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Forex Flash: Take profit on long USD/KRW position - Nomura

FXstreet.com (Barcelona) - Nomura strategists recommend booking in profit on any long USD/KRW positions.

They note that they are closing out of their long USD/KRW position that they have held since February 8th 2013. Their reasons for doing so include, 1) USD/JPY failing to break the 100.00 level on a number of occasions in the past month, 2) the recent reiteration by the Ministry of Finance and Economy (MoFE) that it is more concerned over the pace of KRW appreciation than its actual level (they note that the pace of KRW appreciation against JPY has slowed since March when compared to the October 2012 to February 2013 period); 3) North Korea has not taken any provocative actions despite numerous threats over the past month, and we have almost reached the last day of the joint US-South Korea military exercise (30 April); 4) risks of the USD/CNY band widening and; 5) a still-solid current account surplus
(March release today at USD5.0bn vs. USD2.7bn in February).

However, they prefer not to build a short position just yet, given their view that USD/JPY may rise above 100.00 in the future, possibly this quarter. They believe that this will become a significant driver of USD/KRW again once this happens, but they plan to reassess at that time. In addition, they are still concerned with Vanguard outflows and its consistent negative impact on Korean equities (disinvestment will not be complete until 3 July 2013). They finish by writing, “Nomura Economics also expects global growth to hit a soft patch (albeit temporary). Lastly, even though North Korea‟s provocation (missile testing) has not intensified, there remains significant tail risks (especially if South Korean land is hit).”

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