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Risk-off Environment Sends EM FX Down, Leaves Equites Vulnerable

EMERGING MARKETS
  • US Dollar has been surging in today’s trading session amid global risk-off environment as investors’ concern over growth expectations has been rising.
  • DXY index is up sharply against major crosses, currently testing its 96 resistance, which also corresponds to the 50DMA. A break above that level would open the door for a move up to 96.46 (early Jan high).
  • Selling pressure on EM currencies has been elevated, particularly in the CEEMEA and Latam region.
  • ST weakness in EM FX leaves equities vulnerable; MSCI index (MXEF) is currently trading slightly above its 50DMA at 1,237.10, a break below that level would open the door for a move down to 1,200.
  • The combination of both restrictions added over the past two months to limit the downside risk of another wave of infections and the sharp increase in ST rates could continue to weigh significantly on growth expectations in the medium term.

Source: Bloomberg

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