Korea Q2 GDP (Tue) is expected to improve compared to a year earlier (SG 3.1%, consensus 3.0%, previous 2.8%). The move lower in USDKRW is running into intervention flows and downside technical support and further gains in the won might be hard to come by.

The KRW IRS curve has steepened on mild directionality, but demand for long tenor cash bond will prevent this steepening from gaining momentum. A strong GDP report will further reduce market pricing of easing which is currently at 48% for a BoK cut in the next three months.

Well, for now existing traders can go long in long USD against KRW, holding long in 3m forwards of USDKRW in conjunction with selling a 3m OTM call (around 1225) is appealing given significant skew in the vol smile.

Long USD against a basket of the expected worst performers by region offers low negative carry (1.5% over six months) and provides some diversification benefits to guard against idiosyncratic country events.

All three countries will be hurt by slowing Chinese demand; Korea is particularly vulnerable due to high export exposure,

Selling the upside strike lowers the entry point of being long USDKRW the trade by 1.5%.

If both the spot and option positions are held to expiry, the option position does not entail any risk if USDKRW rises (selling the upside call limits the gain on the trade but any losses are offset by P&L on the spot position) and the risk is unlimited if USDKRW spot declines.