Citi Fears The Emerging Market Volatility “May Just Be The Beginning”

Citi Fears The Emerging Market Volatility “May Just Be The Beginning”

Via Citi FX Technicals,

Though Asia Local Markets have been rather calm in comparison to other regions, we still think caution should be maintained

The ADXY Index is testing very good support at 115, the 55 month moving average, and a close below there on a monthly basis would be bearish. If seen, it would also be the first close below the 55 month moving average since 2008.

There is good support closely below there around 113.58-113.68, the 2012 and 2013 lows which also serve as the 76.4% retracement pivots of the 2011-2012 decline

A break below there would further suggest even larger losses are likely, potentially towards the 200 month moving average which is currently at 106.75 (there is support before there at 108.77, the 2010 low,that would be worth keeping an eye on).

It is important to note that 49% of the Index is made up by CNY and HKD. As we are not currently of the bias that these currencies would see significant (if any) depreciation even if the EM sell-off were to become more aggressive in Asia (as a reminder, during the major ADXY collapse in 2008, USDCNY and USDHKD remained essentially unchanged)

As a result, if we were to see a continued bearish development in the ADXY, it would suggest the other currencies in the Index (INR, IDR, KRW, MYR, PHP, SGD, TWD and THB) would see greater weakness then the overall weakness. We will be watching for any developments closely…

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