The pullback in USDPHP vols after the presidential elections and favourable risk-reward ahead of trend line support and Fed hiking cycle that likely to induce volatility factor in this pair and offers an attractive entry point to add some tactical long dollar exposure.
Based on year-to-date ranges, long USDPHP offers the most favourable risk-reward within the region. We retain our mildly bearish EM FX thesis and believe that the nascent uptrend since April 20 has scope to remain intact.
Under this scenario, USDPHP should be pulled up by the broader EM FX trend. The de-coupling between USDPHP and EM FX over the past weeks, when the peso moved from 47.60 to 46.50 while USD-EM was moving higher, is highly unusual compared to historical patterns, and with domestic noise in the rear view mirror a re-coupling should occur.
Positioning in USDPHP is neutral based on the off-onshore FX implied yield differential and price action is becoming more stretched on the short dollar side (RSI near 37) trend line support from the 9-month lows comes in around 46.26 in the 1m NDF.
Remittance growth is in the lower end of the historical range, reflecting weak global growth conditions.
GDP growth is strong and the Q1 figures (May 19) are expected to accelerate further, but a robust growth environment is already priced in and with inflation below the BSP’s target, any significant hiccups on the growth front could spark expectations of monetary easing.
Hence, it si advisable to initiate longs in USDPHP NDFs of 1m tenor at spot reference 46.23 for a target at the recent intra-day high of 46.56 and a stop just below the trend-line support at 46.0, the expected time horizon is 1- 2 months and the position entails negative carry of 18bp/month.
The material has been provided by InstaForex Company – www.instaforex.com