USD/KRW: What next for the South Korean won as exports slip?

The USD/KRW exchange rate jumped to the highest level since July 21st. It rose to a high of 1,290, which was much higher than last month’s low of 1,256. In all, the pair has risen by more than 2.50% as the US dollar index (DXY) has jumped.

South Korea trade weakens

The South Korean economic weakness continued weakening in July. Data published by the commerce ministry showed that the country’s exports plunged by 16.5% in July after falling by 6% in June. This decline was worse than the median estimate of 14.5%.

South Korea’s exports have been in the red since November last year. This is important since South Korea is the tenth biggest exporter in the world. Meanwhile, the country’s imports dropped by 25.4% in July after falling by 11.7% in the previous month, as I wrote here.

Analysts were expecting the data to show that imports fell by 24.6% in July. As a result, South Korea’s trade surplus rose slightly to $1.6 billion from the previous $1.13 billion. Another report showed that the country’s manufacturing PMI came in at 49.4 in July. A PMI figure of less than 50 is a sign of contraction.

The country’s weakness happened mostly because of the relatively weak semiconductor industry. This is notable since the country is one of the biggest players in the industry, with Samsung having a major role.

The challenge for South Korea is that many countries, especially in the United States and Europe, are investing heavily in semiconductors. In the US, the government has invested over $60 billion to incentivise chips manufacturing. Germany and other European countries are doing the same.

The next key USD/KRW news will be the upcoming US non-farm payrolls (NFP) data scheduled for Friday.

USD/KRW technical analysis

USDKRW chart by TradingView

The 4H chart shows that the USD to South Korean won has made a strong comeback in the past few days. It has moved above the ascending trendline shown in black. The pair moved above the 25-period and 50-period moving averages.

At the same time, the pair is approaching the key resistance level at 1,289, the highest point on July 21st. Further, the pair remains slightly below the 38.2% Fibonacci Retracement level. Therefore, the pair will likely continue rising as buyers target the next psychological level at 1,300. This price is also the 50% retracement level.