The Korean won's recent strengthening may be flagging a dramatic turn in investor sentiment.
The Asian country's currency “has been the most preferred expression of deterioration in trade tensions," according to Bank of America Merrill Lynch Global Research — leading it to mirror the obstacles and set-backs the long-running process has encountered. The current boost implies it's now reflecting the more optimistic statements on the progress of the long-awaited trade deal between the U.S and China.
This is because South Korea is heavily dependent on China and its trade is vitally interlinked in the supply chains between the two largest economies in the world. Indeed, year-to-date, the won has depreciated 3.5%. That's almost one-and-a-half times more than the 2.15% gain of the Chinese yuan.
As a result, the reversal of that trend, an appreciating won, suggests that demand — not just for the currency, but also for assets and commerce — is this time putting faith in some real progress in the U.S.-China trade deal.
The USD/KRW pair fell slightly below the long-term uptrend line since April 2, 2018, for the first time. After falling beneath the trend line, it bounced back — revealing the struggle by bull and bear technicians, who pay attention to these market qualities.
A commonly followed technical phenomenon, the 200 DMA was also cleared today, to the bottom, after supply and demand oscillated around it for four sessions.
The next technical test would be the July 1 low, the previous trough, while the preceding uptrend showed no signs of slowing down. A close below 1149 would put another nail in the coffin for the dollar-won uptrend.
Trading Strategies
Conservative traders would wait for two independent peaks and troughs in a downward direction, excluding the Aug. 13 peak and the Sept. 13 trough, which were part of the uptrend.
Moderate traders would wait for the price to close below the July 1 trough.
Aggressive traders may short at will, after preparing a trade plan that dictates an entry and an exit that provide them with a minimum 1:3 risk:reward ratio.
Trade Sample