USDKRW continues to form a base,.........>

KOREAN WON: USDKRW continues to form a base, breaking above 1080 today to trade

at 1,082 currently. 1,100 marks the next significant level of resistance, which

corresponds to the current 200DMA.

- Despite recent won weakness, the currency remains ~8% overvalued relative to

risk-adjusted real interest rates as U.S. 2-year yields are rising at a much

faster pace than Korean rates.

- Not only is the won at risk from widening real interest rate differentials,

but it also faces the risk of a rise in default risk from current extreme low

levels. The 5-year CDS is currently just 43bps which is close to record lows.

This has helped keep interest in the currency buoyed, but any rise in global

risk aversion could trigger a spike in default risk, sending the won

significantly weaker.

- Furthermore, even as the won has weakened over recent weeks vs the greenback,

it has actually strengthened on a trade-weighted basis due to the broad-based

weakness seen across Asian FX and the euro.