USD/KRW Price Forecast for 2021: Will Korean Won Bounce Off the 200 SMA?
USD/KRW Forecast Summary
|USD/KRW Forecast: H1 2021|
Price: $1,145 – $1,150
Price drivers: FED, US politics, Market sentiment
|USD/KRW Forecast: 1 Year|
Price: $1,200 – $1,230
Price drivers: US inflation, Tighter monetary policies, Positive risk sentiment
|USD/KRW Forecast: 3 Years|
Price: $1,160 – $ 1,170
Price drivers: Global politics, Higher bond yields, US/Korean economies
USD/KRW has been trading mostly sideways in the last few decades and it doesn’t seem like the future will change much in this pair, apart from the momentum within the range. We have seen two major spikes in times of crisis in this pair, once during the late 1990s crisis in Japan and East Asia, which sent this pair surging pretty close to 2 and the other time during the 2008-09 global financial crisis. Although, since then USD/KRW has been trading sideways in a 250 cent range.
The range does offer some good trading opportunities though, buying near the bottom and selling near the top. Right now this pair is trading near the bottom of the range after finding support at the 200 SMA (purple) on the monthly chart, as shown above. Although, the bounce has been quite weak, since the USD has been weak as well, but while the US Dollar has been declining across the board in April-May 2021, the Won hasn’t taken advantage, suggesting that once the USD gains some strength, the bounce will resume and probably push this pair to the top of the range by the end of the year.
Recent Changes in the USD/KRW Price
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Factors Affecting USD/KRW
South Korea is a developed economy, with a high human development index, which is the main driving force for the country’s economy, since the main sector has been the technology and high tech. Although in 2021 the investments have exceeded the GDP growth of the technology sector. The Korean economy has recovered well after the 2020 coronavirus crisis, surpassing the 2019 levels, which has been keeping the Won well bid, while on the other side of the coin the USD still remains pretty weak, despite the US economic boom. But, the Dollar is waiting for the FED for the decision to reverse course, which will also give USD/WON a push higher.
USD/KRW Live Chart
USD/KRW Price Prediction for the Next 5 Years
Risk currencies should have been declining since March 2020, with the coronavirus keeping the risk sentiment subdued in financial markets, as governments keep turning restrictions on and off and the global economy goes from recession to a strong rebound, then to another recession. But, the excessive amount of money that has been flooding the markets, coming from governments and central banks across the globe, has been keeping them going. On the other hand, the USD has been declining for political reasons, because economic fundamentals seem solid right now. The large amount of USD injected into markets has also added to the USD weakness and more money is on the way in the US, which will benefit developing countries like Mexico and the Peso. Although, the rising US Treasury yields and the technical picture which is oversold for this pair, should be seen as red flags for USD/KRW bears because this might as well be the end of the bearish retrace before the bullish trend resumes again.
Korean Economy Benefiting From the Great Shape in Manufacturing Globally
The manufacturing sector resisted the coronavirus better than any other sector, since it remained mostly open, even during the height of the lockdowns. Employers were asked to take some measures to keep workers at a distance from each-other and production kept going, which was great, because imagine the opposite if there were food and other goods shortages. In fact, after the short-lived dip in March-April 2020, manufacturing rebounded and has kept expanding, reaching the highest levels of output in decades everywhere across the globe. Chinese manufacturing has been strange, because it is lingering just above contraction, while before the coronavirus it was leading the world.
This looks strange, but South Korean manufacturing has been surging since the small dip in spring last year, which was smaller than in most other countries. Since then, manufacturing activity has been expanding, with the Bank of Korea BOK Manufacturing BSI index heading for 100 points. The industrial output is on an increasing trend and with the global economy rebounding further after the reopening in summer, Korean high tech exports will only increase, which means manufacturing and industrial production will see even better times ahead.
Headline CPI (consumer price index) has increased above 2% which is the target for the BOK and stands at 2.3%, although the Bank of Korea is keeping interest rates at a record low of 0.5%, as confirmed by chairman Lee Ju-yeol. The domestic consumer confidence has also improved considerably, but the economy of South Korea is mostly an export/import driven economy, so the increase of the global demand will improve that sector and the economy further.
US Economy Absolutely Steaming Up
During the first wave of the coronavirus, the global economy went into a crash, including the US economy, although the US economy held up much better than other economies and rebounded faster. It started the strong rebound in summer last year and it continued to keep a good pace of expansion during the last winter as well, while other economies went into a second recession. With large amounts of cash that have been injected into the economy by the FED and the US government, the US economy in particular has been exploding so far in 2021 and expectations for the months ahead are even brighter, as some coastal states that had restrictions such as California and New York are reopening as well for summer.
The manufacturing sector was leading the economic rebound and now services and other sectors have joined in this economic expansion, with the manufacturing and services PMI indicators increasing well above 60 points, which suggests some sort of economic boom. The trillions of dollars as well as the improving consumer and business sentiment, have been pushing prices higher. Headline CPI inflation jumped by more than 4% in April, while core CPI which removes the volatile food and energy items increased by 3%. This is way above the FED target of 2%, while the GDP increased by 6.4% in Q1 of 2021, which is considerable.
Although, the FED has been ignoring the data and considering inflation as transitional, which meant that they were to keep pumping money with the current stimulus programmes which has kept the USD bearish. But with the economic boom and the jump in inflation will force them to accept the reality and start reversing the extremely loose monetary policy. Now the question is which will come first, the tapering or the interest rate increase. The coronavirus monthly payments will also run out by September, which means that the unemployment rate will fall further as more people return to work.
USD/KRW Technical Analysis – Trading Sideways for More than a Decade
The bounce off the 200 SMA has started, but the other MAs are providing resistance at the top
USD/KRW used to trade below 1,000 until late 1990s when it surged higher, as the Korean economy took a hit, following the recession in the Japanese economy, when it surged higher, getting really close to 2,000. The price retreated and eventually it fell below all moving averages on the monthly chart, falling below 1,000 again, but the 2008-09 crisis sent the USD surging again and this pair climbed above 1,600. It retreated down again, but the price hasn’t fallen below 1,000 since then. In fact, this pair has been trading sideways for more than a decade, with a slight bias to the upside, since the lows are getting higher and so are the highs. The 200 SMA (purple) has turned into support now but the bounce hasn’t been convincing. There was only one decent bullish candlestick in January and since then the candlestick has been mostly dojis, closing around the opening price.
The 200 SMA is keeping buyers in check on the weekly chart
On the weekly chart, we can also see that the price has been trading mostly sideways in the last decade. The lows of the range used to be around 1,000, but they have been increasing and the last reversal from the lows took place at around 1,080. The highs have also been increasing in the last decade, which forms an ascending channel on the weekly time-frame chart. The 200 SMA (purple) has been doing a great job as a support and resistance indicator, as the price has moved up and down in the range. It provided resistance at the beginning of the decade, then it turned into support by the middle of the previous decade and now it has turned into resistance again. Buyers have failed to push above this moving average twice in the recent months, which has been stopping them from unfolding the bounce off the 200 SMA on the monthly chart above. The previous week’s candlestick closed as a doji below the 200 SMA which is a bearish reversing signal and this week the price turned bearish again. But, the 20 SMA (gray) is holding as support for the moment at least. So, buyers are having trouble taking USD/KRW to the top of the range, although if the FED gives signs of reversing the monetary policy, then the USD will enter a bullish phase and this pair will eventually break above the 200 SMA.