를 공유했습니다.”라고 청와대 박수현 대변인은 미디어 브리핑에서 말했습니다. “강력한 제재의 목적은 북한을 대화로 이끌어내는 것”이라고 그는 덧붙였습니다. 북한이 지난 일요일 6번째로 핵실험을 실시함에 따라 한반도의 지정학적 위험이 높아지면서 미국 달러환율 USDKRW 은 강한 상승세로 한주를 시작하고 있습니다. 현재 미국 달러환율은 지난주에 비해 10원 가까이 오른 1131원에 거래가 형성되고 있습니다.…

Going long the US dollar vs the Korean Won is a compelling trade idea. The US dollar has been in a long basing pattern against the Korean Won and we believe that this foreign currency cross will offer macro traders a phenomenal risk reward potential. 

Our trade idea is based on the premise of the Elliott Wave pattern in the FX pair. In the charts below we will display the Elliott Wave counts we see on USDKRW on a monthly, weekly and daily chart. The monthly chart suggest we have just completed Wave 2 of a Wave (3) pattern.

From the lows of July 2014 we saw an impulse move higher to highs made in March 2016, and then a corrective move lower to September 2016. The weekly chart below breaks down the labeling of this move in further detail.

We have labeled in further detail the impulse from from Sep8th 2016 to December 29th 2016 before the corrective move to February 28th 2017 on a daily chart.

As the Greco-Chinese drama unfolds in its ebbs and flows, strategic clarity is paramount. First, let’s separate opinions from facts.

It is still completely unknown whether there will be any material economic fallout from the Greece crisis (see my post from June 28th http://alexgurevich.tumblr.com/post/122713740067/greece-and-china-crisis-doesnt-happen-on).

It is safe to assume that there will be a global deflationary shock wave resulting from Chinese stock market crash and trading freeze-up. Hard to imagine recent events to have no effect on consumption and investment. Recent fall in commodity prices is an example.

In this post I will go over a few world currencies and their connection to the recent events.

USA:

Facts: US job market appears to be steadily improving. The Fed exited the QE program and is contemplating a timeline for tightening.

Opinions widely differ and how well the economy is actually doing and whether there is any imminent inflation threat.

Currency: Long dollar continues to be the theme as it is favored by the policy divergence and spiraling pressure on the Emerging Market and falling commodity prices.

Euroland:

Facts: The economic performance appears improving, but there is no immediate threat of inflation. Greek crisis postpones any possibility of slowing down the QE.

Opinions differ on the full outcome and impact of the Greek debacle.

Currency: Short EURUSD remains my core position. The QE is in progress regardless of the Greek outcome. And any rebound in the Eurozone economy is not necessarily currency positive as I’ve written on May 3, 2015. http://alexgurevich.tumblr.com/post/118071999752/eurozone-economy-bull-currency-bear 

China:

Facts: The economy has slowed down from its earlier tremendous pace and needs to work out some imbalances. The stock market is going through a massive correction and extreme volatility.

Opinions differ on how sound the overall economy is and on the necessity of the RMB devaluation.

Currency: Outright and options bets may offer a positive risk-reward as the potential for significant devaluation appeares underpriced. But there is no certainty of success and high likelihood of getting the timing wrong. Betting on the currency requires a strong China view.

Japan:

Facts: The inflation target is still not achieved and the economy is still struggling to accelerate. The QE is in progress and current government and central bank are extremely committed to achieving their inflation targets.

Opinions differ about the country’s economic future.

Currency: As short-term panic typically cause a flight to JPY as one of the “safe haven” currencies, I see any dips in USDJPY as an opportunity to build long USDJPY position. Indeed, Chinese slowdown is deflationary, and of all the central banks BOJ has the prime political mandate and tools to fight deflation. So the market’s tendency to strengthen the yen during stock market dips is completely counter-economic and a good entry opportunity.  

Australia:

Facts: The economy is experiencing headwind from the China slowdown and falling commodity prices.

Opinions differ on whether the currency has reached an attractive valuation after the recent plunge.

Currency: Any bets the AUD have a strong component of expressing opinion on Chinese economic growth.

Emerging market:

Facts: Producer countries are suffering from falling commodity prices. The broad dollar strength is putting pressure on all dollar-funded carry trades.

Opinions differ on whether countries like Brazil or Turkey now represent value.

Currency strategy: I believe caution is still in order when investing in EM as the trend is abysmal, but if your portfolio is overall crisis resistant, some bottom-fishing may be in order.

South Korea:

Facts: Japanese currency weakness and Chinese slowdown are both deflationary for their neighbor.

Opinions differ of the overall economic health and debt problems.

Currency: I think KRW is on one-way train and this train is not going North. The current environment seems to offer very low chance of significant KRW appreciation. I am in favor of long USDKRW.

To summarize: long dollar vs. USD, JPY, and KRW seems to be a good risk-reward proposition regardless of the crisis outcome.

Image: “Money changer” by calamur