Emerging Market Currencies On The Edge

Two weeks ago in our online service, we outlined the degree to which emerging markets (EMs) remained vulnerable to rising US yields even after a significant sell-off between May and September. With US 10-year Treasury yields breaking through 2.80%, EM FX is once again under pressure.

Several major emerging market currencies that have tracked USTs are now testing key technical support levels, and in line with our core view, the US dollar continues to move higher on a broad trade-weighted basis. This continued uptrend is particularly notable because the dollar has been weak versus the euro and sterling, signifying that the move higher in the index is largely due to EM FX weakness. In the case of the South African rand, which is set for its worst weekly close since the 2008 global financial crisis, the currency is testing long-term support at ZAR10.45/US$. Elsewhere, the Brazilian real's modest recovery between September and mid-October has proven to be a false dawn, and the unit is now back testing major support in the BRL2.40-2.45/US$ area. Finally, the Turkish lira, which may be the currency upon which we are most bearish on a fundamental basis, has not yet hit new lows, but is testing massive support at TRY2.05/US$.

This Week's Trivia Question

Last week's question was as follows: How many different countries' names are incorporated into the names of stations on the official tube map (i.e. not the map that shows all London railway connections), and what are those countries? The answers are four: Canada (Canada Water), Cyprus, Denmark (Denmark Hill), India (East India and West India Quay). Most of these are in the Docklands area. A further three countries' names are reflected in other stations' names: Caledonian Road (and its nearby overground station at Barnsbury) [Caledonia being the ancient name for Scotland], Holland Park, and Swiss Cottage.

This week's trivia question has the theme of sunken objects. What large object was this week reported to have been discovered off the coast of Hawaii? What sunken object in East Asia is currently claimed by South Korea and China? And where in the world, many thousands of kilometres away, is there an island that shares its name?