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Technical analysis - Emerging forex – December 2017

December 21, 2017

December has not been volatile so far on emerging currencies as in other years when movements on exotic currencies tended to be more important.

The passing of baton between Yellen and Powell to the Fed has made the markets anxious for the Fed monetary policy outlook. Better wait for the first meeting in February before taking a position on the Dollar because the inflation trend (and the forecasts of Yellen on at least 2 years to reach the 2% target) would not justify three rises in the cost of US money.

Different stories in the emerging world. China has raised rates following the Fed, Brazil is in difficulty due to the continuous decline in soft commodities prices, Mexico is penalized by the approval of the tax reform of Trump. So let's see in details the prospects for the beginning of 2018 for the main emerging local currencies.


Here we can find a noticeable crossover of resistances that is worth following.

From October onwards, UsdCny reaction is substantially blurred with a classic phase of uncertainty delimited by decreasing highs. The Dollar has therefore not found the strength to go further.

Ideally we should be facing a fourth wave of a bearish movement, a scenario that would be neutralized in the case of a net move above 6.70. At that point, bearish trend line, upper triangle wall and beam of moving averages would be won and there would be new rising prospects for UsdCny at least up to 6.81 advising the closure of long positions in Cny.




The tax reform of Trump is considered as negative by the Mexican peso owners who preferred to sell in December making UsdMxn come back over 19.  As mentioned last month, the net long exposure of Mxn by hedge funds is still abundant and this will hardly allow the Peso to strengthen itself in the very short period. The idea, however, is to see UsdMxn converge towards the regression line currently at 18 in the coming months. The Peso is still a largely underestimated currency in fundamental terms.



The rather strong decline in the price of soft commodities (sugar in the first place) also hit the Brazilian Real unable to reach the long-term uptrend line in recent months. Even the monthly Macd is beginning to prepare a bullish signal that in fact would end the slow accumulation phase that the market has developed since 2016. Area 3.50 represents the most critical resistance, going further would have a negative impact on the Real for the next months.



A good reaction from the South African Rand in December, also favoured by a favourable seasonality that could however turn out to be a boomerang in January. In the last 30 years, in fact, UsdZar has risen in 22 cases, confirming that owning Rand in the first month of the year does not offer great earning prospects.

Technically, however, we can appreciate UsdZar unwillingness to go back over the old bullish trend line. A sign of vitality that at this point does not rule out in the next few months a new attempt by UsdZar to go and test the supports of area 12.

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