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A good forecasting tool used to predict the performance of the emerging currencies is the Food Price Index compiled by the United Nations. Looking at the graph we can see a close correlation between the index of world food prices and the JPM Emerging Currency Index.
When the Food Index is above the 10 month moving average, the bull market of the emerging currencies is guaranteed (as happened in 2002-2008 and 2009-2011), vice versa when the Food Index goes below the reference moving average, the emerging currencies lose value against the U.S. dollar (2008-2009 and 2011-2012).
The graphical configuration of the current Food Index is quite interesting; with the August valueat 216 points vs. 213 in July, theoretically there would be a bullish break of the index and therefore a good bullish sign on the emerging market currencies, but we still prefer to wait for a confirmation from the data in the month of September before settling permanently closed the bear market of the emerging currencies last year.
(Graphic source: Bloomberg)
When the Food Index is above the 10 month moving average, the bull market of the emerging currencies is guaranteed (as happened in 2002-2008 and 2009-2011), vice versa when the Food Index goes below the reference moving average, the emerging currencies lose value against the U.S. dollar (2008-2009 and 2011-2012).
The graphical configuration of the current Food Index is quite interesting; with the August valueat 216 points vs. 213 in July, theoretically there would be a bullish break of the index and therefore a good bullish sign on the emerging market currencies, but we still prefer to wait for a confirmation from the data in the month of September before settling permanently closed the bear market of the emerging currencies last year.
(Graphic source: Bloomberg)
