Top 3 charts this week: BRAComp, USDJPY, Soybean

10:48 AM October 9, 2018

Summary:

  • BRAComp surges higher after a giant Bolsonaro lead in the first round
  • USDJPY pulls back from the key resistance zone
  • Soybean recovers, tests the key technical level

Brazilian markets were in euphoria on Monday following an unexpectedly strong result for Jair Bolsonaro – a pro-market candidate in Brazilian presidential elections. Bolsonaro was expected to win the first round but only by a moderate margin on Haddad and struggle against him in a runoff. Meanwhile he got 46% of the votes (to Haddad’s 29%) and nearly secured the presidency in the first round. This result means that a return of Workers Party to power (Haddad is their candidate as ex-president Lula is in jail) – a scary scenario for the markets – is now hard to imagine. Brazilian stocks were seen as undervalued due to a political risk and thus the rally. The bulls will now face a daunting task of breaking the 89000 zone that covers 2018 highs. Such move would also deny the ABC correction structure but for now it remains a resistance. A conclusion is possible ahead of the runoff that will take place on 28 October.

Just the ABC correction or a move above 89k? This situation may be concluded ahead of the second round of presidential elections in Brazil. Source: xStation5

As Brazil is all about elections and Europe is mired in another Italian crisis, global markets are afraid of rising US Treasury yields. For a long while it was a process that was positive for USDJPY, as yield spread widened but investors become concerned that high yields may hurt growth and equity markets and this in turn could favour the Japanese currency. It will be interesting to see how will that play out: the pair has reversed from the key 114.50 zone with a huge bearish engulfment. However, a mid term momentum remains positive – the price is above averages, and a sell-off stopped at 113 – a previous resistance that now serves as a support. It will take a while to make fresh local lower lows in this trend so for now bulls are still in play.

Bulls on USDJPY have their chances at the 113 zone. Source: xStation5

Soybean is a market where Brazilian politics and global issues intersect. Recall that prices tumbled earlier this year as trade conflict between China and the US intensified and Beijing slapped 25% tariffs on the US grains. That resulted in a spread of similar size between the US and Brazilian soybean as the Chinese turned to the South American market. Fast forward to present and a stronger Brazilian real makes the local grain more expensive and the US one more attractive as a consequence. Will that be enough for prices to crack a double resistance of declining moving averages and a 23.6% Fibo of the bear market? If bulls are successful here, their next target is at $915.

Soybean prices are at a resistance. A break higher would be a good step to leave the bear market behind. Source: xStation5

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