KRW: USD/KRW Dips Sub 1295 Still Supported
Spot USD/KRW opened lower in early trade today, dipping towards 1296, after closing last week just above 1300. We have stabilized now back above 1297, as broader USD sentiment is firmer among the majors. Demand for USD/KRW is evident on moves sub 1295.
- The first 10 days of trade data for July has just printed. Exports rose 4.7% YoY, while imports gained 14.1% in YoY terms. The trade deficit was a wide $5.53bn, but this should improve as the month progresses. Daily average exports were also resilient at 19.7% YoY in the first 10days of the month.
- On the equity front, the lead from tech remains positive for local equities today. The SOX and MSCI IT index finished last week higher. TSMCs better than expected Q2 earnings aided broader sentiment.
- The Kospi is opening a touch firmer in early trade (last +0.30%). To recap, the Kospi ended Friday up 0.7%, the Kosdaq slightly firmer at +1.12%. Offshore investors bought just under $350mn local shares last week, the first positive net weekly inflows since the start of June.
- Looking ahead, the data calendar is second tier with bank lending to households due at some stage this week, while money supply figures print tomorrow.
- Wednesday will be the main focus point with the BoK decision due. At this stage, the consensus is for a 50bps hike (taking the policy rate to 2.25%). 13 out of 17 economists surveyed by Bloomberg expect a 50bps hike.
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Historical bullets
USDCAD TECHS: Cements Short-Term Reversal
- RES 4: 1.3077 High May 16 and the bull trigger
- RES 3: 1.2982 High May 16
- RES 2: 1.2896 High May 18 and a key resistance
- RES 1: 1.2813 High Jun 10
- PRICE: 1.2792 @ 16:01 BST Jun 10
- SUP 1: 1.2518 Low Jun 8
- SUP 2: 1.2459 Low Apr 21
- SUP 3: 1.2403/02 Low Apr 5 and key support / 2.0% 10-dma env
- SUP 4: 1.2387 Low Nov 10. 2021
A sharp rally in USDCAD continued Friday, cementing the short-term reversal. Key near-term support has been defined at 1.2518, the Jun 8 low. An extension higher would signal potential for a climb towards resistance at 1.2896, the May 19 high. For bears, a resumption of weakness and a breach of 1.2518 would again expose 1.2459, Apr 21 low and 1.2403 further out, the Apr 5 low and a key support.
US TSYS: Hot CPI, 2Y Yld Over 3% First Time Since 2008
Rates extend lows after May CPI came out higher than est at 1.0% vs. 0.7% est, unrounded 0.974%, core 0.631%. Heavy short end selling on inflation surge has market expecting Fed to hike US into a recession.
- Notably, 2Y yield surged to 3.0611% - the highest level since 2008, while curves bull flattened after some initial volatility in the long end: 2s10s at 9.858 (-12.786) vs. 9.421 low, 5s10s inverted, flattening -7.273 at -9.761 vs. -10.722 low, while 5s30s slipped to inverted low of -6.661.
- Reaction spurred several dealers to up their rate hikes estimates with Barclays now sees a 75bp Fed hike next week. They have also raised their forecast for the terminal rate by 25bp to 3.00-3.25% in early 2023, implying 150bp of hikes after June's meeting. That's the most aggressive June FOMC hiking call that we are aware of, but markets are pricing in a modest chance of such a surprise (15-20% probability per futures).
- GS upped they're hike forecast to 50bp in June, July and September (from 50bp in Jun/Jul and 25bp in Sep).
US EURODLR OPTIONS: BLOCK, Late put Fly
- 20,000 Sep 96.12/96.50/96.87 put flys, 5.5 ref: 97.055 at 1545:02ET
