FxWirePro: More upside potential in USD/KRW amid political havoc – Uphold 3m NDFs with attractive risk-reward profile

Ahead of the South Korean President Park’s impeachment on Monday, FOMC to direct market movements, USDKRW has been turbulent and currently trading around 1,165 levels, the pair has made an intraday peak at 1,168 and low at 1,163 marks. A daily close above 1,168 will drag the parity higher towards key resistances at 1,172, 1,196, and also 1,209 levels (20D EMA).

The South Korean lawmakers began voting on Friday on whether to impeach President Park Geun-hye over an influence-peddling scandal, setting the stage for her to become the country's first elected leader to be pushed out of office in disgrace.

South Korea’s president, Park Geun-hye is confronting the most damaging political crisis of her four-year presidency. At the center of the scandal is her relationship with choi soon sil a close friend of 40 years who is being investigated on suspicion of exerting undue influence on the leader.

We kept reiterating longs in USDKRW, 3m NDF longs in USDKRW at 1168 are still upheld, with a target at 1240 (6% above current levels and aligned with our peak USDKRW forecast in Q1’2017) and a stop at 1144 (-1.9% and slightly below important support levels).

The trade horizon is 3 months (3m NDF selected to reduce roll costs) and carry is close to neutral (-1bp/month).

Risk/reward profile: Dovish Fed, political resolution, Trump U-turn If the Fed undertakes a “dovish” rate hike, domestic data deteriorates or risky assets come under pressure the market could shift to pricing a patient Fed. A shift in Trump’s protectionist and geopolitical rhetoric or improved sentiment over domestic Korean politics could help KRW sentiment.