The Next Big Move In AsiaFX Depends On The US Dollar Not The Region
Axi | Nov 16, 2016 15:12
Originally published by AxiTrader h2 Quick Summary/h2
The last week hasn't been kind to Asian forex with the regions currencies coming under pressure as traders price both economically negative policies and a divergence in central bank policies into a stronger US dollar and weaker Asia forex.
That seen the Yuan hit an 8 year low, the Malaysian Ringgit get hammered, and weakness across the entire spectrum of regional currencies. The big question now as the US dollar index faces the hurdle of a double top and 5 year highs is whether or not it's time for a puse in Asian forex, especially Yuan weakness, or whether the show has just begun.
h2 What You Need To Know/h2When even the Korean Won looks like it is trying to rally despite the enduring troubles that president Park Geun-hye is still under extreme pressure to resign you have to wonder if maybe the worst is over for this latest run of Asian currency selling.
And that's the tentative sign when I look at the USD/KRW rate or many other AsiaFX pairs including the Taiwan dollar, Hong Kong dollar, Singapore dollar, Thai baht, and even the Indonesian Rupiah. The only pairs that still look pressure are the Malaysian Ringgit and the Chinese Yuan - although the CNY/CNH might be turning.
Now of course these are purely technical views based on the last couple of days price action.
Yet I can't help but agree with Blackrock (NYSE:BLK)'s chief investment officer Rick Reider who told the Reuters Global Investment Summit earlier this week that his firm thinks "emerging markets is going to represent a great opportunity going into next year".
Naturally the current focus of Asian traders has been the potential punitive trade and tariff policies president-elect Trump may enact as well as the rise in bond rates which has already seen funds flow out of the region.
But as the chart of the US dollar index and the Chinese official Yaun rate (CNY) shows this move in Asia is more about the US dollar than it is about Asia.
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If I throw in the Korean Won or other Asian currencies the chart, to various degrees, looks very similar across the currencies of the region.
So it's not exactly an Asia, or China, or other nation question at all. In a macro sense it's about the US dollar. Which means again that with the US dollar index up near 5 year highs it is about trader and investor attitudes toward Donald Trump, and his presidency and the impact this has on growth, bonds and the Fed.
All of these can cause genuine and enduring capital flow impacts that few central banks in the region could, or should, try to do anything about. As Australia's RBA often says when it's about the US dollar it's about the US dollar.
So here's the key to AsiaFX in the days ahead - if the US dollar breaks the upside of this 5 year double top AsiaFX will come under acute pressure. Likewise if US 10's breach 2.30 again it could be on for young and old.
For the moment though as traders wonder if the bulls have the gumption to take the US dollar to the next level the pressure is of AsiaFX.
Have a great day's trading
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