Chart Pack: FX Sell-Off May Have Further To Run
Latin American FX has sold off in recent trading, and momentum indicators suggest that further downside could be in store for some of the majors, particularly if we see a weak close today. Although the recent weakness looks like a technical move as equity markets and risk assets globally are looking slightly overbought, it may also be driven by weak economic prints in the region. As such, we will be watching key technical levels of support closely in the coming days for signs that a more significant correction is ahead.realreal
The Chilean peso has weakened substantially in recent weeks to CLP512.64/US$, aided by the ongoing easing cycle by the Banco Central de Chile, which cut the benchmark interest rate by 25 bps to 4.75% on October 17, as well as weak economic data. Retail sales came in at 7.0% year-on-year (y-o-y) in September, which was below survey, and manufacturing contracted by 1.0% y-o-y during the same period. Given the weak flow of data, we continue to forecast another 25 bps worth of interest rate cuts by the year end, which will keep downside pressure on the unit. Given that momentum indicators point to additional weakness, we see potential for the peso to sell off to multi-year trendline support around the CLP518.00/US$ area, a break of which could push the unit to the CLP535.00-540.00/US$ area.
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