Forex - Emerging EMEA Weekly Outlook & Strategy for 14-18 Jan


 16:19 (GMT) 11 Jan

  [Economic Data]

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The EUR/USD is still underpinned by yield spread contraction despite the corrective USD rally Friday afternoon. Nonetheless, weak European growth and Brexit concerns make it difficult to make much progress to the upside near term.

Last week, most EMEA currencies benefitted from dovish comments by Fed policymakers as well as reports of advances in trade talks between the U.S. and China, with the ruble outperforming on higher oil prices. But the lira continued to underperform after comments by senior officials, including President Tayyip Erdogan indicated that the military operation against U.S.-backed Kurdish forces in Syria was imminent. We expect the currency to continue to underperform in the coming week due to the impending military operation as well as the CBRT's statement that will probably prepare markets for policy easing ahead of the local elections on March 31.

Emerging EMEA Weekly Outlook & Strategy for 14-18 Jan (0101-HFRR-C01)

In Hungary, we are forecasting that data on Tuesday will show consumer prices nudging down by 0.2% m/m in December with headline CPI inflation decelerating for the second successive month, to a seven-month low of 2.9% y/y from 3.1% y/y in November, still driven by lower fuel prices.

Emerging EMEA Weekly Outlook & Strategy for 14-18 Jan (0101-HKFK-C01)

As the December CPI inflation reading will probably exceed the consensus forecast of 2.8% y/y, raising expectations of quicker monetary policy normalization, we expect the forint to gain in the coming week with the EUR/HUF potentially breaching the key 320.65 support level.

Emerging EMEA Weekly Outlook & Strategy for 14-18 Jan (0101-HKFK-C02)

In Russia, we see potential for the ruble's further appreciation in the coming week because of the seasonal increase in the current account surplus in January as well as the beginning of the monthly tax payment period on Tuesday that will probably lead to bigger FX sales by exporters, with the USD/RUB possibly breaking the key 66.55 support level.

Emerging EMEA Weekly Outlook & Strategy for 14-18 Jan (0101-HFTH-C01)

In South Africa, we expect the SARB to hold its policy rate at 6.75% at the end of its three-day meeting on Thursday as we think that the Reserve Bank will want to observe the impact of the November hike on consumer spending.

Emerging EMEA Weekly Outlook & Strategy for 14-18 Jan (0101-HKFK-C03)

We think that the rand will be vulnerable in the coming week due to the combination of an unresolved Brexit and an unresolved US government shutdown, with the USD/ZAR potentially exceeding the key 14.00 resistance level.

Emerging EMEA Weekly Outlook & Strategy for 14-18 Jan (0101-HFTR-C01)

In Turkey, we see the CBRT leaving its one-week repo rate at 24.00% on Wednesday but think that it will prepare markets for policy easing ahead of the local elections on March 31.

Emerging EMEA Weekly Outlook & Strategy for 14-18 Jan (0101-HKFK-C04)

We expect the lira to continue to suffer in the coming week, with the USD/TRY possibly surpassing the key 5.6482 resistance level because of the CBRT's dovish statement as well as the impending military operation against U.S.-backed Kurdish forces in Syria.


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