The USD/KRW exchange rate formed a God candle on Tuesday, rising to its highest level on record as the president announced an emergency martial law in South Korea. The currency jumped to 1,441 and then eased a bit to 1,414.
South Korean political crisis
The South Korean won collapsed and approached its all time low after the president announced the start of martial law following weeks of budget negotiations with the opposition party.
The pair then retreated to 1,414 as traders digested the new developments and its implications. It also dropped after the parliament rushed and voted to stop the state of emergency.
South Korea’s president also decided to do away with the martial law on Wednesday morning, after coming under intense pressure.
Now, the opposition party is working to impeach President Yoon Suk Yeul, a move that may attract some members of the coalition government.
The South Korean won also retreated after the central bank intervened by pumping liquidity and pledging to deploy measures to stabilize the market. The bank released that statement when it held an emergency meeting to deliberate on the issue.
All these issues are happening at a time when the South Korean economy is not doing well, mostly because of Samsung, which has accounts for about 25% of the economy.
The company is in a crisis after facing substantial challenges in the artificial intelligence industry, where American and Taiwanese companies.
These challenges could lead to a slower trade surplus after the $44 billion it made with the US a year earlier. Data released recently showed that the South Korean economy avoided a recession narrowly in the the third quarter as it expanded by 0.1%.
Just last month, the South Korean central bank announced a surprise rate cut to 3%, and analysts believe that another cut is coming. The bank slashed the rates to deal with the slowing economy.
South Korea is also bracing for more trade uncertainty under the Donald Trump administration. While South Korea is an American ally, Trump has always expressed concerns about its trade surplus and the fact that the US spends billions of dollars defending it from North Korea.
The USD/KRW will continue to focus on the developments in South Korea. At the same time, traders will be watching the upcoming jobs numbers from the United States. These numbers will help to determine whether the Fed will cut or hold rates in the next meeting.
USD/KRW technical analysis
USD/KRW chart by TradingView
The weekly chart shows that the USD/KRW exchange rate has been in a strong bullish trend in the past few weeks. It rose and retested the upper side of the ascending channel shown in green.
The pair has jumped above the key resistance at 1,400, its highest level on April 15. It invalidated the risky double-top pattern after crossing that level. It has also moved above the 50-week and 25-week moving averages.
Therefore, the USD to KRW exchange rate will likely continue rising as investors focus on the South Korean political crisis. If this happens, it will soar to 1,446, its highest level in 2022 ane its all-time high.
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