Strategy 01082011

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Karen Jones & Axel Rudolph | Technical Analysis Research | Monday, 01 August 2011

Weekly Outlook and Technical HighlightsStrategic Technical Themes

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1Karen Jones & Axel Rudolph | Technical Analysis Research | Monday, 01 August 2011

Summary

US T-Note - Eyes the 2009-11 resistance line at 126-30. US 2-10 swap curve is eroding major support at 2.35/2.36 (2008-2011 uptrend), maintainnarrowing bias.

Spain 10Y yield - Under pinned by the 55 day ma at 5.60 keeping pressure on the topside. Target 7.00. The Spain 10Y Vs German 10Y has met initialtarget 353, next resistance is 417. Italy 10Y yield targets 7.33.

NYMEX Crude Oil - Neutral to positive look for market to reattempt to gain a foot hold above 100.00.

JY 2-10 swap curve - Attention remains on the 61.8% Fibonacci retracement at .714.GBP 2-10 swap curve - new lows for the year, target 1.81/1.79 then1.69.

EU 10Y asset spread - Massive acceleration higher, has 69.00/70.00 in its sights.

Emerging FX Russian Rouble and Turkish Lira both set to strengthen.

EUR/CHF is in new lows, next support is 1.1275.USD/JPY is approaching the 76.25 low, daily RSI is oversold, we look for this to hold.

US Dollar Index charted an outside day to downside remain negative. EUR/USD upside bias remains, target 1.4700.

Spot gold is expected to consolidate at 1628.84/1639 resistance band, maintain positive bias.

Bund Is bid above 128.25, target 131.60. EU 2-5 swap curve - Market has not maintained break of 7 month downtrend and is back under pressure, EU 2-10 swap curve is ranging.

ITRAXX 5Y crossover - Stabilising at the 410/03 support area, favour move higher

Commodities and Other Markets

Foreign Exchange

Fixed Income

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Currency ranking vs the US Dollar for the past 5 days

Bloomberg 8.50 AMSource Bloomberg 6.18 AM

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Foreign Exchange

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US Dollar Index - weekly chartOutside day to downside remain negative

Daily Chart

Break of 3 month uptrend is negative short term.Fridays price action constituted an outside day to thedownside.

Focus is on the 73.55/50 support. This is the 78.6%retracement and the June low and must hold thedownside for a semblance of stability to remain.

Failure to hold over 73.50 on a closing basis wouldleave the market under pressure to retest the 72.70

May low

Medium term there is a risk that the move will stretch tothe 70.70 / 2008 low, however this is not our centralforecast.

Rallies will find the 55 day ma at 74.84 currently, will

offer near term resistance and the market will need toregain this zone to alleviate current downside pressure.

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EUR/USD upside bias remainsTarget 1.4700

Daily

While holding over 1.4270 on aclosing basis, an immediateupside bias remains.

Scope remains for a move to1.4580 then the 1.4696/1.4704resistance (June high and 78.6%retracement). This is the lastdefence for the 1.4940 high.

Market will remain bid near termabove 1.4185 failure here willneutralise chart and signalanother sell off the 200 day maat 1.3932.

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EUR/USD - weekly chartThe 1.5140/45 high is viewed as major resistance

Weekly

The 1.5140/45 resistance is viewed asmajor. This represents the 2009 highand the 78.6% retracement of themove down from the 2008 peak to the2010 low. While capped here, ourlonger term bias is neutral to bearish.

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Current Price 1.1480

EUR/CHF in new lows

Daily EUR/CHF Chart

EUR/CHF has charted a new low. The collapse lower wasunexpected. We have a Fibonacci extension at 1.1275, aApril to July support line at 1.11, Psychological support at1.10, then nothing until 1.0775.

The daily RSI continues to not confirm the low, howeverneither has it provoked reversal and while capped by the20 Day m.a. at 1.1721 we will assume a downside bias.Initial resistance is 1.1525, the 38.2% retracement of thelast leg lower.

Previous low at 1.1808

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USD/JPY approaching the 76.25 low, daily RSI is oversold

Daily USD/JPY Chart

USD/JPY has sold of towards and is reversing just aheadof the 76.25 February low. Ideally we would expect to see

this hold the initial test, the Elliott wave count tells us this isthe end of the move, the daily RSI is oversold and weshould see 76.25 hold.

Minor resistance is found at 78.45/55 and between the Mayand June lows and the 61.8% Fibonacci retracement at79.57/88 and around the psychological 80.00 mark and the

market will need to regain this in order to alleviateimmediate downside pressure.

Below 76.25 targets 75.50 then 75.00.

Current Price: 77.45

RSI is oversold at 16

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One to go on the radar - USD-JPY and US2Y swap Vs JY 2Y swap

Correlation with the USD/JPY and the US-JY

2 year swap broke down at the beginning ofJuly. We look for these markets to meanrevert and expect to see USD/JPY bounce

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Emerging FXThe Russian Rouble and Turkish Lira

The rouble basket has broken down from its five month 33.99-33.04trading range. This is very negative price action, if we utilise the range

as a measurement lower, this offers a downside measured target toapprox 32.10.We have minor support at 32.50 (may offer somepsychological support), however this is likely to now only offer

temporary respite. Overhead the previous range above 33.04 offers adense overhead obstacle, and this is reinforced by the 55 day ma at

33.41 while capped here the outlook is bearish.

Market has failed at 8 yearresistance line implies

the USD/TRY and EUR/TRYmarkets have topped.

TRY Basket weekly

Rouble Basket Daily

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Fixed Income

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BundBid above 128.25, target 131.60.

The market sold off to, tested and recovered off criticalsupport in the 126.52/50 region last week. This is thelocation of the 38.2% retracement of the move up, the 55

week moving average and the 2009 highs. Last weeks lowwas 126.39 and while above here, we maintain a neutral topositive upside bias. Initial support lied at 128.25 andmaintains the near term upside bias.

While we would allow for further upside probes, we target130.00, then the130.91/131.60 recent high and 78.6%retracement of the move down from 2010. We would

expect this to provoke some profit taking and would allowfor 131.60 to hold the initial test. Above 131.60 resistancelies at 132.36 ahead of 134.73/77.

Below 128.25 would signal a retest of the 126.50/39 region.Only a weekly close below 126.52, or a daily close below126.39, would be regarded as negative and signal a slide

back to the 125.22/14 July low and 38.2% retracement enroute to 123.78.

38.2% retracement at126.50

September Bund Futures Daily Chart

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Bund weekly chartAllow for further upside probes while above 126.52

Bund Futures Weekly Continuation Chart

78.6% retracement at 131.60

Inter-year pivot at 126.52

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EU 2-10 swap curveRanging

The EU 2-10 swap curve despite remains completely rangebound. The market remains capped by the 1.30/1.33 areaof resistance and the near term risk is that the market

eases lower in its range, the base of which currently lies at1.1177.

Interim support lies at 1.20/18. However key support is thesupport line, which connects all the lows since August 2010and we suspect that the market is attempting to base shortterm at this zone. If tested we again look for this to hold(1.1177).

Directly above the market lies the April high and 55 day maat 1.33 and only a move above here will initiate anywidening at this point. Above 1.33 would see an extensionto 1.36 then 1.40/1.4150 where we would again expect tosee failure.

Longer term we maintain that this is part of a major topdeveloping, but this will only complete below 1.0550 andtarget 1.00/1.02 en route to 0.70.

While capped by 1.33, our short to medium term (1-3months) bias remains neutral to narrowing..

EU 2-10Y Swap Curve Daily Chart

Support line at1.1177

Top of range at1.30/33

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EU 2-5Y swap curveMarket has not maintained break of 7 month downtrend and is back under pressure

The EU 2-5 swap failed to make any lasting impression on the 7month downtrend, but not sustained the break.

We have recently seen a massive spike down to 53 and recovery.

While we acknowledge that this spike low was exhaustive, whilecapped by the 65.40 recent high to our bias is neutral to negative. Wesuspect that this will cap to consolidate sideways near term.

For now we will neutralise our outlook , we would allow for failure and

a slide back to 57. The market has shown a reluctance to break downpresently and we would allow for some consolidation ahead of further

losses to the 48 2010 lows.

EU 2-5Y Swap Curve Daily Chart

Downtrend has seen

a small erosion

240 mins

Market ranging butunder pressure inthe range

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EU 10Y Asset SpreadMassive acceleration higher, has 69.00/70.00 in its sights.

EU 10Y Asset Swap Daily Chart

Support at 55, thentop of channel at47.60. Target 0.69,

78.6% retracement.

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Spain 10Y YieldUnder pinned by the 55 day ma at 5.60 keeping pressure on the topside.

Spain 10Y yield - Majorbase in evidence measures to 7.00. Initial

target is the 38.2%retracement of the movedown from 1995 this islocated at 6.73. Market willmaintain its bid tone,while above the 55 dayma at 5.60.

Spain VS Germany 10Y spread

Has met initial target353, next resistance is

417 the 78.6%retracement of the movedown from 1995.

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Italy 10Y yield

Pushing hard into6% . Base complete.It measures to 7.33

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US 10Y T-NotesEyes the 2009-11 resistance line at 126-30

US 10Y T-Notes Weekly Continuation Chart

More importantresistance line at

123-30

While the market is under pinned bythe April to July uptrend and 55 dayma at 123-17/11 an upside biasremains. The market is probing thisyears continuation high at 125-265and the 78.6% retracement of themove down from 2010.

Should this be convincinglysurpassed, the 2008-2011 resistanceline at 126-30 will then become the

next upside target, together with the128-01 2010 peak.

Only below 123-11 would we questionthis bullish stance, and allow forlosses to the 122-00/121-22 zone.

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US 2-10Y Swap Curve Daily Chart

US 2-10Y Swap CurveEroding major support at 2.35/2.36 (2008-2011 uptrend), maintain narrowing bias.

The US 2-10Y swap curve has started to erode the Junelow and 2008-2011 uptrend at 2.3570. A conclusive breakbelow here is required in order to signal the resumption ofits medium term narrowing bias.

A fall through it will lead to the 50% retracement of the2010-to-2011 advance at 2.305 being in focus. Here theswap curve should stabilise, though, at least temporarily.

If not, the next lower 61.8% Fibonacci retracement at 2.185will be on the map.

Resistance between the 55- and 200-day moving averagesat 2.4740/2.515 as well as along the 2011 resistance line at2.58 will ideally cap the market.

While trading below the next higher 2.59 June peak, ourlonger term narrowing bias will remain in place, though. The 2008-2011 uptrend at 2.3570 is

being eroded

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US 2-5Y Swap Curve Daily Chart

US 2-5Y Swap CurveSupport in the 1.10 area has been eroded

The US 2-5Y swap curve has eroded the 61.8% Fibonacciretracement of the 2010-11 widening phase at 1.105 andthe June 1.10 low. While capped by 1.20 the marketsimmediate focus and pressure will remain on the downside.

Minor resistance above this level is seen around the and 55day moving average at 1.223, the 200 day moving averageat 1.284 as well as at the 38.2% Fibonacci retracement at1.285.

While trading below the June 2010 peak at 1.335 our

medium term narrowing bias will remain in place, though.

Target is the 1.00 level, where the November 2010 low wasmade, the 78.6% retracement of the move from October2010 at 0.98 and the 2008-2011 uptrend at .9615.

61.8% Fibonacci retracement at 1.105

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JY 2-10Y Swap CurveAttention remains on the 61.8% Fibonacci retracement at .714

JY 2-10Y Swap Curve Daily ChartThe Japanese 2-10Y swap curves attention remains on the61.8% Fibonacci retracement of the 2010-11 steepeningphase at .714.

This is exposed, failure here targets the 78.6% Fibonacciretracement at .64/62.60 (2008-2011 support line) will betargeted and eventually the .555/.545 support area,consisting of the August and October 2010 lows.

We will maintain this forecast as long as the current Julypeak at .8157 is not being exceeded.

Resistance above the .74 June low is seen between the50% retracement at .766 and the .78 pivot (May andDecember 2010 low).

This is reinforced by the 55 day moving average at .781.

61.8% retracement is at .714

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GBP 2-10Y Swap Curve

GBP 2-10Y Swap Curve Daily ChartThe GBP 2-10Y swap curvenarrowed further and haveeroded 1.87/1.86. This waskey support for the market, notonly did it represent this yearslow but also the 61.8%retracement of the move 2010-2011.

Failure targets 1.81/79, this isregarded as the last defence

for the 1.69 2010 low.

Rallies will find initialresistance at 1.87 then1.91/1.92 May low and shouldnow be capped by the 1.977155 day ma.

New lows for the year, target 1.81/1.79 then 1.69

Support at 1.8729/1.86 eroded

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Commodities

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Spot Gold

Spot Gold Daily Chart

Expected to consolidate at 1628.84/1639 resistance band, maintain positive bias.

Spot gold has reached its next target zone, namely1628.84/1639 resistance area, consisting of the 61.8% Fibonacciextension of this years advance, projected higher from the May

low, and the upper 2010-11 uptrend channel resistance line.

While this is likely to hold the initial test. Dips are expected tofind good nearby support at 1577.60, the May high and whileabove here the market will remain immediately bid.

Further support is offered along the breached May-to-Julyresistance line at 1546, together with the 55 day moving averageat 1535 and at this years support line at 1503. Above it we will

stay bullish.

Above 1635 lurks the two vertical 15x3 Point & Figure targets at1680 and 1700, the latter of which is psychological resistanceand represents our medium term upside target.

Still further up lurks the 100% Fibonacci extension at 1731.90.

1-Week View

1680/17001535&1503

1628.8/16391577.5&1546

1-Month ViewResistanceSupport

61.8% Fibonacci extension at 1628.84 holding

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Nymex Light Crude Oil

NYMEX Light Crude Oil Daily Chart

Neutral to positive look for market to reattempt to gain a foot hold above 100.00.

Nymex Light Crude Oil has eroded the 55 day ma. Themarket has rebounded from its 55 week ma support, whichlies at 90.70 this week, and while under pinned here the

outlook is positive.

It has failed on its initial test of 100.00 , however shouldcontinue to probe the topside. We look for the market totackle key short term resistance 103.39 31st May high. Wesuspect that the market will struggle to gain a footholdabove here on the initial test and will remain some whatsidelined very near term. Above 103.39 is needed torestore upside pressure and target 110 and then114.80/117, where we would expect the market to againfail.

Failure to hold 90.70/55 week ma will target the 83.89/44zone, this is the 200 week ma and the 38.2% retracementof the move higher over the past 2 years.

Favoured long term scenario. While underpinned by the 55week ma the market is neutral to bullish market will haveanother attempt on the topside but is not expected tosustain a move much beyond the highs already seen.

200 day ma at

94.87

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ITRAXX 5Y CrossoverStabilising at the 410/03 support area, favour move higher

ITRAXX 5Y Daily ChartThe ITRAXX 5Y Crossover index has sold off towards andis stabilising at the 200 day ma support at 410. Thistogether with the 55 day ma at 403 is expected to under pinthe market. While above here it remains well placed to

retest the seven month high at 459.13.

Below 403 would target the 384.21/383.31 region, made upof the current July low and the 2010 trough. Failure herewill mean that the index is heading back towards this yearslows at 352.03.

As long as the current July low at 384.21 underpins,though, there still remains the possibility of the index risingagain.

Above the current July high at 459.13 being bettered, the50% retracement at 490.62, together with the psychological500 area, will be in focus.

Under pinned support at 410/03= 55 and 200 day movingaverages

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Technical Signals

Market is trendingbut not yet

registering abullish or bearishsignal

Is the market trending?

Is ADX>20

YES

NO

Market is nottrending

If MACD>zero

And +DI>-DI

Then Bullishtrending signal

If MACD< zero

And +DI

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Glossary

ADX

J. Welles Wilder developed the Average Directional Index (ADX) to evaluate the strength of a current trend. The ADX is an oscillator that fluctuates between 0 and 100.Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate that the market is not trending and high readings, above

40, indicate a strong trend. It does not determine if the trend is bullish or bearish BUT just establishes whether a trending situation exists.DI+ = positive directional indicator, DI- = negative directional indicator. Buy and sell signals are generated when DI+ and DI crossover.

Moving Average Convergence/Divergence (MACD),

MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics. These lagging indicators are turned into a momentum oscillatorby subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper orlower limits. There are many ways to use this indicator but the simplest is that when above zero is denotes market strength and when below zero denotes market

weakness.

NB: This is NOT a model and is intended for reference only it a basic system to determine if a market is trending or not, it cannot judgestrength of supports or resistance or whether various momentum oscillators have diverged. For this reason it is possible that the we will

occasionally hold a different position to that indicated by the tables.

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Other technical analysis reports we publish are:

Monday: Daily Market Technicals (FX), FX Emerging Markets Weekly Technicals;

Tuesday: Daily Market Technicals (FX), Bullion Weekly Technicals;

Wednesday: Daily Market Technicals (FX), Commodity Currencies Weekly Technicals;

Thursday: Daily Market Technicals (FX), Commodity Weekly Technicals;

Friday: Daily Market Technicals (FX), Fixed Income Weekly Technicals.

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Karen JonesHead of FICC Technical Analysis

Tel. +44 207 475 1425

Mail [email protected]

ZentraleKaiserplatzFrankfurt am Mainwww.commerzbank.de

Postfachanschrift60261 Frankfurt am MainTel. +49 (0)69 / 136-20Mail [email protected]

Axel RudolphSenior FICC Technical Analyst

Tel. +44 207 475 5721

Mail [email protected]

Strategy 01082011

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