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Emerging Markets - Forex Analysis  Month of October

October 25, 2017

A negative September for emerging currencies that lost 3% against the Dollar from the peak of the ninth month of the year.

The situation fits quite well in the strengthening context of the dollar and in the rise of interest rates that characterized the month of September.

The prospect of a new increase in the cost of money in US in December could still offset the outlook for emerging currencies in November with a technical break that seems to be going on the general index Jpm FX Emerging Local Currency. The ECB meeting of October 26th could be a market mover to be monitored carefully to see which way the emerging currencies will take in the last part of 2017.

Let's now go into details with the major emerging exchange rates.



As we expected in September, the rebound of UsdMxn was quite full reaching even beyond the 200-day moving average and close to the 38.2% of retracement of the fall started in 2017. UsdMxn reaction on these resistances has been comforting with a weekly doji figure that seems to corroborate the idea that a first stop in the Mexican Pesos sales should have been fixed. UsdMxn has not yet reached the weekly  overbought and this does not rule out a new attack on the resistance before a definite downtrend inversion. The feeling is that the market has sold the Pesos fearing that Trump's new tax reform will penalize the Mexican companies because of the return of capitals and investments in the US.




The rise of UsdZar resumes with the confirmation of the bullish break of the trend line that joined the decreasing tops. The South African Rand has been unable to return to the benchmark couple of moving averages. At this point, it is not unlikely to think of a UsdZar upward restart that could extend up to area 14.50. The election of the new leader of the majority party is approaching and despite the good performance of precious metals in recent weeks, the pressure on the South African currency is still high.




Strong pressures on the Turkish Lira with a heavy sell off started in September and struggling to return. Overcoming the resistance of 3.60 / 3.65 has fueled a firm upward that is partially re-entered. The problem is linked to the exchange rate that has made the most classic return move without going further. At this point, we do not rule out a short-term phase before a new upward movement that should reach the highest historic levels.

Political issues are always in the background and are still penalizing the Lira.




After the violent fall that began in 2017, UsdCny is trying to react. In area 6.70, the exchange has experimented a first stop, but now the second upward movement might come to bring UsdCny between 6.78 and 6.81, a long-term averages transit zone.

The view is still bearish and unfavourable to UsdCny with this rebound that should offer a good chance of entry behind the resistances mentioned above. 

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