Forex Investment and Currency Trading

Korea cuts 100bp, KRW surges. The Asian FX rally picked up pace during the session, this time not relying on a large equity bounce for fuel. Rather, positioning seems to be the driver as long USD/Asia trades are unwound ahead of year end. USD/SGD sank from above 1.5000 in early Singapore to below 1.4920 while USD/INR slid about 0.8% at the Mumbai open. The Korean won did have some domestic fuel, as the Kospi out-performed (+1.7%) in the wake of the Bank of Korea’s larger than expected 100bp base rate cut, to 3%. USD/KRW sat about 3.5% lower in afternoon [...]

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Spot 2.4930 represents the 38.2% retracement of the Oct 2002 to Aug 2008 bear market range of 4.0 to 1.5600. Levels have been bumping up against this resistance at 2.49-2.50 since early October 2008. If 2.50 does not hold, next target will be 2.78 to 2.80, the 50% retrace of the full range and support during the April 2003-April 2004 consolidation. The sharpness of the move yesterday suggests some scope for overshooting. So we could see some near-term consolidation. That said the data out of Brazil this week was particularly negative with - soft November PMI and bank lending/credit data [...]

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FX outlook: Recognizing that the strength of BRL in the face of current account balance deterioration was sustained by capital flows, the reduction in the pace of accumulation of FX reserves by the Brazilian central bank (BCB) was an indication of an impending change in the overall balance of payments situation and direction in USD/BRL. FDI remains strong, but contrary to common perception, it has not been the major source of inflows in the last couple of years. Foreign flows have been dominated by equity and debt flows. In this context, the significant reduction in portfolio inflows in the last [...]

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Spot USD/CNY has largely traded sideways and is likely to stay within a 6.80-6.85 range in the near term. The announcement of the CNY4 trillion fiscal stimulus helped to stabilize local equity markets briefly. The Shanghai Composite Index rose 8.3% within a few trading days after the stimulus package announcement on November 9 but has since surrendered some of its gains as risk aversion re-emerged and recession fears spread throughout Asian nations. After the slew of weak October macro data, Chinese authorities stepped up on their initiatives to support export growth. The Ministry of Finance announced more export boosting measures, [...]

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