South Korean Won: Rally versus sustained USD strength – TD Securities

TD Securities’ Macro Research team, led by Howard Du with contributions from Jayati Bharadwaj and Linda Cheng, analyzes the recent Korean Won rally and its impact on USD/KRW. They argue that despite KRW strength, the broader US Dollar (USD) uptrend against South Korean Won (KRW) remains intact and is likely to persist until a new bearish USD cycle emerges, highlighting key technical levels and intervention risks.

USD/KRW uptrend seen resilient

"KRW is in focus for FX market as it has been the best-performing major currency in July. KRW outperformance is notable in light of rising crude oil price on resurgence of Middle East geopolitical risk and falling equity prices for semiconductor stocks."

"Recent KRW rally has caught the FX market's attention, and we discuss our outlook for USD/KRW. We believe the USD/KRW uptrend should remain in place until a new bearish USD wave forms."

"Despite KRW's recent outperformance, USD/KRW uptrend still remains intact. 1493-1494 in USD/KRW is a key level to watch, in our view, as we estimate this is the level where trend followers would be forced to flip short. For dip buyers who expect the USD uptrend to remain in place, we believe this would be the level to re-engage if spot price continues to hold above it in the next week."

"We believe in the near term the USD uptrend in USD/KRW is more likely to hold than not."

".... sustained USD/KRW downside has only occurred amid broadly weaker USD in recent years. We are currently long USD via USD/CNH forwards, and we expect the broad USD to stay resilient until Fed rate hikes start to get priced out on weaker US data."

"The main risk to our USD/KRW view would be FX intervention from local policymakers to prolong the bearish momentum and push USD/KRW materially lower."