As we’ve consistently been urging for bullish streaks of USDKRW contemplating various fundamental factors, the pair has shown a recent high of 1187 levels.

For now, we would still maintain a bearish stance on account of below fundamental factors.

The currency is exposed to a weaker equity market in the short term, which is likely to drive offshore outflows.

Over the medium term, the market will be concerned about the new US administration’s trade policies and what that means for regional trade dynamics.

This can easily see more risk premium built into the USDKRW outlook, in our view.

Korean authorities did note that they were closely monitoring KRW FX volatility, which is likely to stem the pace of USD/KRW appreciation but is unlikely to change the trend move higher in the pair.

In addition, the added uncertainty on corporate earnings has the potential to slowdown equity inflows from offshore investors. As a result, we come up with the more conducive hedging vehicles as to keep any USDKRW FX exposures on the check.

So, USDKRW longs are encouraged at 1186.43 via 2m NDFs ahead of Fed’s rate hiking speculations.

Alternatively, one can also look in for buying USDKRW 1m/2W call spread with strikes of 1,154-1,209 for a net debit, this position to address puzzling swings on both barriers.

Call spreads are preferred to vanilla structures given elevated skew and favorable cost reduction.

The net delta of the position should be around 66 (1,154 strike = 72 delta) and selling the far leg (OTM strikes) likely to reduce the cost of the ITM call by almost close to 40%.

Favor optionality to directional trades. We are inclined to position for a partial retracement of the down move through call spreads, as calling the bottom is difficult and adding directional spot exposure is risky at the moment.