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Karen Jones & Axel Rudolph | Technical Analysis Research | Monday, 04 July 2011

Weekly Outlook and Technical HighlightsStrategic Technical Themes

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1Karen Jones & Axel Rudolph | Technical Analysis Research | Monday, 04 July 2011

Summary

Swap curves are widening notably US 2-10 and GBP 2-10 and we revert to widening short term on both. The EU 2-10 will maintain a short termwidening bias while above 1.20.Longer term we maintain a narrowing bias

EUR/CHF is trying to base we suspect. Time to exit long Swiss Franc positions. EUR/SEK has rejected top of 6 month channel. Short term looking for

further weakness, but longer term viewed as a base and favour recovery from low 9.00 region..

EUR/GBP has broken above the top of a 2 year channel target .9140/45 then .9414 longer term.

Energy Markets have 'mean reverted' to long term moving averages. Strong rebounds from moving averages must be respected - suggests down moves

over for now.

A weaker Japanese Yen is evident. We look for USD/JPY to recover to the 4 year downtrend at 83.13 and EUR/JPY to rally towards the 123.33 2011high.

US dollar Index failed to sustain break of trend line and reacted back. Further ranging necessary. EUR/USD holds 200 week ma and is ranging, priceaction has neutralised immediate outlook.

Spot Gold- Breakdown targets the 50% retracement at 1442.70. We are short to medium term bearish (next 3 months).

Sharp reversals in fixed income markets indicate that the markets have seen major turns. Bund has reversed from its 50% retracement at 127.31 andlooks set to head lower, ditto JGB and Us T-Bonds

US 10Y Vs EU 10Y swap -Market has reversed from -30, and looks to be basing, this implies US T-Notes will underperform Bunds.

The ITRAXX 5Y crossover - The November low at 430.70 has led to failure, has sold off to the 383 2010 low. This is now exposed.

Commodities and Other Markets

Foreign Exchange

Fixed Income

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Technical Trade Ideas

Short 1.6025, current1.6089

1.55501.6265Sell 1.6025,1.6140

Sell GBP/USD27.06.2011

No position yet124.60127.57126.35, 126.62Sell bund30.06.2011

Long 1.6170, current1.6100

1.731.59201.62, 1.6140Buy USD/TRY27.06.2011

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

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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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The US Dollar IndexFailed to sustain break of trend line and reacted back. Further ranging necessary

Choppysidewaysbehaviour

The US dollar index failed to maintain a break of the 2010-2011 downtrend, and has reacted sharply lower, back intoits range. This is disappointing price action and we willneutralise our immediate outlook.

We note that price action is underpinned by the 2008-2011support line, which is located at 72.80. We also note thatthe market has recently sold off to and held over the73.48/78.6% retracement of the move seen in May and thisleads us to assume that the US dollar is trying to base

longer term.

HOWEVER a close above 76.47 is needed to confirm apossible base (23.6% retracement of the move 2010-2011). While capped here we are likely to see furtherranging. Support lies at 74.00, 73.50 ahead of the 72.70/80region.

Above 76.50 would target initially 78.81/94, the location ofthe 38.2% retracement of the move down from the peakseen in 2010 and the 200 week ma. However longer termwe look for a move to the top of the multi year range at87.80.

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EUR/USD holds 200 week ma and is rangingPrice action has neutralised immediate outlook

weekly

The rally higher last week,implies there is some

unfinished business on thetopside. We have extremelytough resistance initially at1.4732 and then at 1.5145which is expected to cap themarket.

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EUR/GBP has broken above the top of a 2 year channel

The weekly close above the topof the channel at .8980 issignificant as this implies that

the market has further upsidepotential to initially .9140/48.The 2010 high and the 61.8%retracement of the move downfrom the 2008 spike. Our longerterm target is .9414/31, theOctober 2009 high and the

78.6% retracement of the movedown from 2008.

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EUR/CHF - looking more interestingIs this trying to base?

EUR/CHF is attempting to base and has seen a robustrebound from the 1.1800 region. This low was extremely

close to the base of its 3 year channel and we have to askourselves is this part of a more significant turn?

It is possible however the measurement lower from the1.24-1.32 consolidation measures to 1.1600, we have aFibonacci extension to 1.1650 (from the 2007 peak) bothsuggest that there is room for one more probe lower and

we must allow for this scenario.

A close above the 1.2400/08 pivot and 55 day ma wouldhowever add weight to the idea that the market was tryingto base and trigger a rally towards the 1.2865 one yeardown channel.

EUR/CHF daily

1.2400/08 keypivot and 55 dayma

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Time to exit long Swiss France trades

USD /CHF Weekly

USD/CHF has reachedthe base of a 8 yeardown channel, RSI is

diverging

CAD/CHF Weekly

Market has reversedfrom 8 year supportline, connecting lowsin 2003, 2009 and2011 (currentlylocated at .8408. Lastweek was a key weekreversal.

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EUR/SEK rejects top of 6 month channelHowever longer term is viewed as basing, looking for market to find support in low 9.00 region

EUR/SEK has seen a swift rejection from the top of its 6month channel, located at 9.2820 currently.

The emphatic rejection, coupled with a divergence of thedaily RSI points to a corrective set back near term and wewould allow for a pullback into the 9.0285/8.9385 band (the61.8% retracement of the rally higher seen in June and thebase of the channel).

With the 55 and 200 day ma located at 9.0378/9.0203 welook for the market to ideally base in the low 9.00 region.

Weekly

Daily

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Weaker Japanese Yen

USD/JPY weekly chart

Looking for 83.13 4 year downtrend to hold the initial test. BUTlonger term viewed as a major

base developing

EUR/JPY weekly chart

EUR/JPY has based at the 55week ma, Fibo and 200 day ma implying a medium term rally to123.33 2011 high.

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Fixed Income

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Bund - has failed at the 50% retracement and looks to have topped

Daily Continuation

The bund has seen sharp rejection from the 50%retracement resistance at 127.31. It has eroded its 23.6%retracement support at 125.64 and is under pressure nearterm. We believe it will extend losses back to the 124.62/26region. This is the location of the 38.2% retracement of themove up from April and the 55 day ma.

Intraday rallies should now struggle 126.42/62 (16th Junehigh) and remain capped by the 127.57 we view this asan interim peak. Firstly the market has failed a a key long

term Fibonacci retracement, secondly the daily RSI hasdiverged and lastly we have a 13 count on the TD Combo.

Failure at the 50% retracement and failure circa the 200WEEK ma average at 126.65 suggests that the market hascharted a significant turn at 127.57.

A close below 124.40 would add weight to that view andtarget 123.71 then 122.80 en route to 121.13/50 the 55week ma.

Note that if the market closes below 125.70 today this willbe a bearish engulfing pattern.

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BOBL weekly chartMajor rejection from 118.17/44

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EU 5Y SwapMajor rebound from key support at 2.56 (the 2005 low).

The EU 5Y swap has reversed from the 200 day ma at2.63 today. It has reversed just ahead of major support atthe 2.56 2005 low. We are not surprised to see reversalhere as this is such a key zone.

This major support is reinforced by the 55 week ma at 2.47and we believe that the market has now based.

Immediate resistance is offered by the 55 day ma anddowntrend at 2.856/2.88, while we would allow for this tohold the initial test, we also look for it to be eroded. Above

here should generate some upside interest a and retarget3.00/05 en route to the 3.24 April high.

Dips will find intraday support at 2.75 and are expected toremain underpinned by 2.63/56.

EU 5Y Swap Daily Chart

55 day ma and

downtrend at2.865/2.88

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EU 2Y SwapVery strong rebound off the 2010-2011 uptrend at 1.9835

The EU 2Y swap has sold off to and reversed from the 9month uptrend at 1.9835. The strong rally from here anderosion of resistance at 2.12/14 implies that the market hasbased.

The move above 2.14 targets 2.22/24, the 55 day ma and7th June high. While this may hold the initial test we shouldsee an eventual erosion for a move to 2.36 then the 2.48peak.

Dips should find initial support at 2.12/10 ahead of the

2.00/1.9835 region which now looks set to underpin

EU 2Y Swap Weekly Chart

Uptrend at

1.9835

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EU 2-10 swap curveCorrective phase appears to be ending. Below 1.20 will confirm

The EU 2-10 swap curve has tuned lower from 1.30. It ispossible that the market has ended its corrective phaseand is resuming its narrowing bias. But are cautious andrequire a break below 1.20

This holding would imply a further upside attempt. Note thismove is regarded as corrective only and we look to findbetter levels to re-establish the longer term narrowing bias.

Below 1.20 should see the narrowing bias resume andattention revert to the 1.0550 region these were the lows

seen throughout Q4 2010.

Above 1.30 lies tougher resistance at 1.32/1.33 (March andApril high), where we would expect to see signs of failure.

Longer term a major top is being drawn. This will completebelow 1.0550 and target 1.00/1.02 en route to 0.70.

Above 1.33 would see an extension to 1.36 then1.40/1.4150 where we would again expect to see failure.

EU 2-10Y Swap Curve 60 minute Chart

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US 10Y T-NotesSharp drop on the weekly chart nails a major top

Trades back below the 55 week moving average at 122-24

US 10Y T-Notes Weekly Continuation ChartSeptember US 10Y T-Notes

have formed a major top at 124-315 before rapidly dropping

through the 122-145 mid-June

low towards the 55 day movingaverage at 121-20.

In its vicinity a minor correction

higher may be seen but thisshould be short lived before

another down leg takes thefutures contract to the 120-15

March high and then to the 200

day moving average at 120-00and below.

Longer term the 200 week

moving average and 2007-11uptrend line at 118-29/235 are

now in focus.

We believe that a new bear

market has now begun.

Any short term recovery isexpected to fail around the 123-

00 level or, at worst, around the123-175/124-12 (June 21st lowand June 16th high) area.

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US 2-10Y Swap Curve Daily Chart

US 2-10Y Swap CurveTrend reversal is being seen, should widen from now on

The US 2-10Y swap curve has reached the 2.36 level, onlyto then sharply widen towards the 2.59 level so far. It andthe 2.60 level may well cap it for a few days beforeanother push towards the 2.69 April extreme and thenthe 2.73 2010 high is taking place.

The latter level from now on represents our medium termupside target.

Minor support is found along the breached resistance lineand the 55 day moving average at 2.525 with further

support coming in along the 200 day moving average at2.47.

Only an unexpected drop through the June 2.36 low wouldvoid our now widening outlook.

Trend reversal is taking shape

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US 10Y swap- EU 10Y swap weekly

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

implies US T-Notes willunderperform Bunds.

Basing action clearlyevident on the daily chart

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JGB Daily Continuation Chart

JGB FuturesTrades back below the 50% retracement at 141.23 and now looks toppish

September JGB futures are trading back below the 50%retracement of the late 2010 descent at 141.23, havingbriefly overshot to 141.63 before changing tack again.

The 200- and 55-day moving averages at 140.75 and140.50 now beckon again and these should be reached inthe weeks to come.

Once the 140.45 May 11th low has been slipped through,the 140 region and then the major 138.38/16 support zone(December to April lows) will be back in the picture.

Our toppish scenario will remain in place whilst tradingbelow the June 141.63 high point.

We have thus changed our outlook from the positive onewe adopted only last week to a bearish one once more.

Trend reversal lower is being witnessed

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GBP 10Y swapShot up from the 3.33 support area and now targets the 3.93/4.07 region

GBP 10Y Swap Weekly ChartThe GBP 10Y swap has been repelled by the 61.8%Fibonacci retracement of the 2010-11 advance at 3.3309and also broke out of its three month downtrend channel.

This indicates that a significant trend reversal higher is nowunderway with the 3.93-to-4.07 region being our longerterm upside targets. It consists of the April and Februaryhighs.

First, though, the 2011 resistance line at 3.7261 will needto be sliced through.

While trading above the June low at 3.315, our bullishoutlook will remain prevalent.

Minor support is seen around the 50% retracement of the2010-11 advance at 3.47 and along the 2010-2011 supportline at 3.231.

Has bounced off support at 3.33

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GBP 2-10Y Swap Curve

GBP 2-10Y Swap Curve Daily ChartThe GBP 2-10Y swap curve has clearly broken through the2010-11 downtrend line at 2.0170 and now has the2.135/2.165 resistance area in sight. This is made up of theDecember and January highs.

It is expected to be overcome, however, with the 2.2925April 2009 high and the 2.30 region then being back on themap.

We will hold onto this widening forecast as long as the 200day moving average at 1.9772 underpins.

Minor support is found between the 2.02 early June highand the psychological 2.00 level.

Widens towards the 2.135/2.165 resistance area

Downtrend line at 2.0170 has been breached

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Commodities

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Spot Gold

Spot Gold Daily Chart

Breakdown targets the 50% retracement at 1442.70

Spot gold has dropped through the 2011 uptrend line andnow also trades below the 55 day moving average at 1519.

The 38.2% Fibonacci retracement of this years advance at1474.54 and the May trough at 1462.10 are now beingtargeted and should be fallen through in the weeks ahead.

The 50% retracement of the 2011 advance at 1442.70 isour medium term downside target for the second half of theyear. Further down lurks the 200 day moving average at1416.82, together with the 2008-11 uptrend line at 1405.93,

both of which may well be hit in the months to come.

Minor resistance above the 55 day moving average at 1519is seen along the breached 2011 uptrend line at 1542 andin the 1550/1558.75 region which is where last weeks highand subsequent reversal lower was made.

We are now short- and medium-term bearish.

1-Week View

1550/1558.751442.7&1416.8

1516.5&1532.31474.54/1462.1

1-Month ViewResistanceSupport

Downside targets are seen

at 1462.10 and 1442.70

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Energy Markets 'mean revert' to long term moving averagesStrong rebounds from moving averages must be respected - suggests down moves over for now

Weekly NYMEXCrude Oil

Holding 55 week masupport at 88.77

Daily BrentCrude Oil

200 day ma at 102.28provokes strongrebound

DailyHeating Oil

200 day ma at 2.7038

Daily Natural Gas

200 day ma at 4.168

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ITRAXX 5Y CrossoverThe November low at 430.70 has led to failure, has sold off to the 383 2010 low

ITRAXX 5Y Daily ChartThe ITRAXX 5Y Crossover index came off the 430.70November 2010 low and has reacted back to the 2010 lowat 383.31. While this has held the initial test, it is nowexposed.

Below it lurks the 55 day moving average at 379.03 andalso this years low at 352.

Only a now no longer expected rise to above the June430.13 high will void our bearish medium term forecast.

In this case the more significant 452.77/460.35 resistancearea (August 2010 low, the 38.2% Fibonacci retracementof the 2010-11 decline, this years high, made in earlyJanuary, and the March 2010 peak) could be reached butshould cap.

Targets 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

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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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