USDBRL Reaffirms Base/Reversal Count, Defines New S-T Risk Level

December 2, 2016 2:26AM CST

Today's break to another new high for the rally from 25-Oct's 3.1011 low leaves Wed's 3.3744 low in its wake as the latest smaller-degree corrective low and new short-term risk parameter it is now minimally required to fail below to confirm a bearish divergence in momentum, stem the rally and expose an interim corrective setback. Former 3.4590-to-3.5090-range resistance is expected to hold as new support ahead of further and possibly surprising gains.

Brazil 240 min

The daily log scale chart below shows the near-50%-retracement (of Jan-Oct's decline) extent and 5-wave impulsive nature of the rally from 25-Oct's 3.1011 low that warns it is just the "initial" salvo in a larger-degree correction or major reversal higher.  This chart also shows the developing POTENTIAL for a bearish divergence in the RSI measure of momentum.  The market's failure to sustain gains above our short-term risk parameter at 3.3744 will CONFIRM this divergence, break the 5-week uptrend and expose what we then would believe to be an interim correction within a broader base/reversal environment.  Given the extent and impulsive nature of the rally from 25-Oct's 3.1011 low, that 3.1011 low serves as the key long-term risk parameter the market must now break to negate a long-term bullish count and resurrect a major peak/reversal environment.

Brazil Daily

Brazil Weekly

When we say 'long-term bullish count" we're talking about a resumption of the secular bull market from Jul 2011's 1.5273 low shown in the monthly log scale chart below.  For despite the nominal magnitude of this year's 4.1736 - 3.1011 decline, it retraced only a Fibonacci MINIMUM 38.2% of the suspected 3rd-Wave rally from Mar'13's 1.9403 low to Jan'16's 4.1736 orthodox high.  Given the prospective 3-ave nature of Jan-Oct's decline as labeled in the weekly log chart above, it is entirely possible that this year's extensive relapse is just a (4th-Wave) correction ahead of a 5th-Wave resumption of the secular bull to new highs above 4.1736.

To negate or threaten this bullish call the market has to either break 25-Oct's 3.1011 low or sub-divide into a labored, 3-wave, corrective-looking structure on the current recovery attempt. As neither requirement has been satisfied yet, a broader bullish policy remains advised.

In sum, a bullish policy and exposure remain advised with weakness below 3.3744 required for shorter-term traders to move to the sidelines and longer-term players to pare bullish exposure to more conservative levels in order to circumvent some of the risk of what we'd suspect at that point to be an interim correction lower within a broader base/reversal process.  In lieu of such weakness further and possibly surprising gains remain expected with the 3.45-handle area expected to hold as new support.

Brazil Monthly

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