During a week when the Dow Jones pushed above 10,000 and oil set up a new high this year, there certainly is plenty to look at across emerging markets (EM), and in particular in Latin America. Most Latin equities have been posting further impressive gains this week, and most currencies look strong against the US dollar at the moment. Below are a few charts, which Risk Watchdog has been looking at lately.

Brazilian Real Has Further To Go Still… First up, the Brazilian real continues its relentless push higher against low yielders such as the dollar and yen. Against the greenback the real is on the verge of pushing back inside its long-term bullish trend channel, which dates back to 2005. Despite some signals from the treasury that it seeks to halt the appreciation of the currency, my colleagues and I believe that the unit’s carry appeal, and bullish sentiment for energy and mining stocks, will continue to drive the real higher against the dollar in the near term. I’d caution, though, that the dollar index could be in for some retracement. This possibly has already seen the global rally take a breather in today’s trading. I think this could see the real initially struggle to break into its old trading range.

Exchange Rate, BRL/US$

Against the yen, BMI called the move higher this week, initiating a position at JPY51.79/BRL on October 12. This view has played out nicely so far, already up 3.2% in the key view portfolio, with the real on the verge of pushing through resistance and hitting Business Monitor’s JPY54.00/BRL target. The weekly chart suggests that upon a potential break higher, the real could rally further towards the next key technical level at JPY57.00/BRL.

Exchange Rate, JPY/BRL

Further Rally In Brazilian Local Debt Likely… Staying with Brazil, there has been quite a bit of movement in Brazilian local debt. The 10-Year NTNF real-denominated paper saw sharp yield compression in last night’s trading, narrowing some 80bps from 12.8% to around 12.0%. Risk Watchdog believes a move lower towards major resistance near 11.6% is on the cards, as strong macroeconomic fundamentals and a rallying real feed through into long-end domestic debt.

Brazil – 10-Year NTNF BRL Bond (Yield, %)

Meanwhile, with the economy out of recession and on a firm recovery trail, the short-dated 2-Year NTNF bond sold off recently. The yield is coming up against key support near 11.6%, with a push potentially higher setting up a move towards 12.4%. The sharp compression of the 2s-10s in Brazil, therefore, signals to me the growing perception that with monetary easing now behind us, interest rates could start to climb in the near term, as the economy regains its momentum. Meanwhile, the longer-dated (and more liquid) paper is suggesting growing confidence in the long-term prospects of Brazil as an economic powerhouse. I also think that this shows that longer-term inflation expectations remain largely sanguine.

Brazil – 2-Year NTNF BRL Bond (Yield, %)

Chilean Peso Set To Rally… Something of a regional laggard, the Chilean peso has come off key technical support against the Japanese yen at CLP6.3000/JPY and broken through near-term resistance at CLP6.0000/JPY in recent trading. Though hardly a high-yielder by any means (the policy rate remained at 0.50% following this week’s central bank meeting), Risk Watchdog believes that with copper pushing back to trendline resistance recently, the terms of trade may be once again be conducive of a stronger peso in the near term. Major resistance will be coming up at CLP5.9000/JPY.

Exchange Rate, JPY/CLP

More Upside For Uruguayan Peso… After coming off multi-year trendline support earlier this year, the Uruguayan peso has consistently been taking out BMI’s short-term targets of UYU22.50/US$ in September, and most recently the UYU20.40/US$ target on October 15. I would not rule out that further appreciation for the unit remains on the cards, according to my colleagues, as the Uruguayan authorities will not be overly alarmed at the recent rate of appreciation of the peso against the dollar, as the real effective exchange rate with the country’s principal trading partner Brazil, remains highly competitive. There could be further room for the peso to head towards the upper limit of its long-term trading range around the UYU17.00/US$ mark. Bullish sentiment has been underpinned by the centrist and business-friendly message sent by presidential candidate José Mujica who remains the most likely contender to succeed incumbent president, Tabaré Vázquez, in this month’s election.

Exchange Rate, UYU/US$