FxWirePro: Major fundamental drivers to initiate/uphold USD/TWD 3m NDFs

We’ve already advocated initiating or those who hold longs stay firm with conviction in USDTWD 3m NDFs.

Below are the weblinks for our recent write up on USDTWD longs:

http://www.econotimes.com/FxWirePro-Sentiments-shift-lures-USD-TWD-longs-on-attractive-carry-and-China-exposure-313027

http://www.econotimes.com/FxWirePro-Rosy-sides-of-USD-TWD-as-Chinese-growth-to-slowdown-in-H12017--3m-NDFs-stands-out-among-EMFX-461201

http://www.econotimes.com/FxWirePro-Stay-long-in-USD-TWD-as-upswings-breaks-above-200-DMA-on-consistent-trendline-support-461207

We went long ever since Taiwanese currency seemed rate sensitive and Chinese growth turned into negative, the above mentioned articles are the evidences. We still maintain long portfolios in USDTWD 3m NDF at 32.03 with a target at 33.7 (+5.2%) and a stop at 31.4 (-2.0%).

The stop is placed below the 100DMA (31.63) and below trend line support from the September lows. The trade horizon is three months and positive carry is modest (+2bp/month).

We re-enter the position given -

EM currencies should come under further downward pressure through Q1,

Negative forward points offer modest positive carry,

Possibility of heightened risk premium related to US politics (protectionism and geopolitical concerns),

The currency is lagging the move in rate differentials, and

Chinese growth expected to slower even in H1 2017 and ongoing RMB depreciation.

Risk profiling: A reversal in the dollar trend, optimism developing regarding Chinese growth, and diminished RMB depreciation risks.