USDKRW appears to be tracing out a............>

KOREA: USDKRW appears to be tracing out a potential head-and-shoulders

formation, with neckline support coming in at 1115.0, from 1117.1 currently. A

break below here would target a move to 1100.0 in the first instance and then

potentially the gap left at 1086.0.

- Won strength is coming in spite of the widening yield differential between

Korea and the US, with the US-Korea 2-year swap spread now at 94bps amid the

ongoing drop in Korean rate expectations. The Korean 2-year is trading at

three-week lows of 1.9250 as markets price out the prospect of more than one

rate hike by the BOK over the coming years. 

- While the technical outlook for the won looks bullish short-term, supported by

the yuan's recovery, the widening rate gap with the US is fundamentally bearish

and based on historical correlations suggests that USDKRW should be trading ~7%

higher.