MSCI EM Index Futures: USD weakness to propel EM higher
Our View
We have a favourable view of Emerging Market (EM) equities, but we prefer to wait out any short-term corrections and enter only after prices have bounced off support.
The MSCI EM Futures contract could see a bumpy start to 2024, but we expect to see further upside through 2024, supported by a depreciation in the USD once the Fed cuts interest rates.
A key driver for EM equities is its inverse relationship with the US Dollar. The contract and the Dollar Index (DXY) have a negative correlation of -0.79.
Expressing Our View
We favour the hypothetical trade setup below in order to express our view.
Long MSCI Emerging Markets Index Futures:
With a Fibonacci Retracement drawn from the July 2021 high, we expect to see a retracement towards the key 0.236 Fibonacci Retracement level around 956, after the contract previously failed to close above the 0.382 retracement level at 1031.
With RSI still in bullish territory around 50, and the 50-day moving average crossing above the 200-day moving average in a “Golden Cross”; we expect prices to bounce off the key support level at 956, which may result in the contract trending higher towards our target at the 0.618 retracement level around 1,150 points.
We prefer taking entry slightly above support at 975 to make sure that we enter only after prices bounce off support. Our stop loss will be below support at 930. This setup delivers a reward: risk ratio of 3.89x.
• Entry Level: 975
• Target Level: 1,150
• Stop Loss Level: 930
With every 0.1 ticks at $5,
• Profit at Target: 1750 ticks x $50
• Loss at Stop: 220 ticks x $50
• Reward: Risk Ratio: 3.89x
We have a favourable view of Emerging Market (EM) equities, but we prefer to wait out any short-term corrections and enter only after prices have bounced off support.
The MSCI EM Futures contract could see a bumpy start to 2024, but we expect to see further upside through 2024, supported by a depreciation in the USD once the Fed cuts interest rates.
A key driver for EM equities is its inverse relationship with the US Dollar. The contract and the Dollar Index (DXY) have a negative correlation of -0.79.
Expressing Our View
We favour the hypothetical trade setup below in order to express our view.
Long MSCI Emerging Markets Index Futures:
With a Fibonacci Retracement drawn from the July 2021 high, we expect to see a retracement towards the key 0.236 Fibonacci Retracement level around 956, after the contract previously failed to close above the 0.382 retracement level at 1031.
With RSI still in bullish territory around 50, and the 50-day moving average crossing above the 200-day moving average in a “Golden Cross”; we expect prices to bounce off the key support level at 956, which may result in the contract trending higher towards our target at the 0.618 retracement level around 1,150 points.
We prefer taking entry slightly above support at 975 to make sure that we enter only after prices bounce off support. Our stop loss will be below support at 930. This setup delivers a reward: risk ratio of 3.89x.
• Entry Level: 975
• Target Level: 1,150
• Stop Loss Level: 930
With every 0.1 ticks at $5,
• Profit at Target: 1750 ticks x $50
• Loss at Stop: 220 ticks x $50
• Reward: Risk Ratio: 3.89x