US DOLLAR/INDONESIAN RUPIAH

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U.S. dollar remains strong against major cross rates. U.S. dollar strength is a long-term theme and it’s here to stay in the coming months. The most vulnerable group is the emerging market currencies. We have seen significant weakness in emerging market currencies over the past year. Long-term charts suggest further weakness for the emerging market currencies.

From the EM group Indonesian Rupiah is exposed to sharp depreciation. USD/IDR is breaking out of a decade-long horizontal consolidation. Breakout from long-term chart patterns are usually followed by strong trend periods. In the last quarter of 2014, USD/IDR broke above 12,400 levels – strong resistance since 2001. As long as the cross rate remains above 12,400, we will expect higher levels in the coming months.

USDIDR I

USDIDR II

GBP/ZAR

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Monthly scale chart of GBP/ZAR

Monthly scale chart of GBP/ZAR

UK election results gave boost to FTSE 100 index and British pound against major currencies. There are several GBP pairs that are preparing for strong directional movements. Out of those I like GBP/ZAR the most for two reasons. These reasons are also the major component of my trade selection process. GBP/ZAR is trying to breakout from a 15 year-long consolidation. Breakout from the long-term consolidation will push the cross rate to “uncharted territory”; in other words to all-time highs. Price reaching all-time highs has the least resistance. I prefer charts that are breaking to all-time highs.

Weekly scale chart of GBP/ZAR

Weekly scale chart of GBP/ZAR

Over the past one year GBP/ZAR has been consolidating in a tight consolidation range. In technical analysis the chart pattern is called rectangle. It is a continuation chart pattern. Rectangle has horizontal resistance at 18.8 levels. I prefer horizontal breakouts from minor chart patterns that also has long-term implications. Decisive break above 18.8 on a weekly closing basis, will also clear the 15 year-long trend resistance. Such price action will be positive for GBP and suggest higher levels towards 20-21 area on GBP/ZAR.

INDIA BSE SENSEX INDEX

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Uptrend in INDIA equities is running out of steam. Chart pattern suggests correction in the coming months if the index breaks down the 200-day exponential moving average at 27,300 levels. India BSE SENSEX index might be forming a head and shoulder top chart pattern with the neckline overlapping with the long-term average. Breakdown below a strong technical level like this could be the first warning signal of a deeper correction.

INDIA BSE SENSEX INDEX

Weekly price scale

INDIA BSE SENSEX INDEX II

Daily price scale

Similarly USD/INR formed an inverse head and shoulder chart pattern suggesting weak Rupee if the cross rate breaks above 63.70 levels. I’m still bullish on India in the long-term (you can find earlier analysis here at the time of long-term breakout). BSE SENSEX cleared long-term horizontal resistance at 21,200 levels in 2014. I’ll view the possible weakness as a pullback to the long-term support level.

USDINR

Some stocks that are showing weakness in the Index. Strong long-term trend lines are being challenged. Breakdown on these names can push the SENSEX lower.

BAJAJ AUTO

TATA MOTORS

ICICI BANK

WIPRO

U.S. DOLLAR/TURKISH LIRA

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There are two themes that I would like to discuss on this chart.

1) Breakout to all-time high levels which I like to call uncharted territory.

2) Significance of long-term chart patterns.

I’ve been following and writing about this pair for almost 2 years. I’ve been also betting on U.S. dollar strength against most of the emerging market currencies. (All updates on USD/TRY for the past 2 years)

USDTRY

When price clears strong horizontal resistance which has been intact for almost a decade it usually signals a major shift in supply/demand dynamics. In the beginning of 2012, USD/TRY broke above 1.75 levels. That was the major shift that pushed the cross rate above decade-long resistance. However, depreciation of the Lira didn’t start until another medium-term chart pattern (symmetrical triangle) was completed in the first quarter of 2013. Only after a decisive break above 2 levels USD/TRY started moving higher towards its long-term chart pattern target at 2.7 levels.

Long-term chart pattern was a head and shoulder continuation (here is a perfect discussion on head and shoulder continuation) (@PeterLBrandt)  that took almost a decade to form. Breakout from the head and shoulder continuation also pushed the USD/TRY to all-time high levels. When these two important chart developments took place at the same time, it became clear that a major shift was underway.

Price targets derived from chart patterns are only reference points in our analysis. Price can exceed these levels. However, it is important to note that around 2.7 levels there are two strong resistances. 1) Upper boundary of the trend channel 2) Head and shoulder price target. Let’s keep a close eye on 2.7 resistance.

US DOLLAR/PHILIPPINE PESO

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Since the beginning of 2013, emerging markets currencies performed poorly. Though one currency showed resilience over the past 2 years; Philippine Peso. During 2013 the cross-rate moved from 40.5 to 45.5 and in 2014 the performance of Philippine Peso was neutral against the U.S. dollar. Whereas during the same period most of the emerging market currencies depreciated against the dollar.

Last one year’s price action on USD/PHP is a symmetrical triangle (continuation). Chart pattern suggests possible weakness for the Peso in the coming months if the cross rate breaks above 45-45.5 area. Philippine Peso can join the weakness in emerging market currencies. Breakout above 45-45.5 area can target 48-50 range.

USDPHP

USD/CNH (CHINESE YUAN OFFSHORE)

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Here is a detailed article that explains the difference between on shore and off shore Chinese Yuan.

http://www.businessinsider.com/onshore-and-offshore-renminbi-2014-2

I am analyzing the long-term base formation on the USD/CNH (Chinese Yuan Off Shore) in this update. I think this chart is important as we start reading more about currency wars. Cup & handle is a reversal pattern. In this case it is a bullish development and suggests higher levels for USD/CNH. In other words depreciation for the Chinese Yuan. Breakout above 6.27-6.30 area will confirm the 2 year-long base formation. Until the beginning of 2015, USD/CNH had lower lows and lower highs. In the last quarter of 2014, the low formed at a higher level. This could be the beginning of a change in trend.

USDCNH

USD/RUB (U.S. DOLLAR/RUSSIAN RUBLE)

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USDRUB

Parabolic moves are not sustainable. They are also not easy to trade. It is costly to pick a top or a bottom. Price usually doesn’t stop where we think it would stop. However as a chartist I feel the urge to bring such imbalances to your attention. Whatever the instrument, these type of price movements are the perfect case studies to examine crowd psychology. USD/RUB entered into a parabolic move after breaking above 36.50 – historical high level. Sharp reversals are experienced after such steep price actions. In the past, similar price movements took place on few other charts.

USDKES

In 2011, USD/KES (U.S. DOLLAR/KENYAN SHILLING) had a similar long-term breakout followed by a 8 month-long parabolic move. Steep price action was reversed by Central Bank of Kenya’s bold action to raise interest rates from 6 percent to 18 percent in less than a year.

KENYA INTEREST RATES

In 2008, Rough Rice price rallied from 11.45 to 25 levels. Rice made the headlines (news on Rough Rice). Hoarding and export bans were the result of the sharp price increase. Rough rice fell back to 11.45 levels in the following year.

ROUGH RICE

US DOLLAR/INDONESIAN RUPIAH

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It’s been the year of the U.S. dollar. USD gained strength against most of the developed and emerging market currencies. Central Banks in emerging markets had to adjust interest rates to control currency depreciation. There is one emerging market cross rate that is worth paying attention to. Worst might not be over for the Indonesian rupiah as the USD/IDR cross rate challenges decade-long horizontal resistance. Breakouts from such long-term consolidations usually signal major shift in sentiment and also stress for the economic conditions. USD/IDR is testing critical levels and a breakout above 12,400 levels can result in a sharp depreciation of the currency.

USDIDR

Monthly scale price chart of the US Dollar / Indonesian Rupiah

Weekly scale chart shows the ascending triangle chart pattern – usually regarded as a bullish development in technical analysis. Both the boundaries of the ascending triangle and the decade-long flat consolidation range are overlapping at 12,400 levels – a technical condition that increases the validity of the resistance level.

USDIDR II

Weekly scale price chart of the U.S. Dollar / Indonesian Rupiah

REAL, RUBLE and RUPEE

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Here are some of the emerging market currencies that I see vulnerable against the U.S. dollar in the medium/long-term. U.S. dollar had a strong rally against major cross rates and most of the emerging market currencies. In the short-term we might be due for a pull-back and some weakness for the U.S. dollar but in the medium/long-term we should keep a close eye on these EM currencies.

Brazilian real is weakening towards 2.45 levels. Last one years’ move formed a sideways consolidation. Breakout above 2.45 will be negative for BRL.

USDBRL

I drew attention to the earlier breakout on the Peruvian Nuevo Sol. This was a nice ascending triangle with the resistance at 2.82. Resistance becomes the new support.

USDPEN

Indonesian Rupiah is forming a consolidation right below the decade-long horizontal resistance. Breakout above 12,400 will cause long-term damage on this cross-rate.

USDIDR

Indian Rupee  held above the 3 year-long trend line. This shows that the uptrend is still intact. Unless we see USD/INR establishing a move below its 200-day average, I would favor USD against the Indian Rupee.

USDINR

Russian Ruble continues its slide against the U.S. dollar. Resistance at 36.50 became support. Unless price falls below 36.50, this chart is poised for higher levels.

USDRUB

USD/ZAR

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Positive sentiment for the South African rand might be over as the cross rate reaches strong support area formed by the long-term trend line and moving averages. Both 3 year-long trend line and the 200-day moving average are forming support at 10.35 levels. RSI (Relative Strength Index) is also testing 50 levels; which is considered to be the lower boundary for a bull market. Over the past 3 years cross rate managed to rebound from the 200-day average and the RSI rebounded from 50 levels simultaneously. Expect a similar rebound from the strong support area and weakness in South African rand against the U.S. dollar.

USDZAR