In this write-up, we emphasize on ZAR short vs a 50:50 USD:EUR basket and shorting EURHUF through a 6m seagull:
In EM, ZAR kept showing weakness constantly against both dollar and the euro since last March 2017, however, it’s never too late, we prefer to rely on sovereign rating downgrades are an imminent risk to ZAR and expect further hedging demand and outflows in preparation for the event.
We also continue to believe a market-unfriendly outcome is more likely out of the December ANC elective conference. Initiate short ZAR as market too complacent post-MTBPS.
For HUF, the central bank clearly signaled it will announce new measures at its next meeting on November 21.
However, our EMEA strategists believe these will focus on flattening the yield curve via technical instruments without expanding the central bank balance sheet. Such step would not be effective in weakening the currency, which we also don't believe is the aim of the policy.
We, therefore, continue to believe EURHUF will retrace lower.
Sold ZAR vs an equally weighted basket of EUR and USD. Enter 15.2740, review level 15.00, target 16.10. Marked at +1.85%.
Long a 6m EURHUF put spread (strikes 304297), short a 6m 312 call. Paid 0.05% notional September 1. Marked at -0.90%.


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