USD/BRL (U.S. DOLLAR/BRAZILIAN REAL)

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The longer it takes for a chart pattern to develop, the more significant it becomes. Breakout from a long-term base formation should be respected. U.S. dollar has been gaining strength against some of the emerging market currencies over the past one year. Though we haven’t experienced a major shift from emerging market currencies to U.S. dollar, reversal chart patterns spread over time and became more visible. One of those emerging market currencies that has been forming a possible long-term reversal chart pattern (inverted Head & Shoulders) is the Brazilian Real. USD/BRL has been bottoming between 1.5 and 1.9 over the past 3 years.

With the latest breakout from a sideways consolidation range at 1.84 levels, USD gained strength against BRL. Currency pair is now challenging the last important resistance before breaking higher. Watch this highly traded emerging market currency for a confirmation of the breakout above 1.92 levels. A decisive close above 1.92 levels will confirm the breakout from a 3 year-long base formation and will target 2.4 levels in the following months.

EUR/USD

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EUR/USD continues to consolidate in a tight range between 1.33 and 1.305. Over the past 3 months currency pair formed a contracting range (symmetrical triangle) that is likely to be followed by a strong trend period. As we get closer to the apex of the triangle formation, probability of breaking out in one direction is increasing. It is always better to wait for a confirmation in the form of a daily or weekly close above/below major support/resistance levels. In this case we will be watching two important levels 1.305 as a support and 1.33 as a resistance. Though in the short-term a break above 1.33 will be positive for Euro, in the intermediate-term outlook will turn to positive only after we see EUR/USD crossing above the 200 day moving average at 1.34.

EUR/USD

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It has been a busy week with several economic data releases. However it’s not over yet! Today market expects U.S. Q1 GDP. Expectation is to be around 2.5%. 4Q’11 was at 3%. Over the past few days housing data and jobless claims were disappointing. A the back of news flow from Euro Zone (disappointing Italian bill auction yesterday and bond auction expected today…) and U.S., EUR/USD has consolidated in a tight range between 1.33 and 1.30. If we look at the larger picture, EUR/USD is in a downtrend with the crossrate trading below the 200 day moving average (1.34) and continues to remain in the downward trend channel. However, in the short-term it is more of a sideways consolidation that will see a strong breakout in one direction. 1.33-1.34 area is strong resistance and if it is broken on the upside it will signal intermediate term strength for EURO towards 1.38 levels. 1.30-1.305 area is strong support. If the cross rate breaks down the support area we will expect dollar strength in the intermediate term towards 1.25 levels. Until we see that major breakout we continue to watch EUR/USD with a neutral short/intermediate term outlook.

US DOLLAR / TURKISH LIRA (USD/TRY)

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We are getting closer to exciting times in financial markets. In several asset classes we are likely to see sharp movements in the following days/weeks. Low volatility suggests strong moves for the upcoming weeks.

USD/TRY was one of the cross rates that I analyzed back in February.

http://techcharts.wordpress.com/2012/02/13/us-dollar-turkish-lira-usdtl/

At that time the currency pair was testing 1.75-1.76 area (200 day moving average) and I was expecting a rebound. Rebound took USD/TRY to 1.8250 but it was short-lived. In the past one month currency pair consolidated in a tight range. Though still holding above the long-term moving average and the intermediate term trend support, USD/TRY should move in one direction sooner or later. Low volatility on the daily chart suggest high volatility is on its way… The direction is not clear yet but we should closely watch two important levels. 1.81 as a strong resistance and 1.7850 as a strong support. A break above 1.81 will push USD/TRY towards 1.85-1.90 area and a break below 1.7850 will target 1.75 in the short-term.

SUGAR

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Symmetrical triangles are usually regarded as “continuation patterns”. This very common technical chart pattern contains at least two lower highs and two higher lows. Trend lines converge and take the symmetrical triangle shape. Though symmetrical triangles often mark a continuation of the trend, they sometimes mark major trend reversals. A safe way to analyze and trade these patterns is to wait for a valid breakout from the symmetrical triangle.

Sugar has been contracting in a range for the past one year. 200 day moving average has been flat at 25 levels and price has been volatile around the moving average. Over the past one year trend lines converged. Boundaries were at 23.60 and 28 levels. In the past one week Sugar price breached the lower boundary at 23.60 level. This could be the first signal of a multi-month downtrend and a symmetrical triangle marking a trend reversal. Intermediate/long-term technical outlook turned negative. With a stop-loss between 23.60 and 25, we can expect lower prices in the intermediate term. Unless we see the price reversing back above 23.60, negative technical outlook will remain intact.

CORN

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Rising wedge or bearish wedge begins wide at the bottom and contracts as prices move higher. Prices are expected to move in trends and form parallel trend channels. However, when price loses momentum on the upside, it fails to reach the upper boundary of the trend channel. This type of price action is due to sellers being more aggressive than buyers. As a result bearish wedge pattern forms with contracting trend lines. Opposite is true during a downtrend where price fails to reach the lower boundary of the trend channel and forms a falling wedge (bullish wedge).

Since October 2011, Corn price has been moving upwards in a choppy trading range. The slope of the uptrend is extremely weak and suggests a possible “major” breakdown to lower levels in the following weeks. Over the past 6 months corn has formed a bearish wedge pattern and failed to stabilize above the long-term moving average (200 day exponential moving average). RSI has also failed to sustain its move above 50 levels. Technical data suggest lower prices towards 500 levels in the coming weeks/months.

ARGENTINA MERVAL INDEX

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Symmetrical triangles usually form during a trend as a continuation pattern. There are instances where symmetrical triangles mark trend reversals but in general they are part of a larger trend as a continuation pattern.

Symmetrical triangle on Argentina’s MERVAL index is one of those continuation patterns. Index broke down the lower boundary at 2,630 levels and since then it has been sharply lower. Since 2009 MERVAL had a good run. We are probably in a counter trend that is correcting the previous uptrend (827-3,680). 50%-62% fibonacci retracement levels are at 2,270 and 1,920 levels respectively. We should expect continued weakness after such breakdowns and this weakness is likely to pull the index towards the support area between 2,270 and 1,920.

SPAIN IBEX 35 – ITALY MIBTEL – PORTUGAL PSI 20

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It has been a challenging week for the equity markets. Especially in Europe, fears on Spain’s debt triggered heavy speculation in the equity and bond markets. Yields have jumped and equities sold-off. Weakness in Spain spread to Italy and Portugal. We have seen clear technical sell signals in Spain, Italy and Portugal. These were the weak markets of euro zone and as a result they were the first one to experience further set backs.

In this post I’m updating Spain, Italy and Portugal’s equity indices. On the 3rd of April, I reviewed all the European equity indices and since then there has been major breakdowns that needed to be revisited. Spain’s IBEX 35 index is now breaking down the 7 month-long consolidation range at 7,800 levels. Sideways consolidation was a symmetrical triangle and breakdowns from these type of continuation patterns are usually followed by weakness. Next support for IBEX 35 is at 6,700 levels.

Italy’s MIBTEL Index is also breaking down its sideways consolidation at 15,000 levels. 7 month-long choppy sideways consolidation is likely to be followed by a downtrend towards the next support at 12,300 levels.

Portugal’s PSI 20 index is another poor performer that is now breaking down its bearish wedge pattern. Unless the index moves back above 5,670-6,000 area, PSI 20 will experience more selling pressure.

CHINA SSE 50 INDEX & CHINA GDP

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Yesterday markets were strong with the expectation of a better than expected Chinese GDP data for the Q1. Today markets were disappointed by the worse than expected data at 8.1% for the quarter. Expectation was around 8.3%-8.5% but 8.1% growth was clearly below expectations. Q4 2011 growth was at 8.9%. This is the lowest growth in almost 3 years and from the chart below you can see the downtrend over the past three years.

In this post I’m analyzing the China SSE 50 Index and the quarterly GDP growth for China. The two charts are self illustrative with their correlation and trending periods. Downtrends on the equity markets were accompanied by lower growth and vice versa. Major trend reversals (in this case price breaking above/below long-term moving average) on the equity index was a good indicator and confirmation of better/worse GDP growth.

Given that the SSE 50 Index is trending lower in a clear parallel trend channel since mid-2009, expecting a downward trend on GDP is reasonable. Though anticipating a reversal on GDP is more difficult. For this reason I will use SSE 50 Index as a leading indicator or a confirming indicator to expect higher growth in the world’s second biggest economy. Both 1 year-long moving average and the upper boundary of the downward trend channel are overlapping between 1,800 and 1,900, making this area a strong resistance. Before we see SSE 50 Index breaking above this resistance we should expect weak growth. We need to see confirmation in equity markets that usually anticipates the future of the economy.

 

 

EURO BUND & US 10 YEAR T-NOTE

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It was mid-March when U.S. CPI data was higher than expected and everyone feared from a possible inflationary environment. Bonds sold-off and equities rallied with commodities. On the 17th of March I reviewed Euro Bund & 10 Year T-Note prices and concluded that it is still early to call for an inflationary environment and a major correction in govt. bonds. Both govt. bonds were testing their long-term moving averages (200-day) and were likely to rebound from these levels.

http://techcharts.wordpress.com/2012/03/17/euro-bund-us-10-year-t-note-2/

Since the last update bonds have rebounded sharply and deflation and RISK OFF environment is back again. Equities are weak and bonds are strong. Long-term uptrends are still intact BUT with one major warning; weekly RSI divergences! Though bonds are moving higher, momentum is not supportive of the last 8 months price action. Price is trying to move higher with weaker momentum. Watch govt. bonds with a positive bias and place an intermediate/long-term stop at the 200 day moving averages. For Euro Bund strong support is at 136 and for U.S. 10 Year T-Notes strong support is at 129 levels.