strategy 11072011

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Karen Jones & Axel Rudolph | Technical Analysis Research | Monday, 11 July 2011

Weekly Outlook and Technical HighlightsStrategic Technical Themes

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1Karen Jones & Axel Rudolph | Technical Analysis Research | Monday, 11 July 2011

Summary

EU 2-5 swap curve makes a new low for the year and looks set to extend losses back to the 2010 low at 0.48.

One to go back on the radar. USD/JPY focus on the 4 year downtrend at 82.93.

EUR/GBP – must hold .8850/45 for an upside bias to remain.

Energy markets should remain under pinned here by their 200 day ma. But rebound should now fade for further ranging this week

US dollar Index Near term positive above 74.31/05. Pushing hard into the 75.52 downtrend. EUR/USD under pressure in range – downside risk

increases. One of our favourite charts remains USD/SEK - Strong bounce from uptrend has 200 day ma at 6.5044 in its sights.

Spot Gold is poised to challenge the 1552-1558.75 resistance, this should hold the initial test.

Despite strong rebounds on the fixed income markets this has not been enough to restart the bull move for the US T-Note or the JGB US T-note -

Rebound expected to fail 124-12/165 .The JGB’s strong rebound off the 140.45 May 11th low expected to struggle 141.17/23. However the Bund isthrough its recent high and this needs to be respected. It has negated our bearish bias and introduced scope to 129.10.

US 10Y Vs EU 10Y swap – there is a clear base which has completed on the daily chart. US T-Notes are expected to underperform Bunds.

The ITRAXX 5Y crossover - Strong rebound from the 2010 low at 383.31 allows for re-challenge of 434.17 June peak

Commodities and Other Markets

Foreign Exchange

Fixed Income

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Technical Trade Ideas

-0.85%Short 126.495, stopped out124.60127.57126.35, 126.62Sell bund30.06.2011

+0.76%Long 1.1711, current1.1800

1.2150Raise stop to1.1640

Buy at market(1.1711). Add

1.1650

Buy NOK/SEK05.07.2011

+0.65%Short 1.6082, current1.5977

1.55501.6155Sell 1.6025,1.6140

Sell GBP/USD27.06.2011

Take ProfitStop Outcome P&LTrade IdeaInstrumentDate

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Bullish and bearish trending signals

Bullish (ADX>20, MACD>0 and +DI>-DI)

NB: This is NOT a model and is intended for reference only. It is a basic system to determine if a market is trending or not. It cannot judgestrength of support 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 above.

Bearish (ADX>20, MACD<0 and +DI<-DI)

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Currency ranking vs the US Dollar for the past 5 days

Bloomberg 8.50 AMSource Bloomberg 6.26 AM

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Foreign Exchange

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The US Dollar IndexNear term positive above 74.31/05. Pushing hard into the 75.52 downtrend

Support at 74.31/05maintains theimmediate positivebias

Short term we will maintain aneutral to positive bias whileabove 74.05/31. The market ispushing hard into the 2010-2011downtrend at 75.52.

HOWEVER a close above 76.47is needed to confirm a possiblebase (23.6% retracement of themove 2010-2011). While capped

here we are likely to see furtherranging. Support lies at 74.31/05,73.50 ahead of the 72.70/80region.

Above 76.50 would target initially78.81/88, the location of the

38.2% retracement of the movedown from the peak seen in 2010and the 200 week ma. Howeverlonger term we look for a move tothe top of the multi year range at87.80.

weekly

Downtrend at75.52

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One of our favourite charts - USD/SEKStrong bounce from uptrend has 200 day ma at 6.5044 in its sights

We look for a closeabove the 200 day maat 6.5044 currently asthe indication of atest of the 6.5450recent high, the a

move to the 6.7081/55week ma.

Uptrend at6.2570

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EUR/GBP – must hold .8850/45 for an upside bias to remain

EUR/GBP has reacted back to the support

line at .8850. This together with the 55 dayma must hold for near term stability and

upside potential to be maintained.The market has recently broken above its

2 year downtrend and longer term wetarget .9140/48 (2010 high and long termFibo). Longer term we would allow for

.9414.Below .8845 would delay for a slide back

to .8723/12, which is expected to hold thedownside.

Daily

Support line and

55 day ma at.8850/45

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One to go back on the radar - USD/JPYFocus on the 4 year downtrend at 82.93

4 year downtrend at82.93. A weekly closeabove here will target85.53 en route to 87.55.

USD/JPY has caught our attention

•We believe it to be basing circa80.00

•Major divergence of the weekly RSI

•Elliott wave count is a 5th of a 5th

•TD count is 13, the last 2 indicatethat this is the end stage of thedown move.

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Fixed Income

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Bund – through recent high, negating bearish bias

Weekly Continuation

The bund the rebound haseroded the previous high at127.57 and this has negatedour bearish bias and openedup the path to the next bandof resistance at 129.10, the61.8% retracement of the2010-2011 down move.

Dips will find minor support

at 126.62, however will nowmaintain a more positivebias above 125.22, the Julylow

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EU 2-5Y swap curveNew lows for the year.

The EU 2-5 swap curve sawcomplete rejection ahead of the23.6% retracement resistance at

0.6650 and sold off to chart a newlow for this year. It has eroded the0.57 support. This was the 78.6%retracement of the move seenAugust 2010 to November 2010. Themove below 0.57 has introduced the0.48 2010 lows.

Rallies will find initial resistance at58.50, 61 ahead of the 0.654 lastweeks high.

EU 2-5Y Swap Curve Daily Chart

Fibo support at 0.57eroded

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US 10Y swap- EU 10Y swap weekly – basedUS T-notes set to under perform bunds

Market has reversed from -30, looks to be basing, this

implies US T-Notes willunderperform Bunds.

Basing action clearlyevident on the daily chart

Daily Weekly

Based – target +8

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US 10Y T-NotesRebound expected to fail 124-12/165

US 10Y T-Notes Equalised Active Daily Continuation Chart

September US 10Y T-Notes dropped to the 55 day movingaverage at 122-05 before bouncing off it and so farreaching 123-295.

The current recovery should turn out to be short lived,though, and is expected to fail around 124-12/124-145resistance area, made up of the June 16th high and theNovember 2010 high.

Once the present correction higher has run its course,

another down leg should take the futures contract to the120-15 March high and then to the 200 day movingaverage at 119-31 and below.

Longer term the 200 week moving average and 2007-11uptrend line at 119-00/118-26 are still in sight.

We believe that a new bear market began in late June

and will maintain that view while below the peak at125-265.

Short term bounce off the 55 daymoving average should soon fizzle out

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JGB Daily Continuation Chart

JGB FuturesStrong rebound off the 140.45 May 11th low expected to struggle 141.17/23

September JGB futures have charted a strong reboundfrom the 140.45 May 11th low. However rallies shouldremain capped by 141.17/23, where the March and early

June highs meet the 50% retracement of the October-to-December decline.

We should then see a slide back to 140.45, failure here willtarget the 140 region and then the major 138.38/16 supportzone (December to April lows) being targeted.

Our toppish scenario will remain in place whilst trading

below the June 141.63 high point.

Probes support around the 140.50 level

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Commodities

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Energy markets should remain under pinned by their 200 day moving averagesBut rebound should now fade for further ranging this week

WeeklyNYMEX CrudeOil

Daily BrentCrude Oil

DailyHeating Oil

200 day ma at 103.51provoked strong rebound

Bounced off 55 week ma at89.50

200 day ma at 2.73has acted as aspringboard higher

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Spot Gold

Spot Gold Daily Chart

Poised to challenge the 1552-1558.75 resistance, this should hold the initial test.

Spot gold has reversed higher over the past few days anddid so in an impulsive fashion, eroding the 1519.22/85resistance area (55 day moving average and the 50%retracement of the May decline).

It is poised to challenge the May-to-July resistance line at1552- 1558.75. This is also the June high and 786%retracement. It should hold the initial test.

We have therefore reverted to being short- and alsomedium-term bullish above 1558.75 will target the May all-

time high at 1577.60.

Dips should find interim support at 1520/21 ahead of the1486.90 2011 support line

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ITRAXX 5Y CrossoverStrong rebound from the 2010 low at 383.31 allows for re-challenge of 434.17 June peak

ITRAXX 5Y Daily ChartThe ITRAXX 5Y Crossover index dropped from the 430.70November 2010 low close to the 2010 trough at 381.31before bouncing strongly higher.

We look for a re-challenge of the 434.17 June peak,provided this does not get taken out, the index is expectedto slither back towards the 2010 low at 383.31 in the weeksahead. This is also where the 55 day moving average at382.32 can be found.

Below it lurks this year’s low at 352.

Above the June 434.17 high will target the more significant452.77/460.35 resistance area (August 2010 low, the38.2% Fibonacci retracement of the 2010-11 decline, thisyear’s high, made in early January, and the March 2010peak) could be reached but should cap.

Strong rebound from the 2010 low

at 383.31

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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<-DI

Then Bearishtrending signal

Neither criteria ismet

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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]

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