Key focus and themes: Leaning towards but not diving into the softer USD camp; our key trades

Research evidence excerpt

Key focus and themes: Leaning towards but not diving into the softer USD camp; our key trades

iven move. Notably, US Trade Representative Greer

commented (Bloomberg , 16 July) that the “number one deliverable” from the Trump-Xi

Summit around 24 September is to maintain stable US-China ties; and 5) beyond these

near-term factors, we also view RMB’s substantial undervaluation and the Chinese

authorities’ RMB internationalization efforts as longer-term drivers of RMB

outperformance.

In Korea, our long USD/KRW position reached our stop-loss level earlier in the week, as

the market continued to focus on potential USD/KRW selling flows on FX repatriation. That

said, we maintain our KRW underperformance view, and prefer to express it against long

EUR (instead of USD), owing to recent downside surprises to US inflation data (see

above). Therefore, we initiate a long EUR/KRW position, with a conviction level of

3/5, targeting 1,760 (~4% gains) by end-October. Factors supporting this trade include:

1) we have likely passed the peak market optimism over potential FX repatriation

flows into Korea (i.e., around 15 July). Based on our discussions with market

participants, offshore investors have likely increased their short USD/KRW positioning

over the past week; 2) the size of repatriation flows into Korea may be smaller than

the market expects. Some clients we spoke to during our London trip (6 to 10 July ) also

noted that potential FX repatriation inflows may not be complete – similar to our view

owing to US investment plans; 3) a still challenging flow backdrop from foreign equity

selling risk. This is related to both extremes, where a negative outlook on concerns over

the sustainability of hyperscaler capex (i.e., foreign equity positioning at ~USD1.8trn as of