USDKRW has extended recent gains with....>

KOREAN WON: USDKRW has extended recent gains with the pair up another 0.2% today

at 1126.5. Down trendline resistance from the 2016 highs comes in around 1135,

above which would suggest further upside. While USDJPY held up the face of

global equity weakness, KRWJPY is under pressure, testing support at its 21dma. 

- Today's USDKRW upside has been accompanied by a rise in implied volatility

after a period of divergence, leaving the won open to further upside. Korea's 10

year CDS has also seen some renewed upside after recent declines as tightness in

US credit markets resumed yesterday.

- In terms of real yield spreads, falling US real rates have helped spreads move

back in Korea's favour over recent days, reducing some of the fundamental

pressure on the won. However, USDKRW remains below fair value based on the

historical relationship with real yield spreads suggesting medium term upside

risks. 

- Foreign reserves rose to US$405.5bn from US$403.7. Meanwhile Yonhap reported

yesterday that South Korea's finance minister expects weak employment data in

January due mainly to a high base effect amid an economic slowdown.