FxWirePro: South Korea disappoints Korean won – Vol spreads to tackle USD/KRW

South Korea reported rather weak GDP numbers this morning, which in my opinion is a wake-up call for the EM bulls. The economy contracted by 0.3% in Q1 2019 on a QoQ basis, missing the market expectations at 0.3% by a large margin. 

This is the worst quarterly growth since the global financial crisis, dragged down by weak investment and trade performance, highlighting the headwinds are intensifying for export-oriented economies that rely on global demand. It appears that the Asian economies have not benefited yet from a perceived China stabilization. 

USDKRW has experienced a very volatile session over the past two weeks, and clearly, today’s GDP numbers are KRW negative. USDKRW is heading towards 1160 this morning, with KRW having deprecated more than 3.5% versus USD year to date. 

We consider a second idea in the Asian vol space, this time aimed at harvesting a positive Carry and to offer some protection in the case that the trade dispute between the US and China were to intensify. We were recommending entering a long 6M USDKRW vol/ short 6M USDTWD vol idea for benefitting from the relative cheapness of KRW vol compared to regional peers. It is SGD vol which catches our attention as a possible laggard in the Asian space, if ever as a cheap hedge for the short-vol leg rather than as a conviction trade for hedging an extended risk-off scenario in the region. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly USD spot index was at 12 (mildly bullish) while articulating at (14:23 GMT). 

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