Major Bottom in USDBRL?

September 14, 2016 3:25AM CDT

The past 2-1/2 months' price action has been choppy and generally lateral.  It's been our long-standing assertion that, technically, a market will always be in one of only three states:  trending, consolidating (within the trend) or reversing.  That's it.  Clearly, this market has been doing "something other" than trending recently.  This leaves the price action from 10-Aug's 3.1127 low as either consolidation (within this year's major downtrend) or that of a reversal.  In the analysis below we'll detail the reasons we believe this week's clear break above 29-Aug's 3.2911 high exposes a REVERSAL high that may be major in scope, including the possibility of a resumption of the secular bull to new highs above Jan'16's 4.1736 high.

First and from a very short-term perspective, the past couple days' break above 29-Aug's 3.2911 initial counter-trend high exposes the new larger-degree trend as up.  This is a technical fact that leaves corrective lows in the wake of this rally at 3.2402 and 3.1643, respectively, as our new micro- and short-term risk parameters this market is required to fail below to defer or threaten a new bullish count.  Former 3.28-handle-area resistance is considered a new and key support condition ahead of further and possibly shocking gains.

Brazil 240 min

Brazil Daily

This week's strength above not only 29-Aug's 3.2911 high but also resistance from the late-Jul corrective high around 3.30 defines 10-Aug's 3.1127 low as the END of AT LEAST the 5-wave decline from 31-May's 3.6394 high and possibly the end to a major 3-wave and thus corrective sequence down from 21-Jan's 4.1736 high as labeled in the daily log scale chart above.  The confirmed bullish divergence in WEEKLY momentum below would seem to reinforce a count calling for at least a larger-degree correction higher.

The daily chart above also shows a textbook version of a head-&-shoulders-bottom reversal pattern that projects to the 3.48-area, which is also home to the (3.4817) 38.2% retrace of this year's entire 4.1736 - 3.1127 decline.

Brazil Weekly

Brazil Weekly

In addition to the:

  • bullish divergence in weekly momentum
  • head-&-shoulders reversal pattern and
  • complete Elliott sequences

the monthly log scale chart below shows that last month's 3.1127 low came within a mere 22 pips of the (3.1149) Fibonacci MINIMUM 38.2% retrace of the nearly 3-YEAR (and suspected 3rd-Wave) rally from Mar'13's 1.9403 low to 21Jan16's orthodox high of 4.1736.  The prospect that that Jan high is the orthodox end to the rally is evidenced by five weeks of higher weekly closes between mid-Dec and mid-Jan above 21Sep15's 3.9757 high weekly close on a weekly log close-only chart above.  In other words mid-Sep'15's intra-week spikes to a 4.2493 high are considered rogue events with little, if any, technical merit.

Against the backdrop of the secular bull market from Jul'11's 1.5273 low, Jan-Aug'16's "relatively minor" sell-off attempt falls well within the bounds of a mere correction that could lead to a (5th-wave) resumption of the 5-year bull market to one more high above 4.1736.  At this juncture it's foolish to forecast such a major move following such a relatively short-term display of strength.  What is crucial however is the market's definition of specific, objective risk parameters at 3.2402, 3.1643 and certainly 3.1127 that the market is now required to fail below to defer, threaten and then ultimately negate a new bullish count that could evolve into currently incomprehensible gains.

These issues considered, traders are advised to neutralize all previously recommended bearish exposure, move to a new bullish policy and first approach setback attempts to 3.2900 OB as corrective buying opportunities ahead of further and possibly long-term gains.  We anticipate a move to at least the 3.48-handle in the month or two ahead.  Depending on one's personal risk profile, weakness below 3.2402, 3.1643 and/or 3.1127 is required to defer, threaten or negate this call.

Brazil Monthly

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