The Korean IP edged up, while producers’ destocking continued, while exports went up modestly in October; business surveys mixed. The consumer inflation has gone up slightly further in October.

Since the end of February, the KRW rallied the most in Asia and significantly outperformed the rest of EM with the exception of high-beta commodity producers (COP, RUB and BRL).

However, the speed of the move has been excessive and is currently worth fading.

Consequently, Korean currency has been oscillating between 1160 on north and 1120 on south, although, USDKRW has declined today from the highs of 1141.50, remained well supported at 21-DMAs or at 1133.90 levels on daily terms, the major trend indicates the tug of war between bulls & bear to prevail; we see pivot point as 21EMA.

The decline in USDKRW is similar to the last two corrections (March and October of last year) experienced in the two-year up-cycle.

EM positioning looks stretched based on offshore-onshore FX implied yields, RSI and retracements in implied vol and risk reversals.

Buy USDKRW 1W/2W call spread with strikes of 1,160-1,120 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 (1,160 strike = 34 delta, 1,120 strike = 77 delta) and selling the far leg (OTM strikes) likely to reduce the cost of the ITM call by almost close to 40%.

Favour 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.