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Do Emerging market currencies still offer chunky gains for dollar? USDBRL - Elliott Wave Analysis

Ahead of the presidential election in Brazil, we have posted a blog on a bullish USDBRL indicating an initial long-term target of 2.7500. We have noted that a major continuation triangle was being formed since August 2013 and anticipated a break-up above the 2.4540-2.4490 highs for a completion. Break-up has then appeared in September raising hopes of a new cycle initiation. See previous blog. 

According to Elliott, “when an initial eight-wave cycle ends (at wave C on the chart), a similar cycle ensues.”* On such basis, we are able to measure an approximate long-term target (year+) by projecting a 100% of the July 2011 – August 2013 rally from the 2.1841 April 2014 key higher low. This gives us a target of 3.1081 which also coincides with the 61.8% retracement of October 2002 – August 2008 decline.

Adding to the pool of evidence of a bullish USDBRL scenario is a potential multi-year double bottom at 1.5570 / 1.5300. Break above the 2.6180 December 2008 will signal a completion, indicating a long-term target of 3.6790. This target also coincides with the 161.8% Fibonacci projection of the July 2011 – August 2013 rally.

To calculate the nearest target, we are looking for a move towards the top of the projected bull-channel now at 2.7328 (rising by 0.0186 a month). 

Given the analysis, it appears we are at an early stage of a major rally with a sufficient upside. Through different projection techniques we have arrived at the nearest moving target of 2.7328 (rising by 0.0186 a month). In the long-term (year+) we have arrived at a target of 3.1081 and 3.6790 further out.

* Prechter R., Frost A. (2005). Elliott Wave Principle. Georgia: New Classics Library