Archive for category: DEVELOPED MARKET EQUITIES

In November I’ve updated the Lumber chart and drew attention to the strong horizontal resistance at 327 levels. This was a 3 year-long resistance and I expected to see a pause after the strong rally. While the price took a breather for few weeks, we haven’t seen much of a pullback from the strong resistance. On the contrary with this week’s strength, Lumber breached above the strong resistance area. Breakout above 327 is extremely bullish for this commodity. 327 levels was tested for the 3rd time over the past 3 years and now the price is above this level. We should watch lumber with a positive bias in the following weeks. We are likely to see higher prices.

It’s been an exciting period watching global economies constantly trying to devalue their currencies with the aim of increasing demand for their goods and services. Financial media is covering this under “currency wars”. Weak currencies are good for economies because countries will be able to export more… Though let’s not forget that there is a fine balance between a weak currency helping the trade balance and a weak currency triggering a currency crisis.

Turkish lira enjoyed a stable decade when compared with 1990s. Decade-long sideways consolidation between 1.15 and 1.75 levels helped the economy and reversed the so-called dollarization of the economy. High inflation led to single digit inflation and U.S. dollar deposit accounts that were held at banks were switched to Turkish Lira deposits. However, with an overvalued currency Turkey started experiencing widening trade deficit. In the beginning of 2011, USD/TL was standing at 1.50 levels. Over the past two years USD/TL moved higher and breached above the decade-long consolidation range. Upper boundary of the consolidation range was at 1.76. This level acted as strong resistance for more than a decade. After the breakout above strong resistance in the last quarter of 2011, 1.76 became strong support (resistance becomes support and vice versa). With the support of central banks over the past two years, Turkish Lira remained weak against the U.S. dollar and consolidated between 1.76 and 1.90.

Given that the volatility reached a 6 month low — a technical condition that usually suggests a strong trend in the near term, breakout above the last one year’s consolidation range can actually do more harm to the economy than supporting the trade balance. Turkish lira can experience a fast devaluation if we see a breakout above 1.83 levels in the short-term.

From a technical analysis point of view, these type of consolidations are usually followed by a surge in volatility and a strong directional movement. In the following weeks/months we need to watch USD/TL with the possibility of a breakout. Strong support is at 1.76 and resistance is at 1.83.

Tech Charts blog followers will remember the earlier analysis on Soybeans forecasting a strong directional move. Low volatility is usually followed by high volatility. Volatility does not have direction but it is cyclical. With this week’s sell-off Soybeans broke down two important technical support; the 200 day moving average and the year-long trend support. Short-term consolidation between 1,484 and 1,574 broke down. Technical outlook on Soy products turned negative. We should expect further weakness towards 1,300 levels. During any rebound, 1,517-1,574 area will act as strong resistance. For the bearish outlook to remain intact price should not breach above the resistance area between 1,517 and 1,574.