In terms of today’s update, we are going to look at trading 4 exotic FX pairs which we think offer good risk to reward trading opportunities. We are updating USD/TRY and USD/MXN which we covered in an update last week. We are also looking at two eastern European currencies v the USD the Czech Krona and the Hungarian Forint.
In general terms the USD has been weak due to strong stock markets – the volatility in FX markets and USD pairs now has dropped and we could see the USD mount a short-covering rally. If you are looking to trade the USD long, then the trades that offer the best potential are going to the weaker credits or emerging market currencies.
USD/TRY
The Turkish lira has fallen erasing the gains it made after a central bank rate hike last week. Despite the hike to 15%, the cost of borrowing for banks has changed little since the rates decision it was already at this level before the meeting. The USD has rallied back as expected and could still strengthen further.
Turkey has inflation above 11%, the economy has been severely hit by COVID and will weaken further as high-interest rates hit growth. Finally, President Erdogan’s aggressive foreign policy has dented investor confidence. On the chart below we have seen a big rebound in terms of the USD and expect it to strengthen further.
USD/MXN
The MXN is seen as benefiting from the Joe Biden US election win and also the market view the global economy will see a V-shaped recovery – these factors are now discounted and so long as key support holds on the chart below we would look to buy USD on strength.
USD/ HUF, CZK
The eastern European EU members are heavily reliant on exports and the eurozone economy is slowing. We think EUR/USD will have a correction to the downside and drag the HUF and CZK down with it. If the EUR falls the two euro proxies will fall harder – we think the USD is a buy on strength for a correction of oversold as per the charts below.
USD/TRY DAILY CHART: As expected the 7.500 level held the pullback and we view the USD as a buy on pullbacks to this level – If we breakout above the 20 day MA ( Green Line) and 8.000 level we could see a move back up to chart highs.
USD/MXN DAILY CHART: The USD has sold off down to 20.00 which is a key weekly support level and volatility today is low as we hold above the level. The drop in volatility may be a warning that selling pressure is exhausting – speculators are heavily short and if we break above nearby resistance, we expect a move up to this month’s high at 22.00.
USD/HUF DAILY CHART: After the big sell off earlier in the month we have bounced from support at the 300.00 level – We are trading below resistance and the 20 Day MA. If we breakout to the upside, we expect a move up to 320.00 to correct the USD’s oversold condition.
USD/CZK DAILY CHART: We have sold off to the downside this month and trading just above daily chart lows which if support holds and the USD can move back above yesterday’s high 22.00 level we would expect a short covering rally back up to this month’s highs to correct the USD’s oversold condition.
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