26 May 2015
EM space hurt by USD strength – BBH
FXStreet (Edinburgh) - The research team at BBH reviewed the impact of the stronger dollar on the EM FX.
Key Quotes
“Given what we see as the resumption in the ongoing long-term bullish USD move, we thought it would be a good idea to again take a step back to see how EM FX has performed after the recent price action”.
“The short-term time-frame we use for most of the currencies is with respect to the bounce in EM FX that started in March (there are some exceptions that we note). Most EM currencies have retraced a large portion of that corrective move, setting up tests of the mid-March dollar highs and beyond”.
“We see the major drivers for ongoing EM weakness remaining intact: 1) after an extended correction, the dollar has resumed appreciating against the majors; 2) global growth remains weak; 3) commodity prices remain soft; and 4) the Fed is on track to start its tightening cycle”.
“Given this backdrop, we retain a defensive posture with regards to EM and would recommend investors remain selective. We expect further volatility and weakness ahead for most of EM FX, and so dedicated EM investors should look for relative value opportunities. In general, we continue to favor Asia, with EMEA next and Latin America last”.
Key Quotes
“Given what we see as the resumption in the ongoing long-term bullish USD move, we thought it would be a good idea to again take a step back to see how EM FX has performed after the recent price action”.
“The short-term time-frame we use for most of the currencies is with respect to the bounce in EM FX that started in March (there are some exceptions that we note). Most EM currencies have retraced a large portion of that corrective move, setting up tests of the mid-March dollar highs and beyond”.
“We see the major drivers for ongoing EM weakness remaining intact: 1) after an extended correction, the dollar has resumed appreciating against the majors; 2) global growth remains weak; 3) commodity prices remain soft; and 4) the Fed is on track to start its tightening cycle”.
“Given this backdrop, we retain a defensive posture with regards to EM and would recommend investors remain selective. We expect further volatility and weakness ahead for most of EM FX, and so dedicated EM investors should look for relative value opportunities. In general, we continue to favor Asia, with EMEA next and Latin America last”.