EM Rundown: Four EM FX Hotspots This Week

Heading into this week, there are four global hotspots and four associated currency pairs to watch for EM FX traders to keep an eye on:

1) USDRUB: Moody’s Downgrade Adds to Ruble’s Woes

In last week’s EM Rundown, we discussed three reasons the ruble rout had resumed: plummeting oil prices, Western economic sanctions and ongoing capital outflows. This week, ruble traders can add a fourth bearish catalyst, a sovereign credit downgrade. Over the weekend, Moody’s rating agency downgraded Russia to Baa2, keeping a negative outlook on the rating. The Baa2 rating is just two tiers above a junk rating that could force further selling of Russian assets if breached.

As a result of the credit downgrade, the ruble is under pressure again today, with USDRUB pressing the 41.00 level as we go to press. Meanwhile, the secondary indicators are also bullish, with the MACD trending higher above both its signal line and the “0” level, while the RSI indicator continues to oscillate around overbought territory. As we noted last week, as long as the pair remains above its accelerated bullish trend line and key psychological support at 40.00, higher prices will be favored in the near term.

Source: FOREX.com

2) USDCNH: Monthly Data Dump Looms

China’s regular quarterly data dump hits in less than 12 hours, and this quarter’s data is even more highly-anticipated than usual. China’s GDP is expected to drop to just 7.2% q/y, which would represent a 5-year low in the measure. As my colleagues Neal Gilbert and Chris Tedder have already noted, this release could drive volatility in Australian dollar, but it could also impact the USDCNH exchange rate (not shown), which is pressing against key support at 6.13 as we go to press. If that support level breaks, further weakness toward the 61.8% Fibonacci retracement of the H1 rally at 6.1125 could be in the cards next.

3) USDTRY: Monetary Policy Decision Unlikely to Shake Things Up

Across the Black Sea, USDTRY traders will be keeping a close eye on the monetary policy decision from the Central Bank of the Republic of Turkey (CBRT). Analysts are near-unanimous in expecting no change to Turkey’s convoluted interest rates, but there is always the risk of surprise change, not to mention the risk of the geopolitical tensions with ISIS in neighboring Syria boiling over into a more formal conflict. As we go to press, USDTRY (not shown) is testing support at 2.2450, the 38.2% Fibonacci retracement of its September rally. If this floor falls, a more sustained drop toward 2.21, the 61.8% Fib retracement and 50-day MA, is possible by next week.

4) USDZAR: Falling Inflation Expectations Could Cause Bounce off 11.00 Support

Finally, South Africa will also see the release of two key economic reports on Wednesday. September’s CPI reading is expected to dip back down to 6.1% yoy, from 6.4% last month, while traders will also get insight into the government’s mid-term budge, which is expected to show lower growth forecasts and higher deficit projections.

This potentially downbeat data could provide a boost for USDZAR, which is currently testing key psychological support at 11.00. If rates manage to bounce from the floor, a move back toward last week’s highs above 11.30 is favored; on the other hand, a break below that support level could expose previous-resistance-turned-support at 10.80 next, especially with the MACD indicator trending downward below its signal line.