MEXICO IPC INDEX

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A strong breakout is likely to take place on Mexico’s IPC Index. Last week’s price action breached multi-year horizontal resistance at 46,500 levels. The horizontal resistance was tested for 5 times over the past four years. Another week of strong price action will confirm the breakout on the local price index and will suggest higher levels in the coming months. It is important to note that both on weekly and monthly scale the index is going through low volatility period. Usually breakouts from such technical condition result in prolonged up/down trends depending on the direction of the breakout.

MEXICO IPC INDEX W

MEXICO IPC INDEX D

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

MEXICO IPC INDEX

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Mexico IPC index is possibly preparing for a strong breakout to all-time high levels. Over the past three years, the IPC index tested the strong horizontal resistance for the 5th time. Since the beginning of April, price held close to the upper boundary. Last two months sideways consolidation can be a symmetrical triangle and a preparation for a breakout above 46,500 levels. 46,000-46,500 will act as strong resistance in the following weeks. A decisive weekly close above the resistance area can launch a multi-month uptrend for Mexico’s IPC index. Breakdown below 44,500 can result in a lengthy consolidation.

MEXICO IPC INDEX WEEKLY SCALE PRICE CHART

MEXICO IPC INDEX WEEKLY SCALE PRICE CHART

MEXICO IPC INDEX DAILY SCALE PRICE CHART

MEXICO IPC INDEX DAILY SCALE PRICE CHART

 

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

EURO STOXX 50 INDEX

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Euro Stoxx 50 index is either offering a rare buying opportunity similar to 2011 or one last chance for the bulls to exit before the downtrend resumes.

The bearish case suggests that the Euro Stoxx 50 index peaked in April 2015 after completing a 2 year-long head and shoulder top which was followed by the breakdown of the multi-year uptrend (2009-2015). According to this outlook, last few months price action is a pullback to the broken trend line. Pullbacks are usually followed by the continuation of the dominant trend.

STOXX 50 I

Weekly scale chart showing the bearish case

The bullish case suggests that the Euro Stoxx 50 index completed a 2 year-long head and shoulder top but found support at the lower boundary of a long-term trend channel. According to this outlook, last few months price action is a consolidation above trend line support (lower boundary of possible trend channel). Once the index completes the consolidation it can reverse and trend higher.

STOXX 50 II

Weekly scale chart showing the bullish case

Daily scale chart shows the last 3 months consolidation between 2550 and 2900. For the bullish case I will be looking for a breakout above 2900 levels. For the bearish case, a breakdown below 2550-2650 area will signal lower prices for the coming months.

STOXX 50 III

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

 

SILVER and SOYBEANS

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Poor man’s gold might be setting up for a strong performance in the metal complex. SILVER/GOLD ratio is reversing from a historical support area. This level acted as a medium/long-term turning point for the ratio in 1997, 2003 and in 2008. Not only the relative performance of Silver is showing strength but also the price chart of Silver forming a possible base formation. Silver has been outperforming another precious metal that has industrial use; platinum. SILVER/PLATINUM ratio is on the rise with the latest chart development suggestion even more to come. In the metals, silver can be a winner.

SILVER VS GOLD WEEKLY SCALE RATIO

SILVER VS GOLD WEEKLY SCALE RATIO

SILVER VS PLATINUM WEEKLY SCALE RATIO

SILVER VS PLATINUM WEEKLY SCALE RATIO

Over the past year, Silver possibly formed a head and shoulder base with a neckline at 16.35 levels. Breakout above 16.35 will clear multi-year downward trend lines and also the year-long horizontal resistance. Weekly price closed at 16.21 levels.

SILVER

Another long-term opportunity might be developing on Soybeans price chart. Over the past few weeks, Soybeans reversed from an important inflection point. Two long-term trend lines overlapped around 850 levels. Last week’s strong weekly price bar suggests possible strength for the following weeks. Resistance area on the first month continuation chart is around 1070.

WEEKLY SCALE PRICE CHART

WEEKLY SCALE PRICE CHART

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

MEXICO IPC INDEX

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Mexico’s IPC index, denominated in local currency, is preparing for a strong breakout. During Emerging markets poor performance (2011-2016), Mexico outperformed the MSCI Emerging Markets index. Strong relative performance is also reflected on the absolute performance of the IPC index, with the national benchmark now challenging horizontal resistance for the 5th time over the past 3 years. Breakout above strong resistance can push the index to all-time high levels.

Weekly price chart of the MEXICO IPC INDEX

Weekly price chart of the MEXICO IPC INDEX

The developing chart pattern could be an ascending triangle with bullish implications. Breakout above 46,500 levels will confirm the bullish chart formation and suggest higher prices that can target 55,000 levels.

Relative performance ratio between MSCI MEXICO and MSCI EM in local currencies

Relative performance ratio between MSCI MEXICO and MSCI EM in local currencies

Relative performance ratio between MSCI MEXICO and MSCI EM in U.S. dollar

Relative performance ratio between MSCI MEXICO and MSCI EM in U.S. dollar

While the MEXICO IPC INDEX is forming a bullish ascending triangle poised for a breakout to higher levels, here are some of the constituents that have similar bullish chart set ups.

Weekly price chart

Weekly price chart

GFNORTE formed a 3 year-long sideways consolidation. Stock is now challenging historical high levels. Breakout above 100 levels will be very positive.

Weekly price chart

Weekly price chart

2 year-long H&S bottom on ALPEK has strong resistance at 27.15 levels. A decisive weekly break above the neckline at 27.15 will result in higher prices.

U.S. DOLLAR INDEX

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Over the past week, FED’s dovish comments resulted in U.S. dollar weakness. However U.S. dollar index started weakening in the beginning of December 2015 irrespective of FED action. Wide price fluctuation between 92 and 100 levels is likely to be a sideways consolidation.

After its strong rally from 80 levels, U.S. dollar index is taking a breather. At this stage, it is early to call for a change in trend or claim that the U.S. dollar bull market is over. U.S. dollar index should find support around 92 levels. Only after a decisive breakdown below 92 levels we can expect large-scale correction for the U.S. dollar. Until that happens I view the medium/long-term outlook on the U.S. dollar as bullish.

US DOLLAR INDEX

Weekly price chart of U.S. DOLLAR INDEX

US DOLLAR INDEX II

Daily price chart of U.S. DOLLAR INDEX