FxWirePro: Outright trades for resilient EMFX basket ahead of yet another FED hike

The US dollar firmed slightly and US bond yields are slightly higher. Markets weren’t too rattled by either Comey’s testimony or the ECB decision.

After the recent volatility, the CNH market should calm down while the news of China buying Treasuries is overrated for the RMB.

Fed fund futures yields continued to price a 14 June rate hike as almost a 100% chance. But a Fed rate hike is unlikely to disturb EM sentiment unless a hawkish message causes a significant re-pricing of the terminal Fed Funds rate.

Politics affected LATAM assets last week and in Brazil the negative tone on FX rates and rates could gather further momentum.

Monetary policy meetings in Russia and Turkey have the greatest potential to move markets while in Indonesia and Chile central bank decisions should prove to be uninteresting.

We revise our CNY, MXN, and ZAR forecasts stronger.

In Qatar, the large stockpile of assets in reserves and the sovereign wealth fund should be able to easily mitigate depreciation pressures, making devaluation a very unlikely scenario.

We recommend the following trades:

Short USDCLP for 1st targets at 655.30 and 2nd target upto 635.90 levels, keep strict loss at 679.39 levels.

Short USDTHB, targets at 33.50 with stop loss at 34.23 levels.

Add longs in USDNOK for targets upto 8.68 levels with strict stop loss at 8.4230

Shorting that risk premium via -6w/+3M calendar spreads and AUD-CNH 2M vol spreads.

Stay long ILS vs a 50:50 EURUSD basket. Stay long TRYZAR and short EURCZK The fundamental and policy-induced downtrend in EURCZK is becoming increasingly well-established and overshadowing concerns about the weight of short positioning which hampered CZK in the immediate aftermath of the de-peg. We see another 1% or so potential in EURCZK relative to our 1Y forecasts.