U.S. DOLLAR/TURKISH LIRA

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U.S. Dollar continues to appreciate against the Turkish Lira. Over the past three years strong uptrend pushed the cross rate from 1.8 levels to 3 levels. Long-term charts suggest the uptrend can resume in the coming weeks after a year-long sideways consolidation.

USD/TRY is possibly forming a symmetrical triangle, usually regarded as a continuation chart pattern. Price is now trading between 2.8 and 3.0 levels. Breakout above 3.0 levels will complete the chart pattern and possibly target 3.2-3.3 area. Strong support remains at 2.8 levels. If there is a decisive breakdown below 2.8 levels, symmetrical triangle will serve as a major trend reversal. In that case there will be enough evidence to favor stronger Turkish Lira.

USDTRY WEEKLY

In both cases a decisive breakout is required to confirm the completion of the year-long sideways price action.

On the daily chart price formed a possible H&S continuation, increasing the likelihood of an upward break. It is clear from both daily and weekly charts that 3.0-3.05 area is very critical for USD/TRY in the following weeks.

USDTRY DAILY

U.S. DOLLAR/CHINESE YUAN

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Once again emerging market currencies started weakening against the U.S. Dollar. Earlier update analyzed the Turkish Lira, South African Rand and Mexican Peso.  In this blog post I review the existing uptrend on USD/CNY.

U.S. Dollar/Chinese Yuan is reversing from a critical support level. Since the second half of 2015, USD/CNY has been recording higher highs and higher lows. First, a breakout above 6.26 followed by another strong breakout above 6.448, clearly established the strong dollar weak yuan trend. Last 4 months price action was possibly a pullback to the previously broken resistance at 6.448 and it might be over. Reversal from strong support area can be followed by another upward spike towards 6.65-6.70 area.

Weekly scale price chart of USD/CNY

Weekly scale price chart of USD/CNY

The daily scale chart shows the breakout from the last 4 months downward trend channel. As long as the USD/CNY remains above 6.45-6.50 area, strong USD weak CNY trend will remain intact in the second half of the year.

Daily scale price chart of USD/CNY

Daily scale price chart of USD/CNY

TRY, ZAR and MXN

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This could be a critical day for most of the emerging market currencies against the U.S. dollar. USD/TRY, EUR/TRY, USD/ZAR and USD/MXN are few cross rates worth mentioning in this update.

USD/TRY is possibly completing a rectangle chart pattern. The lower boundary of the year-long consolidation formed support between 2.75 and 2.80. A strong weekly close around 2.85 and above will likely reverse the last couple of months strong TRY trend and result in an upward move towards 3.05 levels.

USDTRY

EUR/TRY is possibly completing a symmetrical triangle. Low volatility on weekly scale suggests a strong trend period for the coming months. Again, a decisive breakout on weekly scale is required to confirm the completion of 7 month-long sideways consolidation. A weekly close above 3.30 levels will breach the resistance with enough margin.

EURTRY

Monthly scale price chart of USD/ZAR shows the importance of 13.80-14.15 area. 13.80 was the historical high that was broken on the upside. 14.15 is the 1 year-long moving average that acted as strong support since the uptrend on USD/ZAR began in 2011. Unless we see a decisive break below 13.80-14.15 area, USD should continue to gain strength against the Rand.

USDZAR

USD/MXN is another emerging market currency that found support at the 200 day moving average. 17 level was not only the long-term average but also the lower boundary of the possible 2 year-long trend channel. If USD/MXN is reversing from these levels, cross rate should rebound towards 19.5 levels in the following weeks.

USDMXN

 

USD/INR (U.S. DOLLAR/INDIAN RUPEE)

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Thanks to the Central Banks and the decision to delay rate hikes by FED, both emerging market equities and currencies had a strong rally in March. Latest recovery in equities and currencies pulled several emerging market FX to strong support levels. Such that, these are critical inflection points worth mentioning.

US Dollar / Indian Rupee weekly price chart

US Dollar / Indian Rupee weekly price chart

USD/INR (U.S. Dollar/Indian Rupee), pulled back from its historical high level at 68.80 to the lower boundary of its 2 year-long trend channel at 66 levels. Lower boundary of the 2 year-long trend channel is also the 200-day exponential moving average, in other words a strong support.

On the daily chart we can also see that MACD, a momentum indicator, reached oversold levels, though not on a buy signal yet. All these technical information suggest that unless there is a decisive breakdown below 66 levels, Indian Rupee is likely to weaken in the following weeks. In case of a rebound from the 200 day average and the lower boundary of the 2 year-long trend channel, the new trading range will be 66 and 69.

USDINR III

U.S. Dollar / Indian Rupee daily price chart

U.S. DOLLAR/CHINESE YUAN

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2016 can be another year of weak performance for the emerging markets. USD/CNY chart will have significant impact on emerging market currencies and equities. In the second half of 2015, sharp devaluation of the Yuan resulted in a sell-off in emerging market equities. Current technical outlook for the USD/CNY suggests further devaluation for the Chinese currency is likely in the coming months. A runaway price movement on USD/CNY can trigger another wave of selling in the emerging market equities.

USDCNY

MSCI EM

Already, emerging market equities are underperforming the developed markets. This trend is likely to continue if the above two (sharp devaluation of the Chinese Yuan and another sell-off in emerging market equities) takes place in the following months.

MSCI DM VS MSCI EM

U.S. DOLLAR/HUNGARIAN FORINT

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U.S. dollar remains strong against major cross-rates. Several emerging market currencies lost ground against the U.S. dollar during 2014-2015 period. Weak performance was interrupted by a medium-term consolidation over the past few months.

U.S. dollar/Hungarian Forint formed one of those identifiable consolidation chart patterns that is usually regarded as a flag or a triangle. These type of consolidation chart patterns usually resolve in the direction of the dominant trend, in this instance possibly upwards.

Breakout above 290-295 area will target the historical high around 320 levels. Expect emerging market currencies to remain weak in the following months.

USDHUF

U.S. DOLLAR/INDIAN RUPEE

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Emerging market currencies had a relief rally over the past month. U.S. dollar weakened against most of the emerging market currencies with the expectation of a possible delay on FED rate hike. Counter-trend moves in the emerging market currencies might be over and we can see another phase of weakness. An important EM cross-rate is the U.S.Dollar/Indian Rupee. Once again the cross-rate pulled back to its 2 year-long trend line support. Both the 2 year-long trend line and the 100-day moving average form support between 64.50 and 64.80. Given the oversold condition on MACD, we can expect a possible rebound from the long-term support area resulting in Indian Rupee weakness.

In the case of a breakdown below 64.50 levels we will expect Rupee to gain strength and possibly reverse the 2 year-long trend.

USDINR

TURKEY, SOUTH AFRICA and BRAZIL

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It started with weakness in emerging market currencies (archive for emerging market currencies) then it spread to equity markets and now emerging market yields are under pressure. From commodity exporting economies to energy importers, almost all emerging markets experienced high volatility. Charts are telling us that the high volatility is here to stay and possibly spread to other investment areas. This update shows the technical damage on the 3 major emerging market economies; Brazil, South Africa and Turkey. By looking at these charts one would wonder how much more shocks can these markets absorb. It looks like the bond markets can experience some heat in the following months.

BRAZIL

MSCI BRAZIL

Sharp sell-off in Brazilian equities breaks down 2008 low levels. MSCI Brazil underperforms the MSCI Emerging Markets index.

MSCI BRAZIL vs MSCI EM

U.S. Dollar vs. Brazilian Real is now close to 4 levels. Since the breakout above 2.62 levels, depreciation in Brazilian Real has taken a parabolic shape. Breakout above 4 levels will push the cross rate to uncharted territory.

 USDBRL

10 year government bond yields completed 7 year-long base formation, suggesting a price target of 18 levels.

BRAZIL 10 YR YIELDS

BRAZIL GDP GROWTH RATE

Source: www.tradingeconomics.com

SOUTH AFRICA

MSCI SOUTH AFRICA

MSCI South Africa is now testing strong support at 445 levels. Breakdown below this level can push the index towards 350 levels.

MSCI SOUTH AFRICA vs MSCI EM

MSCI South Africa has outperformed the MSCI Emerging Markets index. This is positive on a relative basis.

USDZAR

U.S. Dollar vs. South African Rand is now challenging all-time high levels. Depreciation against the U.S. dollar resumes…

SOUTH AFRICA 10 YR GOVT BOND YIELDS

South Africa 10 year government bond yields are completing a massive 5 year-long base formation. Breakout above 8.9 levels can result in a similar move that we have seen on the Brazilian government bond yields.

SOUTH AFRICA GDP GROWTH RATE

Source: www.tradingeconomics.com

TURKEY

MSCI TURKEY

MSCI Turkey breaks down decade-long trend line support. Also the index breached the 5 year-long support at 400 levels.

MSCI TURKEY vs MSCI EM

If we take the relative performance of MSCI Turkey vs. MSCI Emerging Markets we can conclude that the index have been flat since 2004!

USDTRY

After completing its decade-long consolidation which took the form of a continuation head and shoulder U.S. Dollar/Turkish Lira broke out above 1.8 levels and since then the sharp depreciation pushed the Lira to historical high levels. Added to the emerging market weakness, political uncertainty and security issues put further pressure on Turkish economy and its financial markets.

TURKEY 2 YR GOVT BOND YIELDS

Turkish short-term yields are completing a massive 6 year-long base formation. Breakout above 11.8 levels can push the yields to 19 levels in the following months.

TURKEY GDP GROWTH RATE

Source: www.tradingeconomics.com

US DOLLAR/INDIAN RUPEE

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China devalued its currency. This opened the door for further depreciation for the Chinese Yuan and also for currency wars between the Asian economies. Over the past two years emerging market currencies have performed poorly against the U.S. dollar. Weakness was mainly driven by commodity exporters. Now, strong U.S. dollar, weak emerging market currencies trend is spreading to Asia.

USDCNY

U.S. Dollar/Indian Rupee is preparing for a strong breakout from its 3 month-long consolidation range (rectangle chart pattern). On a larger scale, USD/INR formed a head and shoulder pattern. Both chart developments suggest weakness for Indian Rupee if the cross-rate clears 64.4 levels in the following days.

USDINR

Another weakening Asian currency is the Philippines Peso. Over the past two years, USD/PHP has been resilient though, following the breakout from its symmetrical triangle Peso has also started depreciating against the U.S. dollar.

USDPHP

USD/COLOMBIAN PESO

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Emerging market currencies continue to lose ground against the strong U.S. dollar. Already weak South American currencies can enter the second stage of weakness after completing major multi-year base formations.

COLOMBIAN PESO

After completing a rounding bottom between 2009 and 2014, USD/COLOMBIAN PESO, broke above 2,000 levels and rallied towards 2,600-2,700 area. Critical long-term resistance could be the neckline of a decade long double bottom chart pattern. Breakout above this area could result in further weakness in Colombian Peso with a possible price target of 3,500-4,000.