USDZAR: 4/6% Setback Before the Resume of the Longer Term Rise

Emerging Markets Cross-Asset Strategist, Emvest Partners

Guillaume Coutant

Emerging Markets Cross-Asset Strategist

Cross-Asset Emerging Markets Technical Research

Emvest Partners

Emvest Partners is the leading independent French financial analyst specializing in Emerging Markets for  Asset Managers, Hedge Funds and Family Offices. The studies provided by Emvest Partners are based on a top-down, cross-asset and relative-value approach of the financial markets. The articulation of macroeconomic analysis and technical analysis improves the consistency of the recommendations, the mitigation of risks of error and a significant improvement in performance.

Thematic (Sector/Industry)

South africa / Thematic (Sector/Industry)

SYNTHESIS<h2>1.     ZAR depreciation with a higher volatility:</h2><ul><li>EURZAR expected to rise since the start of the combined bullish trend EUR / bearish trend ZAR in March 2017.</li><li><a href="https://www.smartkarma.com/entities/24169" target="_blank" data-smartkarma-citation="entities:24169:1">Zar (USDZAR CURNCY)</a> bullish acceleration since September 2017 is not over, and its 1-month volatility shows signs of a new 50% pick-up.</li></ul><h2>2.     ZAR relative underperformance against EM peers:</h2><ul><li><a href="https://www.smartkarma.com/entities/22832" target="_blank" data-smartkarma-citation="entities:22832:1">INR (USDINR CURNCY)</a><a href="https://www.smartkarma.com/entities/24169" target="_blank" data-smartkarma-citation="entities:24169:1">Zar (USDZAR CURNCY)</a> INRZAR reached the target defined in our last analysis (June 2017), and is back on intervention levels. INRZAR has the advantage of a similar behavior than USDZAR.</li><li><a href="https://www.smartkarma.com/entities/24169" target="_blank" data-smartkarma-citation="entities:24169:1">Zar (USDZAR CURNCY)</a><a href="https://www.smartkarma.com/entities/22833" target="_blank" data-smartkarma-citation="entities:22833:1">RUB (USDRUB CURNCY)</a> ZARRUB outlook advocates for a new and significant ZAR underperformance.</li></ul><h2>3.     Bearish flattening expected on the ZAR swap curve:</h2><ul><li>As a whole, ZAR swaps are expected to be paid.</li><li>The flattening outlook of the curve leads to highlight the 5y outright swap towards higher levels.</li></ul> RECOMMANDATIONTIME HORIZON: 3 &amp; 6 months                     CONVICTION:  excellent<ul><li>EURZAR 16% rise</li><li>ZARRUB 13% drop</li><li>Payer on SASW5</li></ul> TRADE : long EURZAR <table class="table table-striped"><tbody><tr><td></td><td></td><td>entry</td><td>16.00</td></tr><tr><td>Minimum target</td><td>17.00</td><td> </td><td>6%</td></tr><tr><td>Standard target</td><td>18.50</td><td> </td><td>16%</td></tr><tr><td>Stop (2 daily close)</td><td>15.60</td><td> </td><td>3%</td></tr><tr><td>Risk/Reward min target</td><td></td><td> </td><td>2.50</td></tr><tr><td>Risk/Reward standard target</td><td></td><td> </td><td>6.25</td></tr></tbody></table>

SYNTHESIS1.     ZAR depreciation with a higher volatility:EURZAR expected to rise since the start of the combined bullish trend EUR / bearish trend ZAR in March 2017.Zar (USDZAR CURNCY) bullish acceleration since September 2017 is not over, and its 1-month volatility shows signs of a new 50% pick-up.2.     ZAR relative underperformance against EM peers:INR (USDINR CURNCY)Zar (USDZAR CURNCY) INRZAR reached the target defined in our last analysis (June 2017), and is back on intervention levels. INRZAR has the advantage of a similar behavior than USDZAR.Zar (USDZAR CURNCY)RUB (USDRUB CURNCY) ZARRUB outlook advocates for a new and significant ZAR underperformance.3.     Bearish flattening expected on the ZAR swap curve:As a whole, ZAR swaps are expected to be paid.The flattening outlook of the curve leads to highlight the 5y outright swap towards higher levels. RECOMMANDATIONTIME HORIZON: 3 &amp; 6 months                     CONVICTION:  excellentEURZAR 16% riseZARRUB 13% dropPayer on SASW5 TRADE : long EURZAR entry16.00Minimum target17.00 6%Standard target18.50 16%Stop (2 daily close)15.60 3%Risk/Reward min target 2.50Risk/Reward standard target 6.25

Zar Assets: New Sell-Off