Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

In this week’s Alpha Bites, we recommend buying the Korean won (KRW) against the Chinese renminbi (CNY). The won has underperformed partly because of the low carry and FX interventions, with the recent missile test by North Korea and downgrading of the country’s potential growth by the central bank adding to the negative sentiment. Meanwhile, the renminbi is not reflecting the ongoing growth weakness in the country or pricing any risk premium related to the acute sell-off in Chinese equities. With the two currencies trading at extremes, we recommend the KRW against CNY cross in a beta-neutral ratio.

In this week’s Alpha Bites, we recommend buying the Korean won (KRW) against the Chinese renminbi (CNY). The won has underperformed partly because of the low carry and FX interventions, with the recent missile test by North Korea and downgrading of the country’s potential growth by the central bank adding to the negative sentiment. Meanwhile, the renminbi is not reflecting the ongoing growth weakness in the country or pricing any risk premium related to the acute sell-off in Chinese equities. With the two currencies trading at extremes, we recommend the KRW against CNY cross in a beta-neutral ratio.

Alpha Bites: Long Korean Won Vs Short Chinese Renminbi

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

We have been bullish/long the DXY from 89 and more recently from 92 with a target at 94.00-50 and the level to sell the USD and turn short the greenback. Early USD shorts touted in CAD and GBP.US 10yr rise to 1.50% call to support a final USD push into our sell zone. USD will also find a final bid on a secondary pullback in the US equity cycle (EM and Asia FX) in October.We see synergy with yield near 1.50% and a DXY top near 94.DXY bear divergence is maturing into a final drive to the 94+ zone. We want to sell the next USD push/new high.

We have been bullish/long the DXY from 89 and more recently from 92 with a target at 94.00-50 and the level to sell the USD and turn short the greenback. Early USD shorts touted in CAD and GBP.US 10yr rise to 1.50% call to support a final USD push into our sell zone. USD will also find a final bid on a secondary pullback in the US equity cycle (EM and Asia FX) in October.We see synergy with yield near 1.50% and a DXY top near 94.DXY bear divergence is maturing into a final drive to the 94+ zone. We want to sell the next USD push/new high.

As the US dollar has strengthened this month, it has weighed on EM currencies. Several Asian currencies, in particular, have been among the worst performers, adjusted for their respective betas. Among them, Korean won has underperformed on a combination of low carry and FX interventions. The carry should rise as the central bank has started its tightening cycle, but it is likely to be gradual. Moreover, the recent missile test by North Korea and the lowering of the country's potential growth by the central bank have weighed on the currency. Our view is that the currency is now reflecting these risks and should gradually close its gap with the rest of EM.

As the US dollar has strengthened this month, it has weighed on EM currencies. Several Asian currencies, in particular, have been among the worst performers, adjusted for their respective betas. Among them, Korean won has underperformed on a combination of low carry and FX interventions. The carry should rise as the central bank has started its tightening cycle, but it is likely to be gradual. Moreover, the recent missile test by North Korea and the lowering of the country's potential growth by the central bank have weighed on the currency. Our view is that the currency is now reflecting these risks and should gradually close its gap with the rest of EM.

FX Dashboard: Is Korean Won’s Underperformance Overdone?

In our monthly recap note, we provide a performance update for our weekly trade recommendations in currencies and rates. We also discuss the new recommendations as well as those that we closed over the past month. We have made a total of 23 trade recommendations so far, of which 17 are in the money.

In our monthly recap note, we provide a performance update for our weekly trade recommendations in currencies and rates. We also discuss the new recommendations as well as those that we closed over the past month. We have made a total of 23 trade recommendations so far, of which 17 are in the money.

Alpha Bites: Performance Summary of Trade Recommendations – September 2021

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

South Korea

The South Korean won is the official currency of The Republic of Korea (South Korea). 

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KRW (USDKRW CURNCY)

Alpha Bites: Long Korean Won Vs Short Chinese Renminbi

We recommend a beta-neutral Long Korean won/Short Chinese renminbi trade on the back of poor performance of the won while renminbi is not...

Gautam Jain, PhD, CFA

USD DXY 94 Sell Target

We have been bullish/long the DXY from 89 and more recently from 92 with a target at 94.00-50 and the level to sell the USD and turn short the...

Thomas Schroeder

FX Dashboard: Is Korean Won’s Underperformance Overdone?

The Korean won has underperformed on a combination of low carry, FX interventions, and more recently, North Korea's missile test, which should all...

Gautam Jain, PhD, CFA

Alpha Bites: Performance Summary of Trade Recommendations – September 2021

We provide a performance update of all our trade recommendations along with discussing the new trades from last month. We have made a total of 23...

Gautam Jain, PhD, CFA

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

As the volatilities of the US dollar and EM currencies have dropped, we test the hypothesis and conclude that EM FX is in a carry-trade...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)