PYG: To Return To Appreciation

The Paraguayan guaraní decisively reversed its appreciatory trend against the dollar in September, breaking below short- and medium-term support around the PGY3,950/US$ area. Since then, the unit has continued to lose value against the dollar to trade at the current level of PYG4,215/US$ and we could see it depreciate further towards long-term support at PYG4,500/US$. Bearish momentum indicators on the weekly chart, combined with our less constructive view on Paraguay's macroeconomic fundamentals and the recent sell-off observed across emerging market currencies, have prompted us to revise down our end-2011 forecast for the unit to PYG4,300/US$ from PYG3,800/US$

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