FxWirePro: Cheap valuations available in CEEMEA FX pool

In EM, keep structural long in ILS vs a 50:50 EUR:USD basket and stay short EURCZK. We are bullish the koruna and expect the currency to trend appreciate over the coming months.

Long ILS vs a 50:50 EUR:USD basket for a target of 3.60, and review point of 3.85. Marked at -2.27%.

Elsewhere, RUB valuations now seem to be cheaper, the bias is to go OW post seasonal current account weakness. In terms of EURRUB and USDRUB, we still see extended recovery potential into decisive T junctions in form of internal 38.2 % retracements at 71.681 (EURRUB) and at 65.217 (USDRUB).

At the start of the week TRY benefitted from a low trade balance deficit and better tourist numbers. The rising number of Russian and Asian tourists, in particular, is bringing more money into the country.

The ratio of copper to oil (Chile’s main export to main import) has risen to the highest level seen at least in last five years. The CLP has rallied but has lagged this terms-of-trade improvement, in our view, and is now trading cheap in our short terms valuation models.

In Brazil, we hold our long BRL position as strong fundamentals and no significant news on the politics front justify our bullish stance on the currency.

Stay short EURCZK forward – sold 26.6883 expiry 27 November 2017. Marked at 2.64%

Long CZK positions are supported by strong macroeconomic fundamentals, a forthcoming policy rate hiking cycle (the first policy rate hike of 20bp is expected in 3Q’17) and cheap valuations (JPM’s BEER and FEER models show CZK REER vs EUR as 7% undervalued on average).

JPM’s strategists also maintain our structural longs in CZK cheap valuations, a large current account surplus, and low inflation.