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KOREA: USDKRW is down 0.2% on the day after reversing earlier gains to remain
within its sideways trading range, last at 1123.85.
- The won's real effective exchange rate has dropped to 12 month lows after
losing over 2% ytd. We remain fundamentally bearish but see potential for a
short term bounce in trade weighted terms and vs the dollar. The continued
decline in implied vol, risk reversals, and CDS spreads which are all suggesting
that recent USDKRW upside is not supported by broader risk concerns.
- The main risk comes from renewed global equity weakness which could put
downside pressure on the won via yen crosses, with KRWJPY looking to hold above
its 21-dma to keep the uptrend alive.
- Korean swap rates have come under further downside pressure today with the
curve becoming even further inverted at the short end as rate cut expectations
rise. The space is benefitting from yesterday's comments by Finance Minister
Hong Nam-ki that he expects weak employment data in January.
- The 10 year bond future is up 33 ticks as the technical outlook improves and a
bull flag targets the Dec highs at 128.