Moving into the third week since I've posted the outlook for the Fragile Five EM currencies.. .we clearly know some slight bit that is wrong. "2015". I have definitely under-analyzed the recent Oil rout, of which has become a major driver of the continued depreciation in USD denominated EM pairs. What went right with the views were the grouping.. that the TRY, BRL, and ZAR would be the worst off out of the bunch, IDR in the middle, and INR (via EUR) would do comparatively well.
That has gone largely as planned, with the USDZAR (already posted this last week nonetheless) bouncing off the uptrend-line, resuming its uptrend, gaining 8.21%. In terms of how this trend would play out coming forward, the 11.35 level should be one to watch for further continuation (if it is held). The pitch-perfect rejection of EUR/INR of the 80.00 mark is so far positive for the idea for it to continue downside resumption, though the next few days price action would be important to determine its future decisiveness. The IDR though (home-country bias?) caught me by surprise as I didn't really think it would be that vulnerable (we're not that big of an oil net importer..) but I think the core of the dilemma lay within a spill-over effect.
EM gets basketted so nicely and cuddly into ETF's/Indices of the like and the tendency to umbrella them collectively as a very tight asset class, is really proven in current times with the action we have seen in the past few weeks. Heck, take a look at the USDNOK and USDTRY over the past 2 days; very uncannily similar daily bars Correlations remain strong and domestic factors will only come back to strong light once volatility settles down (and yes, for the sake of my post's titling, I do think this will play a larger factor in 2015).
Anyhow...The carnage though in the Ruble is immense... one of the disadvantages of being young in this industry is the 'surprise' factor i think. Veterans have seen similar situations play out, and have studied up on their history. Greenhorns such as myself, have more catching up on economic history to compare situations to, and lack the 'gut' feeling, especially with a market I really have not paid attention to prior to the recent mess that is a -50% YTD fall of the Ruble. CBR intervenes.... to no success. 5-10% daily swings, in a currency is absolutely incredible. I don't think I'm in the position to detail-comment on what I think about the Ruble, as I'm more of the 'watch and see, trying to put pieces together. The rise of the USDRUB has been parabolic and although top-picking is a nasty business, especially when spreads are massively wide. Largely the worries for contagion have been contained, but what I'm concerned about is the geopolitical landscape after this. This inevitably increases US-Russia tensions in an already arguably 'cold-war' like setting. I do hope central planners tread carefully coming ahead as to not fuel further unnecessary tension out of an already tarnished global state of relations.
Although I think the scope for NZD/USD alone seems attractive, a proxy away from the USD would be the NZD/JPY, which I think should retain its uptrend. I keep my view that the RBNZ out of all banks will be the most unlikely to cut and that short term rates are likely to trade northbound. Sure the swap's nicer by a bit for a NZD/JPY trade, though its highly correlated to global equity markets (orange line MSCI world index) and any short term shock should damage the NZDJPY, no doubt. The resilience of equity markets though is a theme I expect to continue for the first 3-4 months of 2015, which should help support the carry pair. Furthermore, it's heading to some support levels of which if held, should be the case for further gains. Pick your beast. Play the contrarian by being bearish USD, or by betting on further positive sentiment. Both i do think will suffice, but I'm inclined towards the former.
On a finishing note... it is with sadness hearing what happened in Peshawar Pakistan recently. It appalls me that there are people (should put that in quotation marks) in this world who are so corrupt and defile to literally rip away with no remorse a future generation. They're just kids (like me damn it!!) who want an education, to learn and become the people of tomorrow. Really sad to hear... it's quite the reality check. Solidarity with one another across cultures and beliefs will really be the defining factor of how society progresses in the years to come, to overcome extremes such as these of any kind.
Mostly a place where I write down my macro/RV ideas. Feedback more than welcome.