In U.K. the Monetary Policy Committee led by Governor Mervyn King raised its asset-purchase target by 50 billion pounds ($78 billion) to 375 billion pounds and said the purchases will take four months to complete. Separately, the European Central Bank cut its key interest rate below 1 percent for the first time and China lowered benchmark rates for the second time in a month.

I believe it is time to update the most exciting chart: the U.S. Dollar Index. I’ve analyzed the dollar index in the past few months and drew attention to the bullish outlook on the price chart. This was due to a major inverted head & shoulder pattern getting closer to completion. In May, U.S. dollar index broke above 81.70 levels and started consolidating above this critical support/resistance level. The index has a chart pattern price target of 89 levels. After the breakout above 81.70, the index moved sideways for almost a month and now it is close to another strong move. As long as price stays above 81.60-81.70 area, dollar index will remain strong and target 89 levels.

It is important to note that volatility is now at a 6 month low and suggests high volatility in the coming days/weeks.

Since my last update on Natural Gas price moved higher and reached the important resistance area between 2.75 and 2.80. Earlier analysis discussed the possibility of a head & shoulder bottom reversal.

http://techcharts.wordpress.com/2012/06/18/natural-gas-3/

Natural gas is now closer to a decisive price action. A breakout above 2.75-2.80 will confirm the head and shoulder bottom and target 4.0 levels. It is important to note that 3 different technical resistances are overlapping at this resistance area. Year-long downward trend line, 200 day moving average and the neckline of the inverted head & shoulder pattern. A breakout should be significant. Failure to break above 2.75-2.80 area will pull the price back to 2.5 levels and result in more sideways consolidation below 2.75.

Natural gas had a strong rebound from 2.2 levels. It recorded +10% gain in one day. Price formed a perfect symmetry after finding support at 2.2 levels, a requirement for a head and shoulder pattern. Now we have symmetrical Left and Right shoulders. Confirmation of the inverted head and shoulder pattern will be a decisive break above 2.75-2.85 area. It is important to note that both the neckline and the long-term 200 day moving average is forming resistance between 2.75 and 2.85. Breakout above this area will be positive for Natural Gas. Keep this chart on your watch list.

Lately I’ve been focusing more frequently on the currency markets and especially on crossrates against the U.S. dollar. Several developed and emerging market currencies are forming major reversal patterns (inverted Head & Shoulder) that is bullish for the dollar in the short/medium-term.

http://techcharts.wordpress.com/2012/01/22/u-s-dollar-index-eurusd/ (January)

http://techcharts.wordpress.com/2012/02/11/u-s-dollar-index-eurusd-2/ (February)

Inverted H&S pattern is a widely followed technical chart formation and has a very low failure rate. As a major reversal pattern, Head & Shoulder bottom (inverted Head & Shoulder) forms after a downtrend and its completion marks a change in trend. Head & Shoulder bottom pattern is not complete, and the downtrend is not reversed until neckline resistance is broken. With friday’s close, U.S. dollar index breached its neckline between 81.70 and 82 levels. This should be regarded as a positive technical action for the dollar and would require to search for more evidence that signals dollar strength in the short/medium-term. Below are some of the charts that have similar inverted H&S patterns, either in the phase of completion or already completed. These charts also support the case for dollar strength in the following weeks/months.

USD/BRL broke above its neckline at 1.92 as we have discussed in an earlier update. USD/IDR, USD/SEK are two other crossrates that have breached above their strong resistances. USD/CAD and USD/ZAR are still completing their base patterns. I’m not sure if we are going to see another QE that might put pressure on the dollar but so far, analyzed charts above are signaling an increasing demand for the dollar.

]]> http://techcharts.wordpress.com/2012/05/18/usdbrl-u-s-dollarbrazilian-real-2/ Fri, 18 May 2012 07:06:18 +0000 Aksel Kibar, CMT http://techcharts.wordpress.com/2012/05/18/usdbrl-u-s-dollarbrazilian-real-2/

U.S. dollar continues to gain strength against emerging market currencies. I’ve analyzed several bullish dollar charts in the past and USD/BRL was one of them. Over the past few weeks we have seen a fast move in USD/BRL, breaking above 1.92; inverted H&S pattern’s neckline. This resulted in a spike towards 2.0 levels and it is likely to continue towards the H&S pattern price target at 2.4 levels. Emerging market currencies are completing 2-3 year-long base formations against the USD and this signals strength for the dollar in the intermediate term.

VIX is the ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market’s expectation of stock market volatility over the next 30 day period.

In the beginning of March I analyzed the CBOE VIX right after the volatility rebounded from 15 levels to 19 levels. Followed by a short period of equity market correction, optimism improved during March and the volatility index eased towards 14.6 levels. However, optimism in global equity markets didn’t last long and since the beginning of April VIX reversed from 15 levels and reached 22 levels. Three month-long sideways consolidation between 14 and 22 could be an inverted Head & Shoulder reversal chart pattern. This bullish reversal pattern suggests higher levels for the CBOE VIX in the coming weeks if the index breaks above 22 levels, the resistance of the technical chart formation . Please note that extreme pessimism in  equity markets mirrored the re-test of 50 levels on the VIX.

A decisive break above 22 levels can be followed by a surge in CBOE VIX towards 50 levels once again. In the past four years April-May period proved to be negative for equities.

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.

While I was reading futures magazine (www.futuresmag.com) I came across this nice presentation with numbers on natural gas-producing countries. I wanted to put the numbers in a nice graph and share them on this post. Meanwhile, I have updated the energy sector charts and reviewed the technical outlook. Below are some numbers for top 10 natural gas-producing countries with their annual production, consumption and proven reserves. In terms of production and consumption EU is in great disadvantage. While Qatar and Norway have the advantage to export their production due to their relatively limited consumption. In terms of proven reserves Russia, Iran and Qatar are the top 3 countries that can benefit from higher gas prices if they were to rebound from today’s depressed levels.

Let’s start our technical review with Natural Gas prices. After the global sell-off in 2008, natural gas had a weak recovery from 2.45 levels to 6.1 levels. Since the beginning of 2010, price moved sideways/downwards and recently reached 2009 low levels at 2.45. However during the same time period both Light Crude Oil, Brent Crude Oil and Heating Oil moved higher and recovered most of their 2008 losses. 2.45 level is a major support for Natural Gas and we can expect a rebound from this level towards the 200 day moving average at 3.45 levels.

In the beginning of February I analyzed Brent Crude Oil and drew attention to the bullish outlook and the symmetrical triangle that formed over the past one year. We can see that Brent Crude is now breaking out of the year-long consolidation range and helping the energy sector perform better in the commodities universe. It is important to note that large part of Goldman Sachs Commodity Index is composed of energy sector and strength in energy sector will have a positive effect on the GSCI.

http://techcharts.wordpress.com/2012/02/05/brent-crude-oil/

It was a strong week for Light Crude Oil. Price moved from $99 levels to $104 levels and closed at the important horizontal resistance. Light Crude might be forming a bullish continuation Head & Shoulder pattern with the neckline (resistance) standing at $103.75. Next week we should watch Light Crude for a possible breakout from this bullish pattern. A decisive breakout above $103.75 will target $115-$120 area in the intermediate term.

Almost all related charts are giving the same bullish signals. Brent Crude oil broke out of its consolidation range earlier in the month. This week we have seen a breakout on GSCI and now we are expecting a similar breakout on Light Crude Oil. Goldman Sachs Commodity Index breached above its horizontal resistance at 675 level. This should be regarded as a bullish signal for commodities. For the strength to continue on GSCI in the following weeks, price should stay above 675 level.

We start February with an update on the Goldman Sachs Commodity Index. I think this is one of the most exciting charts that is likely to present great opportunity in the following months. GSCI tested the horizontal resistance at 673 levels for the 4th time in the past three months. Price formed a nice symmetrical triangle right below the horizontal resistance which should be regarded as a bullish sign. With the latest consolidation, Bollinger bands contracted and volatility (Bollinger band width) reached to extreme low levels. Almost everything is in place for a powerful breakout. Slightly longer term view is also supporting the inverted head & shoulder continuation pattern which is also bullish for commodities.

A decisive breakout above 673 levels will signal continued strength for commodities in the first half of 2012.

In December I wrote about Soy Meal. A commodity that I’ve often traded and analyzed. Agricultural commodities are perfect for traders who are starting with a small capital. Their low margins allow you to trade 1-2 contracts per trade. Unlike Gold, Silver or even Crude Oil that have high margin requirements, agricultural commodities are better place to start with. I had a very timely call in December on Soy Meal when it was testing the lower boundary of its long-term symmetrical triangle at 270 levels(http://techcharts.wordpress.com/2011/12/10/soy-meal/) Since then price have rebounded sharply and reached 320 levels.

Sharp rebound in December 2010 and pullback in January has probably formed a nice inverted H&S pattern. The neckline of the inverted H&S pattern and the 200 day moving average are overlapping at 325 levels by increasing the significance of this resistance. If we see a decisive break above both the neckline and the 200 day moving average, Soy Meal will generate a clear buy signal in the short/intermediate term. Soy products should be on our watch list in the next few weeks.

Here is a valuable analysis that would mainly interest Canadian investors and traders. Throughout the 3 years I’ve spent in Canada I’ve realized how important the crossrate has been for the Canadian economy and its export/import business. Currency advantage (when I started my studies in 2004, 1 U.S. dollar equaled 1.4 Canadian dollar), better education and multicultural society were some of the reasons why I chose Canada to study for my Masters degree in Economics. Though the latter two are still very much in place (good education & multicultural society), thanks to its commodity based economy and relatively better banking system + more stable real estate market, the currency advantage  has disappeared with the Canadian dollar gaining strength.

Strong CAD helped importers of goods and services for the past decade. This relationship might be changing. Traders and businesses should watch out for a possible depreciation in Canadian dollar if the above analysis were to be confirmed. USD/CAD might be forming an inverted H&S chart pattern (base formation, bullish for USD) and a breakout above 1.065 can result in further depreciation of the Canadian dollar. It is interesting to see a symmetrical triangle forming as the right shoulder of the 2 year-long inverted H&S pattern. What’s more interesting is that the same symmetrical triangle has also formed on the S&P/TSX Composite equities index.

Conclusion: Charts are showing bullish signs for the USD and bearish signs for the equities. However we should wait for strong confirmations. Breakout from the symmetrical triangle consolidation ranges will confirm the next directional movement on both asset classes. Strong support/resistances for the equities and currencies are the 200 day moving averages (12,450 for S&P/TSX Composite Index and 1.00 for USD/CAD). As long as S&P/TSX Composite stays below 12,450 and USD/CAD above 1.00 we will expect strong U.S. dollar and weak equities.

Strength in U.S. dollar continued this week with the dollar index moving away from 80 levels, an important technical support level. Bullish outlook remains intact with the index possibly breaking out of a 2 year-long inverted H&S pattern (neckline: 80 levels). In the past, bullish/bearish crossovers of the long-term moving averages worked well and to support the recent bullish outlook it is worth mentioning the 100-200 day moving average crossover that occurred in September 2011. This signal hasn’t been reversed since then and it suggests further strengthening of the U.S. dollar against major currencies.

Price will now challenge the minor resistance at 81.60 levels. Unless the dollar index falls below 80 levels in the following months we will continue to follow the greenback with a clear bullish bias.