KRW was the worst performing Asian currency since the start of November, losing 3.9% against the USD. Broadly, the domestic data over this period has been disappointing.

South Korea recorded a trade surplus of USD 5.3 billion in January of 2016, virtually unchanged from a year earlier and below market expectations of USD 6.68 billion.

Exports fell 18.5% YoY, the biggest decrease since August of 2009. Also, imports went down by 20.1%.

Industrial production growth slowed more than expected in October from 2.8% to 1.5% (cons: 2.2%) and the trend of declining exports has persisted.

Korea has the highest export correlation and lowest export complementarily with Japan and China.

The more timely Business Survey showed renewed decline in both manufacturers' and non-manufacturers' confidence in December, despite KRW underperformance. And while CPI inflation is showing signs of picking up (November: 1.0% headline), it is still some way from reaching the BoK's (new) 2.0% target.

The risk in the short-term is that positioning, proxied by equity flows, has turned very negative over this period. Historically, equity outflows to this extent have foreshadowed a period of consolidation at the very least.

The BoK kept its benchmark rate steady at 1.5% in December for the sixth straight month, as widely expected.

USD/KRW is forecasted at 1250 by Q2 of 2016 and 1320 by end of 2016, EUR/KRW is likely to drift above 1240 by Q2 of 2016 and 1336 by Q4 of 2016.

We anticipate grinding weakness for KRW, USD/KRW risk-reversals screen cheap and are worth buying at the money call of mid month expiry in lieu of NDFs as directional short won plays.