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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

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

 

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

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.

MSCI TURKEY, YIELDS and USD/TRY

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Over the past few weeks we have seen stability in the Turkish equity and currency markets. Turkey started outperforming the MSCI Emerging markets index after its massive underperformance. MSCI Turkey/MSCI Emerging Markets ratio rebounded from multi-year support. This is positive news for the Turkish equities and this trend should resume.  Meanwhile recovery in the emerging markets helped the MSCI Emerging Markets index rebound from the lower boundary of its 3 year-long sideways consolidation. This also suggests some positive sentiment for the emerging markets going forward.

MSCI EM

MSCI TURKEY vs MSCI EM

USD/TRY which took a parabolic shape and reached 2.40 levels, reversed sharply lower and started pulling back to its 200-day moving average. Expect stronger Turkish lira in the short/medium-term.

USDTRY

Turkish government bond yields are now close to strong resistance area between 10.5 and 11.8. Failure to break the strong resistance area could result in lower yields in the following months.

TR 2YR GOVT YIELDS

USD/TRY – case study of parabolic moves

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Parabolic moves are common in the financial markets. They are widely participated (though not anticipated). During these type of moves volatility increases tremendously. Similar to a ball thrown in the air, once they run out of energy they fall back with the same speed. Below are four different chart examples with similar price actions. Frome a technical perspective all of them reached their upper boundary and reversed.

Steep price actions are not sustainable and they should be followed by sharp pull-backs. Both on the upside and the downside volatility remains high and daily price swings are sharp during these type of price actions.

USD/TRY (U.S. dollar/Turkish Lira) is experiencing a similar price action over the past few weeks.  We should accept high volatility and be prepared for pull-backs.

USDTRY II

GOLD

ROUGH RICE

USDKES

U.S. dollar vs. MXN, TRY, PHP, TWD…

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My latest updates on twitter. I believe these charts are very valuable and suggest U.S. dollar strength against the currencies analyzed.

U.S. DOLLAR vs. CAD, MXN, TWD, TRY …

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Yes, it is a global trend and the dollar is gaining strength against most of the currency pairs. U.S. dollar index is trying to clear its 200 day moving average. Emerging market currencies have depreciated against the U.S. dollar over the past few months and seems like more and more weak signals are being generated by the recent breakouts. Here are some of the charts I shared earlier during the month and some new charts I want to draw attention to.

US DOLLAR INDEX

USDCAD

USDMXN

USDTRY

USDPHP

USDRUB

USDZAR

USDTWD

USD/TRY

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USDTRY

It is uncharted territory once again for the USD/TRY. For more than a decade USD/TRY (U.S. dollar/Turkish lira) consolidated between 1.75 and 1.15 levels. Cross rate managed to stabilize for more than a decade after the inflationary years of 1990s. It was mid-2011 when the USD/TRY breached the decade-long resistance at 1.75 levels. First the cross rate reached 1.92 levels and then pulled back to 1.75. Short/medium-term consolidation formed a bullish flag and in May we have discussed the possibility of a strong breakout. Breakout above 1.83 was followed by a sharp upward move. Emerging market currencies are weakening against the U.S. dollar. Turkish lira is one of them. Price, breaking to a new all time high increases the risk of further depreciation towards 2.0 levels. Medium-term stop-loss area becomes 1.75-1.83. With the medium-term stop-loss area in place, we can expect higher USD/TRY in the following weeks.

USD/INR & USD/TRY

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Earlier in May I’ve updated two charts on the emerging market currencies USD/INR (Indian Rupee) and USD/TRY (Turkish Lira). Both suggested strong USD in the short/medium-term. We are seeing clear breakouts from consolidation ranges and weakness in major emerging market currencies.

USDINR III

USDTRY II