USD/KRW gapped higher Thursday,.........>

SOUTH KOREA: USD/KRW gapped higher Thursday, finishing at the best levels since

early 2017 in the second consecutive session of sharp underperformance for the

KRW. South Korean GDP was woeful overnight, turning out the worst quarterly

reading since the Global Financial Crisis. The move in USD/KRW also prompted the

usual talk of official intervention in the FX rate - stressed later in the

session by South Korean officials, who stated they will intervene in FX space if

required.

-Options markets have taken note. Following yesterday's spate of USD/KRW call

buying, 1m risk reversals have gained further, and look to trade at levels most

in favour of KRW puts since December last year.

-SocGen overnight noted that the KRW's underperformance of late may be a strong

signal to start establishing more broad-based short EM positions due to the

cyclical nature of the South Korean currency. SocGen eye USD/KRW rising as high

as 1,200 by 2020, with recent weakness reinforcing this view.

-Resistance noted at the March 10 2017 high of KRW 1,162.98.