Rally in EM FX/local markets probably has obstacles to be sustained

In EM FX/local markets there are obstacles to a sustained rally and see the recent position adjustment/technical rally in EM currencies as providing fresh opportunities to reinstate short positions. 

"The USD is expected to rally broadly over the coming months, which will act as a strong headwind to EM currencies while the prospects of Fed rate hikes and a narrow DM-EM growth gap will likely continue to spur capital outflows from EM", says Barclays. 

Meanwhile, China growth concerns are not expected to dissipate quickly and look for further RMB depreciation. In this respect, next week's China September trade data is unlikely to provide good news as both exports and imports are set to deteriorate further. 

"Long 6m USD/CNH forward is our recommendation. Also, long USD/SGD 1m RKO options recommendation to position for risks around next week's Singapore MAS policy meeting, and long USD/KRW 6m NDF, which will benefit from a likely rate cut from the BoK next week. The rally in local rates in Korea seems overdone, creating a tactical opportunity to pay rate", added Barclays.