USD/KRW analysis as South Korean trade slumps again

on Jun 1, 2023
  • The South Korean economy is facing significant headwinds.
  • The country’s imports and exports plunged in May.
  • There are signs that it will sink into a recession this year.

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The USD/KRW exchange rate remained in a consolidation phase as more data revealed the dire situation of the South Korean economy. The USD to South Korean won exchange rate was trading at 1,321, where it has been in the past few days. It has jumped by more than 8.8% from the lowest level this year.

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South Korean exports slump again

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I have written about the dire state of the South Korean economy several times as you can see here and here. Sadly, the situation seems to be getting worse as evidenced by the dwindling exports. 

Data published on Thursday shows that the country’s exports dropped by 15.2% in May after it plunged by 14.2% in the previous month. This decline was worse than the median estimate of 13.50%. Exports have been in the red since November 2022 after they peaked in June 2021.

Imports also plunged in May. Data shows that South Korea’s imports dropped by 14% in May from the previous 13.3%. It has been in the red throughout the year. As a result, South Korea’s trade deficit widened to more than $2.2 billion.

These numbers mean that the economy is not doing well considering that South Korea is mostly an export-oriented country. The most recent results showed that South Korea’s economy narrowly avoided a recession in the first quarter of the year.

The biggest challenge that South Korea is facing is that demand for semiconductors is waning, which is affecting Samsung. Samsung is the biggest country in South Korea, accounting for over 15% of the entire GDP.

Therefore, there is a likelihood that the Bank of Korea will maintain its interest rates unchanged in the coming months.

USD/KRW forecast

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USD/KRW chart by TradingView

On the 4H chart, we see that the USD to KRW exchange rate has retreated in the past few days. The pair has moved slightly below the important resistance level at 1,330, the highest level on May 25. It is consolidating at the 50-period moving average while the MACD has moved to the neutral point. 

Further, the pair has formed a double-top pattern at 1,342.78. This pattern is usually a bearish sign. Therefore, while a bearish breakout is possible, the outlook of the pair is neutral until it drops below the neckline of this pattern at 1,307.