The Moral of Yesterday’s Historic Market Rally

More Crisis Ahead for Stocks… Yet, Investors in Exotic Currencies Are Poised for Quadruple-digit Profits from the Same Turmoil

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By John Ross Crooks The stock market made history yesterday.

As you may have heard, the Dow Jones industrial average posted its largest one-day increase ever. In fact, the index surged more than 900 points.

Perhaps you even heard this stock market correction has been deeper and sharper than any correction before it in history – including the 1929 crash.

Of course, you know what followed the 1929 crash.

So as the United States and the rest of the world take every effort in pushing through a recession and skirting a depression, there will be plenty of tough times still ahead. Some bright spots and market rallies will be mixed in.

But that’s all we’ll see for quite a while – just little spots.

Until a legitimate recovery pushes through the financial system, the global economy is set to majorly disappoint. That’s why we’re so excited about the opportunities available for catching major trends within the exotic currency universe.

We can’t be any more direct when we say that the foreign-exchange market was due for a major rebalance. And lucky for us, this rebalancing act is still in the beginning stages.

Capital flowing out of emerging markets is gaining serious momentum. The global economy is getting worse by the day. Demand for these markets is disappearing…all because the system of lending and borrowing has frozen up. A major recovery in confidence is the first and most important step in thawing out the credit markets. And that is key to jumpstarting global demand and shoring up the global economy.

Until then, we’re happy to play the U.S. dollar strength against currencies tied to budding economies whose promising development has hit some serious roadblocks. Over the past week, we’ve explained why the Czech koruna, the Polish zloty, the South African rand and the Thai baht have hit some serious roadblocks lately.

And it’s certainly not too late to profit from their recent troubles. The U.S. dollar, and ultimately the flow of assets out of emerging markets and into the United States, is experiencing a short respite. We anticipate this will hand us attractive opportunities to add to our current open positions.

We also plan to use this period to possibly jump into new and exciting exotic currency opportunities. Today, we’ll foreshadow two brand new opportunities… one in Turkey and the other just south of the Rio Grande.

Turkey: Another Victim In the Middle of Global Crisis

It seems that few countries of decent size are protected from global economic deterioration. Turkey is no different.

While they’ve taken measures in recent years from becoming too overleveraged or irresponsible with investment and economic decisions, the country can’t escape the fact that most the rest of the world acted irresponsibly.

What this means is that Turkey’s economy will suffer from the same capital flow dynamics and the same demand dynamics that have investors fleeing from most emerging markets.

Perhaps the crisis won’t impact Turkey as severely as others … and perhaps Turkey isn’t currently wrapped-up in political or geopolitical instability…but this wave of global financial crisis is washing over everyone.

And besides, the Turkish lira fits right into our “foreign-exchange rebalancing” theme. A look at a long-term chart of the lira indicates that major trend change might have begun.

Key Resistance Levels Say the Dollar Is Rising While the Lira Is About to Take a Fall

When the USD/TRL price bars are going up in this chart it indicates U.S. dollar appreciation. When the price bars are going down in this chart it indicates Turkish lira appreciation.

Let us be as clear as we can with our expectations:

The diagonal blue line tells us that the long period of Turkish lira appreciation is now over. And now the U.S. dollar is appreciating relative to the Turkish lira.

It’s worth noting that the price of the lira/dollar pair is breaking higher through the horizontal red line. The red line indicates that this pair is hitting a key resistance level. Not long after that, the price of USD/TRL tested another critical resistance level which you can see with the blue horizontal line above.

The red line has now become a key level of support and could become the launch pad for a new leg higher in USDTRL.

Considering the global backdrop, a rising U.S. dollar and a falling Turkish lira makes sense.