Inter Market Divergence Preceded Trend Reversals
Inter Market Divergence Preceded Trend Reversals
Today I explore three divergences between charts that are indicative of a coming trend
reversals in the short term and long term.
First, the short-term setup of the Nifty v/s USDINR
A near-term bullish inter-market divergence occurred when the USDINR made a new high at 83 last week, but Nifty fell to 17719, making a higher bottom. The follow-up should be a rising Nifty and falling USDINR, confirming this divergence and reversing the trend.
Sometimes it is good to explore long-term divergences also between related pairs. This is a monthly chart of the Dollar index along with the USDAUD. In 2011 the new low in the USDAUD pair was not confirmed by the DXY. Remember, the AUD is a commodity market, and commodities like copper, gold, and silver made new highs in 2011 before the commodity cycle rolled over. Only Oil did not do so. So the inter-market divergence marked the final turning point for the sector and pair long term. In 2022 the reverse was true. The DXY made a new multi-year high without being confirmed by the USDAUD pair. This is because many commodities held their own. Copper or Gold or Silver or Oil did not break the 2020 lows. This divergence can be an advance warning of a major reversal in the trend for the dollar long term. Such a change would give further fillip to the Commodity cycle that abruptly paused in 2022.
The comparison and divergence between the AUD and DXY can also be seen between the USDBRL and DXY. The chart below shows the monthly chart of both and an inter-market divergence in both 2011 near the bottom of the dollar cycle and 2020-2022 at the top end of the dollar cycle. This should precede a more prolonged reversal in the dollar trend for the years ahead.
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