An Update On Wobbly EM Currencies

Small Moves on Monday, But Charts Still Ominous

The moves in the EM currencies the market is currently most focused on have actually been fairly small on Monday – however, when looking at the charts, one cannot help thinking that they are merely consolidating ahead of the next major move. For instance, the Argentine peso and the South African Rand have built triangles in recent days, which more often than not tend to be continuation formations. The Turkish lira has also failed to find any new fans and has formed a symmetrical triangle as well on the daily chart (a somewhat steeper sloped one).

Of course there is no guarantee that these triangles will actually turn out to be continuation formations. It is just something that has a fairly high probability per experience.

 

 

The Argentine peso vs. the US dollar daily (official rate) – building a triangle – click to enlarge.

 

 

 

 

The Rand-dollar rate: here too a triangle is visible on the daily chart. Due to the last minute pullback in January, Rand-dollar is at a new closing high for the move on the monthly chart – click to enlarge.

 

 

The Turkish lira vs. the dollar – yet another symmetrical triangle – click to enlarge.

 

 

Argentina Most Likely to Go off the Rails

The ‘blue peso’ (Argentina’s black market rate for the peso, depicted in red below) has also pushed higher again following a brief respite a few days ago:

 

 

There is still a wide gap between the official and the black market rate of the peso – click to enlarge.

 

 

One reason why we are focused on the peso is that Argentina’s government is the one that seems most prone to making additional mistakes. It appears that the Kirchner administration is clueless as to what to do next. If the plunge in the peso continues as a result, it is likely to affect other EM currencies through contagion effects. A few excerpts from a recent article in the Guardian illustrate the government’s aimless flailing about: