FXStreet (Guatemala) – Analysts at Brown Brothers Harriman explained that given the volatile price action seen this quarter in EM currencies, we thought it would be a good idea to again take a step back to see how EM FX has performed in the bigger picture.
Key Quotes:
“EM FX gained some temporary traction in early Q4, when soft US data pushed back Fed lift-off expectations.
Well, that early Q4 bounce in EM has ended, and we believe the market has returned to the medium-term bear trend. The point of this piece is to identify some potential retracement objectives for the main EM currencies from that bounce, as well as some longer-term targets.
Over the medium-term, we still retain a defensive posture with regards to EM and would recommend investors remain selective (see our recent EM FX Model Update). We expect further volatility and weakness ahead for most of EM FX, and so dedicated EM investors should look for relative value opportunities as well as opportunities to hedge. Divergences within EM will continue to be seen, with sliding commodities contributing to this divergence. In general, we continue to favor Asia, with EMEA next and Latin America last.
Latin America
Brazil: USD/BRL has yet to retrace much of the Q4 drop. Retracement objectives from that September-November drop come in near 3.9050 (38%), 3.97 (50%), and 4.0360 (62%). Break above 4.0360 would suggest a test of the all-time high near 4.25 from September.
Chile: USD/CLP has fully retraced the Q4 drop and made a new high for this cycle in November near 717.50, the highest since 2003. From a longer-term perspective, charts point to a test of the all-time high near 760 from October 2002.
Colombia: USD/COP has fully retraced the Q4 drop and made a new all-time high this month around 3328. From a longer-term perspective, there is an upward sloping channel on the weekly charts dating back to 2013. Top of that channel comes in around 3450, but it’s a pretty steep channel.
Mexico: USD/MXN has largely retraced the Q4 drop. The recent break of the 62% retracement objective from that move near 16.95 suggests a test of the all-time high near 17.34 from September. From a longer-term perspective, there is an upward sloping channel on the weekly charts dating back to 2012. Top of that channel comes in around 17.55.
Peru: USD/PEN has fully retraced the Q4 drop and made a new high for this cycle in November near 3.39, the highest since 2006. From a longer-term perspective, charts point to a test of the all-time high near 3.66 from September 2002.”
(Market News Provided by FXstreet)