Not that I normally pay attention to my nation's currency, but with its lengthened depreciation, I thought I'd write up some thoughts on the pair. USD/IDR is currently range-bound around 13,300, and looking ahead through a seasonality point of view, there may be reason for continued range-bound trading as well as temporary Rupiah strength in this current month of July. Looking at July returns from 1995, the USD/IDR, the trend for positive returns has been maintained until about 2007, of which the pair has then maintained a tendency to produce negative returns in July (IDR strength). The prospect for IDR strength however, depends on a number of factors.
Scotiabank points out that the current macro driver of Asia-FX has changed from US driven factors (Fed rate hike expectations) to European factors instead, such as sharp rises in bond yields and the prevailing situation in Greece. Greek risks however may be overstated and increasingly discounted by currency markets. This can be seen especially in the Euro (of which should be the most sensitive hypothetically to Greek risks), as well as the USD/JPY (using yen as a ‘safe haven’ currency) , recent weekend gap downs, have been sufficiently filled quite quickly from the market open. This suggests that Greece alone, may produce short term price spikes, but as a risk, is unable to produce a sustained trend. This is shown on the following chart on the next page with yellow highlight.
The charts below show EMFX and EM credit returns in past hiking cycles. This is not to say that the USD has topped vs EMFX, but perhaps convincing enough to say that there is not much upside room for USD, i.e. to the extent of a previous Taper Tantrum with the Fed hike as a driver. Below is a closer look into the technical outlook for USD/IDR.
To short (long IDR) would most definitely be counter-trend as of now, as the uptrend remains largely intact. The current range’s resistance level is at 13,350, with support at 13,235, coinciding with the 50-day SMA and an uptrend-line. A confirmed, constructive breakout (i.e. longer than 15 trading days) of support, should signal a deeper pullback. However, the more likely scenario given current market conditions, would probably be an upside range breakout, but we may not see sustained buying as markets near summer, where overall market activity declines. In short, cautiously bullish.
As much as Greece headlines seem to absolutely cluster all financial media, and bears humping the idea that Greece might be the trigger for absolute financial Armageddon, I would be quite skeptical of such, at least in the short term. I will refrain for now on writing any solidified opinions regarding a potential Grexit and its potential impacts. Below are some of the reasons to which why in my view, for today (before yet another weekend risk once more of the Greek Referendum) .
Risk is contained to European bond yields and equities
Although we have seen increased volatility in FX (especially in the EUR) post the large weekend gap, FX can be argued to be lacking definitive continuous price action in response to the developing Greek headlines. To me, this can be perceived as such risks being increasingly priced in by the market. If Greece truly was a risk, I believe despite the fact that it is NFP week, and that summer is closing in, negative sentiment should be translated to the price, regardless. The fact that this is not the case for now, means that markets are somewhat not being too flustered by Greece for now. This can be seen by the lack of sustained JPY and CHF buying. In the case of the CHF, the franc remains to maintain a steady correlation with the EUR, and a lack of a differentiated safe-haven bid into the CHF, doesnt' really scream "risk-off" - at least in the traditional sense. USDJPY suffered a weekend gap down as well, though have sufficiently recovered. The failure for other safe haven barometers such as gold to be bid, emphasizes the idea that the market is not too worried at the moment.
USD is continuously bid for now
Amongst major currencies, the dollar remains largely bid on the week, and I think in the case of USD/JPY specifically, players have taken advantage of the gap down as discounted entry prices to enter on the long-USD trade once more. And as such, with today's NFP, I am planning on entering longs around the event risk, on a spike down. In the case of the EUR, with a majority bearish parity forecast, I wouldn't be too heavily bearish. I very strongly remember the Euro bottoming near 1.2000 in 2012, right around when Barron's had a cover that it's going to hit parity. Now the whole magazine cover argument near tops/bottoms is for a whole different conversation altogether, but one can't help but be conscious of the funny ways the market tends to bottom/top near "armageddon world is over" themes. Aside from my not-so convinced of EUR bearishness view, I would be tempted to trade the EUR/JPY around the NFP as well, looking to fade either moves to 137.40-50 or support at 136.00 as I believe it would remain rangebound.
Mostly a place where I write down my macro/RV ideas. Feedback more than welcome.