Collection of Thoughts On The USD/IDR

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.