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Andreas Zanin
Analysis | February 11, 2021

Emerging market currencies: 3 exotic pair trade setups

In this post we will look at 3 x exotic currency pairs which are the USD against 3 x emerging market currencies the MXN, ZAR and TRY.

Investors are heavily bullish of the emerging market /exotic currencies and see them going up on the USD in the coming months. The market view can be seen on the survey below conducted by Reuters in terms of the USD generally and specifically against emerging markets:

Emerging market currencies have been strong due to the fact that money has poured into emerging markets due to huge global central bank stimulus and the view, there will be a strong global economic recovery. A strong economic recovery is discounted in our view and central bank stimulus while its been huge is now peaking which can be seen on the chart below from Morgan Stanley.

If we look at the price action despite the bullish view on the global economy, stock markets at near multi-year highs, and commodities firm the USD is above recent lows against the ZAR, MXN and in terms of the TRY we are trading at a big level of support. The Risk reward on buying the USD on strength is good and the key levels of support and resistance in USD/MXN, USD/ZAR and USD/TRY are outlined on the charts below….

Technical Analysis

USD/MXN

In the last 4 days we have seen volatility drop and we have very small candles and a drop in volatility which could indicate that selling is about to exhaust. If the USD moves above nearby resistance we view it as a buy with stop behind nearby support. In terms of targets indicated – first level resistance would correct oversold and the second level could be targeted if we move to risk off. If we fell through nearby support we would view the USD as a buy back through the level with stop behind support at chart lows.

USD/ZAR

The USD its moved down to daily chart lows and we arfe seeing low volatility – If we breakout above nearby double trend line resistance we would expect follow through buying to correct oversold up to first resistance but if we were to see the markets move to risk off we could see follow through to chart highs – A close below 14.50 negates the trade.

USD/TRY

The TRY recently has been the strongest of the emerging market currencies and we have seen the USD fall to trade just above the 7.00 level which is key weekly support. We have seen the volatility drop in the last 4 days and this could indicate an exhaustion of selling. If we breakout above nearby resistance we expect follow through buying up to the 7.500 level to correct oversold.

 

 

Research provided by LearnCurrencyTradingOnline.com

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