global technical outlook - spring 2013€¦ · global technical outlook (semi-annual, intermarket...

Global Technical Outlook – Spring 2013Risk Dominoes and Reverberations: A Technical Perspective

George Davis, CMTManaging Director and Chief Technical AnalystRBC Dominion Securities Inc. (416) [email protected]

March 25, 2013

This report was priced between March 11-15, 2013 unless otherwise stated.

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Global Technical Outlook - Spring 2013: Risk Dominoes and Reverberations: A Technical PerspectiveMarch 25, 2013

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Table of Contents Intermarket Overview and Key Themes 5

Preferred Trades 6

SECTION I: Intermarket Focus 7

A Reassessment of Risk: Intermarket and Fusion Analytics 8-21

SECTION II: Foreign Exchange Overview 22

Key Price Levels – G10 FX 23G10 FX Charts 24-31Key Price Levels – Emerging Markets 32Emerging Markets Charts 33-39Key Price Levels – EUR Crosses 40EUR Cross Charts 41-45


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Table of Contents SECTION III: Fixed Income Overview 46

Key Yield Levels – US, CAN, AU, UK and EZ Markets 47US Yield, Swap Curve, Forward/Forward and Spread Analysis 48-56Canadian Yield, Swap Curve, Forward/Forward and Spread Analysis 57-64Australia Yield, Futures Curve, Forward/Forward and Spread Analysis 65-71UK Gilt Yield, Swap Curve, Forward/Forward and Spread Analysis 72-79Euro Yield, Swap Curve, Forward/Forward and Spread Analysis 80-87Eurozone Periphery Yield and Spread Analysis 88-89


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Intermarket Overview and Key Themes

Section III: Fixed Income Market Outlook (pages 46-89)

We prefer to fade short-term rallies in global yields arising from the Cyprus situation

Our general bias is for steeper swap rate curves, while forward/forward rates are displaying a more cautious outlook for inflation

Section II: Foreign Exchange Market Outlook (pages 22-45)

We are turning more bullish on the USD relative to our Fall 2012 outlook, as the USD has posted bullish trend reversals against many of the G10 currencies

Valuation metrics favour pullbacks in the EUR crosses after recent multi-month advances; mixed EM view

Section I: A Reassessment of Risk (pages 7-21)

Analysis of our intermarket and fusion metrics indicates that some of the more common “risk on/risk off”relationships are beginning to break down

Indicates that a new valuation dynamic may be forming whereby asset classes elicit more traditional responses to macroeconomic data


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6

Preferred Trades – FX and Fixed Income Markets

Based on our analysis, the following represent our preferred trade ideas in the current market environment:

Foreign Exchange:

The trend reversal trade: Short EUR/USD (see page 27).

The continuation trade: Long USD/TRY (see page 34).

The setup trade: Short EUR/CAD (see page 41).

Fixed Income:

The fade trade: Short US 10-year yield (see page 48).

The range trade: Fade rallies in 10-year Bund yields (see page 80).

The spread (widening) trade: Sell 10-year Gilts versus Bunds (see page 87).


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Intermarket Focus: A Reassessment of Risk

SECTION I

An analysis of some of our intermarket and fusion metrics shows early signs of a breakdown in some of the traditional “risk on/risk off” relationships.

Removal of “tail risk” in the Eurozone, as well as an improvement in US macroeconomic variables are having the greatest impact on asset classes.

The behaviour of the USD and bond yields are a major factor and catalyst in the breakdown of some of these relationships.

Suggests that the market may be moving toward a new valuation dynamic where traditional economic responses to data are more dominant.


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S&P 500 Index Goes “All In” For Risk …..The S&P 500 Index is in a powerful uptrend, as defined by the ascending channel pattern that has been in place since 2009.

We note that the 40-week (200-day) moving average has contained pullbacks since early 2012.

In addition, the Index has traded above the Ichimoku Cloud since that time.

Prices are now poised to test a key double top that has formed against the secular high at 1576.

A daily close above this level would add to bullish price momentum, exposing the 1600 threshold ahead of the channel top at 1673.

Our colleagues in the equity Trend & Cycle group are concerned about a correction materializing in Q2 2013.

Indeed, the overbought nature of the weekly studies corroborates this possibility, with a return below support at 1475 opening up the trendline at 1422 in this regard.

However, we stress that the channel base at 1302 will have to be pierced in order to trigger a bearish long-term trend reversal.

Sharp rally in the S&P 500 Index underscores positive risk sentiment

Source: Bloomberg

Close above double top @ 1576 would add to bullish sentiment, highlight channel top @ 1673

Weekly studies move to overbought levels

Ascending channel delineates uptrend and positive risk sentiment; key support against channel base @ 1302


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….. As Global Stimulus Measures Underpin the MarketStimulus measures have been the prime catalyst in underpinning risk sentiment during these challenging and uncertain times.

In the chart on the left, we illustrate how the various stimulus measures introduced by the Fed, ECB and more recently the BOJ have served to place a ”floor” under stocks.

We have included a chart depicting the ratio of the Fed balance sheet to that of the ECB as a proxy to depict the various stimulus programs that each central bank has undertaken since 2008.

On some occasions, such as QE1, the market has rallied in response to the introduction of a stimulus program.

However, since that first policy initiative, the market has usually rallied in anticipation of new stimulus measures being introduced to quell a decline in the market resulting from weakening growth metrics.

This begs the question as to how long such a policy response/conditioning mechanism can persist – and what would happen if the central bank liquidity “punch bowl” were suddenly taken away.

Investors have been “conditioned” to expect a stimulus response to declining markets

Source: Bloomberg

QE1 QE2 QE3 and

Japan

LTRO 1 & 2


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Yet Something is Amiss: Risk Relationships are Breaking DownTo us, the most interesting byproduct of recent price action has been the breakdown in some of the more traditional “risk on/risk off” intermarket relationships that have persisted since the US credit crisis began in 2007-2008.

We discuss this theme in the next six slides, highlighting some of the key relationships that are showing signs of erosion or breakdown.

The first chart to the left in this regard is an overlay chart of the DXY versus the S&P 500 Index.

After displaying an increasing negative correlation from 2008 through 2011, we note that the correlation has recently reached its lowest level in 2 years, moving from -0.86 to -0.23.

As an offshoot of this development, both instruments have begun to trend upward in unison since the end of January.

Hence, “risk on” via rising equities does not necessarily imply a weaker USD in the current environment.

On the flip side, USD strength no longer reflects the “flight to liquidity” response normally associated with periods of “risk off” behaviour (i.e. the USD may be losing its safe haven status).

Inverse relationship between S&P 500 Index & DXY erodes; USD loses safe haven status

Source: Bloomberg

Negative correlation between SPX and DXY moves to its lowest level in 2 years

SPX and DXY have bothbeen trending upward since late January


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Correlation Between the S&P 500 and ADXY is DecliningThe next relationship that we examine is the movement of the S&P 500 Index relative to that of the ADXY.

Historically, both of these instruments have tended to move in tandem since the onset of the credit crisis.

Namely, both rallied during “risk on”phases and weakened during “risk off” phases.

However, we note that both instruments have diverged since mid-January.

This has caused the correlation between these two instruments to decline from +0.76 to +0.26 – the lowest since October 2008.

Thus, “risk on” via rising equities does not necessarily imply a stronger ADXY in the current environment.

Also corroborates the point in the previous slide that the safe haven status of the USD may be eroding.

Price action between the S&P 500 Index and the ADXY is beginning to diverge

Source: Bloomberg

Correlation between SPX and ADXY moves to its lowest level since 2008

The SPX and ADXY have been moving in opposite directions

since mid-January


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Is the FX Relationship With Risk Changing? The AUD/JPY cross has been our most preferred FX proxy for risk over the last few years.

Of note, this cross has consistently had a higher correlation with the S&P 500 Index since 2008 when compared to EUR/JPY.

Although this still remains the case, we note that both correlations have decreased since early October.

Therefore, there is evidence that the FX response to risk is beginning to change in the current environment.

This theme merits attention as we go forward in 2013.

FX reaction to risk is beginning to evolve

Source: Bloomberg

AUD/JPY is diverging with price moves in equities at times

Correlation between AUD/JPY & SPX declining

Correlation between EUR/JPY & SPX declining


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Stocks and US 10-Year Yields Start to Move TogetherStocks and US 10-year yields have been on a divergent trend path since 2010.

However, note the shift in late 2012 –when stocks and yields began to rise together.

This hints at a breakdown in one of the traditional “risk on/risk off”relationships.

Notably, yields are no longer staying depressed due to QE.

Rather, they appear to be trading off of more traditional macroeconomic responses: i.e. strong economic data leads to higher yields and vice-versa.

US 10-year yields are becoming more responsive to economic data

Source: Bloomberg

Stocks and yields are now moving higher together - suggesting that the

impact of QE may be wearing off


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-1

-0.8

-0.6

-0.4

-0.2

0

0.2

May -07 May -08 May -09 May -10 May -11 May -12

World equities Crude oil Base metals 2yr CA-US swap spreads

CAD Correlation With Stocks Makes a Hasty ReversalThe negative correlation between USD/CAD and equities has been one of our preferred intermarket metrics to assess the risk backdrop.

We note that this relationship exploded on the scene in 2008 after the onset of the credit crisis gave way to the “risk on/risk off” dynamic that has been driving price action in the asset classes ever since.

However, USD/CAD has not been moving to new lows of late despite global equities reaching cyclical highs.

The breakdown in this relationship is yet another indication that the risk dynamic is changing.

2-year CA-US swap spreads are currently the most significant variable for USD/CAD, reflecting the recent shift in the interest rate dynamic in Canada.

It is interesting to note that crude oil has the least significant negative correlation with USD/CAD – and this has been the case for the past year.

Equities are no longer the most relevant correlational variable for USD/CAD

Source: Bloomberg, RBC Capital Markets

Correlations are based on 1-year weekly rolling changes

Equities the main proxy for the “risk on/risk off” trade since 2008

Significant shift in correlations suggests an evolution/change in the

underlying risk dynamic


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Recent CAD Weakness Independent of Oil SpreadThe spread between WTI and Western Canadian Select widened out significantly between September and December 2012.

This was the main catalyst behind the weakening in CAD – which began just as the spread began to widen.

However, we note that the spread peaked above 40 in January and has moved continuously lower since then – breaking below 20 in the process.

Regardless, USD/CAD has diverged and traded higher despite the tightening in the spread.

Thus, the breakdown in the spread suggests that the CAD is weakening independently of the oil dynamics (other factors are now at play).

Oil spread no longer a negative factor for CAD

Source: Bloomberg

USD/CAD continues to rally despite reversal lower in WTI-Western Canadian Select spread

Divergence suggests other factors are

causing CAD to weaken


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Fusion Analysis and the Changing Risk Dynamic

Changing risk dynamic has market refocused on US economic fundamentals

Source: Bloomberg

40+ year support trendline contains collapse in US building permits

Stabilization confirmed upon return above old triple bottom @ 788K.

Next resistance @ 967K

US consumer sentiment forms double bottom @ 55.3. Poised to test key resistance @ 83.7

US unemployment peaks @ 10%. Break below 38.2% Fibo retracement @ 7.9% exposes 50% retracement level @ 7.2%

Inverse relationship between S&P 500 (red) and initial

claims (blue). Claims feature long-term support @ 302K


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Intermarket Links for RBC US Economic Scorecard

RBC ESC shows asset classes exhibiting more “traditional” economic responses

Source: Bloomberg

RBC ESC begins to diverge with commodities

Topside breakouts for RBC ESC and US 10-year yields

RBC ESC and S&P 500 both move to new highs

RBC ESC and DXY now moving together after

diverging in 2012


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Stabilization in Europe Tied to Firmer US Rates?There has been a tight directional relationship between the Euro Stoxx Banks Index and US 10-year yields.

Both trended lower through mid-2012 as the Eurozone crisis and QE weighed on each instrument.

However, yields began to reverse higher in late 2012 through the present as the US economic data generates positive surprises.

Draghi’s comments that the ECB will do “whatever it takes” to preserve the Euro in July, along with the subsequent introduction of the OMT served to eliminate “tail risk” in the Eurozone.

Hence, stabilization in both the US and Eurozone has caused the market to re-focus on economic fundamentals.

Euro Stoxx Banks Index tracking US yields higher

Source: Bloomberg

Stabilization in Europe and the US triggers a bullish trend reversal for the Euro Stoxx Bank Index and a

bearish breakout for US 10-year yields


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USD/JPY Diverging Sharply From US 2-Year YieldsUSD/JPY has tracked moves in US 2-year yields very closely over a number of years.

However, this tight relationship broke down in late 2012, with USD/JPY moving sharply higher while 2-year yields languished near 0.25%.

Indicates that the market is taking the threat of more proactive QE by the BOJ very seriously, weakening the JPY in response.

As a result, USD/JPY looks to be eying the 100 threshold now.

Market takes threat of accelerated QE by BOJ more seriously

Source: Bloomberg

USD/JPY diverges sharply from US yields as threat of aggressive QE by the BOJ takes hold in the market


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More Proof That the Market Fears QE From the BOJAside from the divergence between USD/JPY and US 2-year yields discussed on the previous slide, other intermarket metrics illustrate the fact that the market is bracing for a more aggressive QE program from the BOJ.

The slide to the left is a good example of this – with USD/JPY mirroring the sharp spike higher in the Nikkei since last October.

Similar to the US case, the market expects that QE will weaken the JPY but reflate some asset classes such as equities.

The second part of this relationship shows that 10-year JGB yields continued in their downtrend, with a sharp plunge toward 0.60 noted in February.

Again, the push lower in yields underscores that its divergence with USD/JPY and the Nikkei reflects market expectations with regard to QE.

USD/JPY and Nikkei decouple from JGB yields as QE risks increase

Source: Bloomberg

After having the same long-term directional bias, JGB yields decouple from

USD/JPY and the Nikkei in October


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Relative Asset Class Performance – The “Great Rotation”?

Stocks have been outperforming bonds on a relative strength basis since 2009!

Source: Bloomberg

Stocks break out versus bonds: the “Great Rotation”

Commodities start to outperform bonds again

Commodity uptrend versus USD testing key inflection point

Stocks break out versus the USD

Stock outperformance vs commodities reaches new multi-year high

USD underperformance versus bonds begins to stall


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Foreign Exchange Overview

SECTION II

We are turning more bullish on the USD relative to our Fall 2012 update.

The USD has posted bullish trend reversals against many G10 currencies, favouring additional gains for the greenback.

EM currencies are displaying mixed long-term profiles.

Valuation metrics and study divergences have introduced downside risks for the EUR crosses.


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Key Price Levels to Watch – G10 FX

USD/CAD: 0.9917 and 1.0292DXY 78.92 and 85.50EUR/USD: 1.2881 and 1.3629USD/JPY: 94.79 and 99.74GBP/USD: 1.4855 and 1.5691USD/CHF: 0.8931 and 0.9648AUD/USD: 1.0149 and 1.0538


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USD/CAD Tests Key Triangle Top Amidst Consolidation Phase

Key Support & Resistance Levels:

Support: 0.9917 0.9737 0.9563Resistance: 1.0292 1.0447 1.0658Source: Bloomberg, RBC Capital Markets

USD/CAD remains within a broad consolidation that has been in place since 2010-2011, as illustrated by the triangle pattern.

However, we note that prices are now testing the triangle top at 1.0292 after failing to reach the base of the triangle in September 2012.

A weekly close above 1.0292 would resolve the triangle pattern to the topside and end the multi-year consolidation phase after clearing the Ichimoku Cloud pattern.

The resulting bullish trend reversal would establish 1.0447 and 1.0658 as the next topside targets in this regard.

Although initial support is located at 1.0118, a daily close below secondary support at 0.9917 will be required to nullify the topside risks that are present and cement a continuation of the consolidation.

In addition, a daily close below the triangle base at 0.9563 will be required in order to resolve the pattern to the downside and set a new bearish phase in motion.

Our bias is to use pullbacks to support at 0.9917 and 0.9737 as a buying opportunity, with 1.0447 serving as a target.

Implement 0.9563 as a stop loss for this view.

Close above key triangle top @ 1.0292 would suggest that a long base has

formed; target 1.0447 and 1.0658 next

Must pierce triangle base @ 0.9563 in order to commence a new bearish phase

Studies at neutral valuation levels


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Bullish Trend Reversal for the DXY The DXY displayed resiliency throughout 2012, trading above 79.00 for most of the year after forming a triple bottom at 78.92.

We note that recent price action has triggered a bullish trend reversal above 82.62 after the weekly studies traced out a bullish divergence.

Price action has also just cleared the 40-week (200-day) moving average as well as the Ichimoku Cloud pattern.

This development establishes 50% Fibonacci retracement of the 2010-2011 decline at 83.26 as the next topside target to watch, followed by the double top at 84.41.

Additional resistance is located against 61.8% Fibonacci retracement at 85.20 – which is just below a key long-term triangle top and resistance trendline at 85.50.

Current price action suggests that pullbacks to support at 81.18 (the 40-week/200-day moving average) and 79.21 should attract buying interest.

Place a stop just below the triple bottom at 78.50 for this view (the triple bottom is located at 78.92).



Bullish divergence

Triple bottom @ 78.92 contains downside in 2012

Bullish trend reversal above 82.62 targets 83.26 and the double top @ 84.41 next

Support located @ 79.21 and 77.47


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-40%

-30%

-20%

-10%

0%

10%

20%

30%

Jan-05 Jan-06 Jan-07 Jan-08 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

707274767880828486889092

% Open Interest

DXY Index RHS

RBC USD Basket: EUR, JPY, GBP, CHF, CAD, AUD

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Net USD Positions Shift From Short to Long

Market reacting to bullish trend reversal in DXY, but positioning becoming crowded

Source: Bloomberg, CFTC, RBC Capital Markets

USD oversold

USD overbought


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Correction in EUR/USD Comes to an End



The corrective bounce in EUR/USD that characterized H2 2012 came to a halt in early February via the formation of a bearish engulfing week.

This was subsequently followed by a bearish trend reversal below 1.3200 as the weekly studies issued a sell signal from overbought levels.

These developments shift the focus down to the 40-week (200-day) moving average at 1.2881 as the next downside support target to watch, followed by the November reaction low at 1.2662.

We note that 1.2662 is also flush with the base of the Ichimoku Cloud pattern.

Tertiary support is located below here at 1.2444.

Based on these bearish developments, rallies to resistance at 1.3150 (38.2% retracement) and 1.3491 (50% Fibonacci retracement) are expected to attract selling interest.

Place a stop above the key triangle top and resistance trendline at 1.3629 for this view.

Valuations overbought; sell signal

Key resistance trendline @ 1.3629 serves as stop for bearish view

Bearish engulfing week caps rally in EUR/USD

Trend reversal below 1.3200 exposes 200-dma @ 1.2881, followed by 1.2662


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The 100.00 Threshold is in Sight for USD/JPY!



USD/JPY had been trapped in a very well-worn 75.00-85.00 trading range from late 2010 through 2012.

However, all of this changed in October 2012 when the pair pierced a rectangle top at 84.51.

This development confirmed the establishment of a ”long base”, shifting the balance of risks to the topside.

While we cannot rule out an extension to the next resistance levels at 99.74 and 101.45, we note that some consolidation is now in store as prices exceeded the measured move objective for the rectangle at ~ 93.07.

This is reinforced by the position of the weekly studies – which have reached their most overbought levels since 1981 as prices deviate away from the Ichimoku Cloud and 200-day moving average.

A daily close below initial support at 94.79 would expose 91.98 as part of a broader retracement phase in this regard.

The 89.23/91.98 support zone is expected to attract renewed buying interest once valuations move to more neutral levels.

We prefer tactical shorts against 97.80 and 99.75, with a take profit at 92.00 and a stop loss above 101.50.

Studies at most overbought levels since 1981!

Bullish resolution of rectangular trading range

Next resistance levels located @ 97.79 and 99.74 after measured

move objective achieved

Fibo retracement levels to watch after breakout


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Bearish Triangle Breakout Ends Consolidation in GBP/USDGBP/USD has been consolidating within the confines of a triangle pattern since 2009.

We note that the recent break below the triangle base at 1.5641 was a very bearish development as it confirmed that the triangle pattern was a continuation pattern.

The bearishness of the breakout was also amplified by the fact that prices took out not only the 40-week (200-day) moving average, but also the Ichimoku Cloud pattern.

With the bearish trend reversal already pushing prices down to support at 1.4855 (61.8% Fibonacci retracement of the 2009 rally), a weekly close below this level would expose 1.4611 and 1.4338 (76.4% retracement) as the next support targets to watch, followed by the 2010 reaction low at 1.4231.

The recent trend reversal suggests that pullbacks to resistance at 1.5273 and the old triangle base at 1.5691 will attract renewed selling interest.

We would place a stop loss above the 200-day moving average at 1.5810 for this view.Key Support & Resistance Levels:


Valuations still in neutral territory

Cannot rule out a return to the 2009 low after the bearish resolution of a symmetrical triangle pattern

Old triangle base @ 1.5691 and 200-dma @ 1.5810 serve as

resistance

Downside retracement targets to watch now


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USD/CHF Nears Key Resistance Trendline at 0.9648 The recent decline in USD/CHF was contained by the base of the Ichimoku Cloud pattern as the weekly studies approached oversold levels.

We note that the recent break above initial resistance at 0.9416, which was flush with the 200-day moving average, triggered a bullish trend reversal.

With the weekly studies now displaying upward momentum, the trend reversal shifts the focus up to a 13-year resistance trendline at 0.9648.

A weekly close above this level would obviously be a very bullish development, exposing the 0.9951/1.0067 resistance zone on the topside thereafter.

Support at 0.9176 and 0.8931 is expected to attract buying interest for an attempt to push higher in this regard.

Place a stop loss below the 38.2% Fibonacci retracement level at 0.8851 for this view.



Neutral valuations

USD/CHF poised to test key 13-year resistance trendline @ 0.9648 after trend

reversal above 0.9416

61.8% Fibonacci retracement @ 0.9951 contained the rally in 2012

Support now located @ 0.9176 and 0.8931


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AUD/USD Continues to ConsolidateAUD/USD remains in a consolidation phase depicted by a symmetrical triangle pattern that has been in place since 2011.

We note that congestive support against a double bottom at 1.0149 has contained the most recent decline in the pair.

A daily close above initial resistance against the 40-week (200-day) moving average at 1.0370 would add to topside price momentum and set the stage for a re-test of the triangle top at 1.0538.

While a daily close above this level would produce a bullish triangle breakout, we note that the quadruple top that has formed between 2012 and 2013 at 1.0613 will serve as a pretty strong resistance barrier as well.

A break above this level would then shift the focus up to the 2012 high at 1.0856.

Given the bullish implications of the triangle pattern, we favour using pullbacks to support at 1.0149 and 0.9969 as a buying opportunity.

Implement the triangle base at 0.9822 as a stop loss for this view.



Divergence prompts latest pullback

Double bottom @ 1.0149 contains downside for now; key triangle base @ 0.9822

Key triangle top @ 1.0538 and double top @ 1.0613 serve as strong resistance

Symmetrical triangle pattern defines multi-year consolidation phase


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Key Price Levels to Watch - Emerging Markets

USD/MXN: 12.2162 and 12.8491USD/TRY: 1.7417 and 1.8777USD/RUB: 29.7861 and 33.5795USD/INR: 51.4950 and 55.0672USD/KRW: 1047.16 and 1148.28EUR/HUF: 281.67 and 317.2312m CCN Forward: 6.2605 and 6.4685


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Bearish Breakout for USD/MXNUSD/MXN has just posted a bearish breakout below a double bottom at 12.5500.

This resolved a complex head and shoulders pattern to the downside as well, leaving 76.4% retracement of the 2011-2012 advance at 12.2162 as the next support target.

Secondary support is located below here at 12.0173.

Prices have also been trading below the 40-week (200-day) moving average at 12.9802 as well as the Ichimoku Cloud since last November, thereby reinforcing the bearish backdrop.

We note that the head and shoulders pattern suggests that an eventual move toward the 2011 low at 11.4800 cannot be ruled out over the long-term.

Although the weekly studies are lodged near oversold levels, recent price action suggests that valuation-driven retracements to resistance at 12.5500 and 12.8491 will attract renewed selling interest.

Place a stop above 12.9802 for this view.



Studies linger near oversold levels

Resolution of head and shoulders pattern after prices pierce double bottom @ 12.5500

Resistance @ 12.5500 and 12.8491 expected to attract selling interest

Next support target located at 76.4% retracement level


34

34

Bullish Triangle Breakout for USD/TRY



USD/TRY has been consolidating within a triangle pattern since 2011.

However, that has changed recently given the bullish breakout above the triangle top at 1.7957.

We note that the weekly studies are also turning up from near-oversold levels.

The bullish trend reversal and pattern breakout exposes 1.8339 and the 2012 high at 1.8777 as the next resistance targets to watch.

If prices can clear congestive resistance at 1.8339, they would also pierce the Ichimoku Cloud pattern that has contained rallies since mid-2012.

Tertiary resistance is located above here at 1.9224 – which is very close to the measured move objective of the triangle pattern at ~ 1.9317.

Recent price action suggests that support at 1.7939 and the triangle base/triple bottom at 1.7417 should now attract buying interest for a continued move higher.

Place a stop below 1.7180 for this view.

Bullish trend reversal exposes congestive resistance @ 1.8339, followed by 2012 high @

1.8777 as Ichimoku Cloud top is challenged

Triple bottom @ 1.7417 serves as key support

Studies near oversold levels; buy signal


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USD/RUB Rejects Triangle BaseUSD/RUB has been in an orderly uptrend since 2011, with each successive pullback attracting buying interest at higher levels.

We note that prices have recently rejected a broader triangle base at 29.5954 in affirmation of the bullish backdrop.

The weekly studies have also issued a buy signal from oversold levels as prices posted a bullish trend reversal above 30.2997.

This favours a test of the 40-week (200-day) moving average at 31.2377 initially, followed by secondary resistance at 31.8450 (which is just above the Ichimoku Cloud).

Tertiary resistance is located at 32.6462, followed by the key triangle top at 33.5795.

Current price action suggests that pullbacks to support at 30.1462 and 29.7861 should attract renewed buying interest.




Oversold valuations; buy signal

Bullish trend reversal exposes 200-dma @ 31.2377, followed by 31.8450

Rejection of triangle base @ 29.5954 reaffirms bullish sentiment. Triangle

base serves as key support


36

36

USD/INR Eying Channel Top Via Triangle Pattern USD/INR has been consolidating within the confines of a symmetrical triangle pattern since mid-2012.

Prices are currently testing the triangle top at 55.0672 as the weekly studies are lodged in neutral territory.

We note that a weekly close above 55.0672 would produce a bullish pattern breakout and affirm the long-term uptrend that is in place.

It would also allow prices to clear the 40-week (200-day) moving average as well as the Ichimoku Cloud pattern.

This would then shift the focus up to 55.8825, followed by the major ascending channel top at 57.1159.

The 2012 secular high at 57.3275 serves as tertiary resistance in this regard.

The uptrend in place suggests that support at 53.2433 and 51.4950 should attract buying interest going forward.




Studies depict neutral valuation backdrop

Initial support located @ 53.2433 followed by area of congestion @ 51.4950

Close above symmetrical triangle top @ 55.0672 would add to bullish sentiment, exposing the key ascending

channel top @ 57.1159


37

37

USD/KRW Enters a Corrective Phase USD/KRW formed a double bottom against 76.4% retracement of the 2007-2009 advance at 1047.16 as the weekly studies moved to an oversold extreme in early 2013.

In fact, we note that the studies had moved to their most oversold levels since 1989!

The subsequent bullish trend reversal above 1068.44 has confirmed the commencement of a retracement phase that features 1124.00 and 1148.28 as topside targets.

Based on the descending triangle pattern that has formed, corrective moves to the triangle top at 1148.28 are expected to attract renewed selling interest.

Also note that the triangle top is flush with the Ichimoku Cloud top.

Although initial support is located at 1076.23 and 1054.49, we stress that the double bottom at 1047.16 will have to give way in order to reassert the overall downtrend that has been in place since 2009.

This would then shift the focus down to 1031.40 thereafter.

Place a stop above 1162.84 for this view.Key Support & Resistance Levels:


Valuations move to most oversold levels since 1989

Trend reversal opens up triangle top @ 1148.28, which is expected to

attract selling interest again

Prices form double bottom against 76.4% retracement level as studies hit oversold extreme


38

38

EUR/HUF Poised to Re-test Triple Top Near 320.00 EUR/HUF has been in a long-term uptrend since 2008, as defined by the ascending triangle pattern.

We note that prices are currently testing initial resistance against the June 2012 reaction high at 307.62 as prices remain above the 40-week (200-day) moving average and have just pierced the Ichimoku Cloud pattern.

A weekly close above this level would add to bullish price momentum, exposing the key triple top that is located at 317.23.

Additional resistance comes in above here at 327.35.

The overall uptrend in place suggests that valuation-driven pullbacks to support at 292.69 and 286.77 should attract buying interest for another push higher.

A weekly close below the triangle base at 281.67 is required in order to trigger a bearish trend reversal and pattern breakout, which would nullify our view.



Studies approaching overbought levels

Recent bullish trend reversal has caused prices to test the June 2012 high @ 307.62 – with a close above here exposing the key triple top @ 317.23

Pivot for long-term uptrend @ 281.67


39

39

12-month CCN Forward Tests Bottom of Recent Range The 12-month CCN forward rate has been in a consolidation phase since 2011, as defined by the rectangle pattern that has formed since that time.

Although the weekly studies are resolving oversold readings from early 2013, we note that prices are currently testing the bottom of the rectangle pattern.

A weekly close below the quadruple bottom at 6.2605 would confirm that the rectangle pattern is a continuation pattern, shifting the focus down to secondary supports at 6.2036 and 6.0282 thereafter.

The rectangle pattern would have a measured move objective of ~ 6.0525.

The overall downtrend in place suggests that moves to resistance at 6.3587 and 6.3975 will attract selling interest.

Place a stop above the rectangle top at 6.4685 for this view.



Studies resolve oversold readings

Resistance @ 6.3587 and 6.3975 expected to attract selling interest

Close below quadruple bottom @ 6.2605 would confirm rectangle as continuation pattern, target

6.2036 and 6.0282


40

Key Price Levels to Watch – EUR Crosses

EUR/CAD: 1.3161 and 1.3709EUR/JPY: 118.73 and 127.92EUR/GBP: 0.8199 and 0.8770EUR/AUD: 1.2159 and 1.3169EUR/NZD: 1.5468 and 1.6361


41

41

EUR/CAD Rally Set to End – Watch Pivot at 1.3161The multi-month rally in EUR/CAD ran its course in early February via the formation of a bearish engulfing week.

We note that the weekly studies have just issued a sell signal form overbought levels as well, thereby increasing downside risks.

Our concerns would be confirmed upon a weekly close below uptrend support at 1.3161.

The resulting bearish trend reversal would end the recent corrective phase in the cross, shifting the focus down to the 40-week (200-day) moving average at 1.2866 and 1.2566 as the next support targets to watch.

Given the overbought nature of the market, trendline resistance at 1.3597 and the recent high at 1.3709 are expected to attract selling interest.




Studies overbought; sell signal issued

Resistance located @ 1.3597 and 1.3709

Close below 1.3161 would trigger bearish trend reversal, end corrective phase


42

42

EUR/JPY Features Topside Pivot at 127.92EUR/JPY has exploded higher after resolving a falling wedge pattern above 106.77 in November.

We note that the April 2010 high at 127.92 has stalled the advance so far, with the weekly studies moving to an overbought extreme.

In fact, the weekly studies have not been this overbought since 2007.

This raises the scope for a corrective pullback, which would take shape on a break below trendline support at 122.43.

This would shift the focus down to 119.78 and the recent low at 118.73 initially, followed by 114.88 (38.2% Fibonacci retracement of the 2012-2013 advance).

An old double top at 111.60 serves as tertiary support.

Based on the resolution of the falling wedge pattern, pullbacks to 118.73 and 114.88 are expected to attract renewed buying interest.

A daily close above 127.92 is required in order to produce a new phase of bullish price momentum, exposing 132.04 (50% retracement) next.




Valuations at overbought extreme; most overbought since 2007

Close below support @ 122.43 would commence retracement phase, expose 118.73 and 114.88 next

Close above April 2010 high @ 127.92 required for new bullish

phase in the cross

Bullish resolution of falling wedge pattern pushes

cross above the Ichimoku Cloud


43

43

EUR/GBP Valuations Becoming StretchedEUR/GBP has continued to forge higher after posting a bullish channel breakout above 0.8010 in late 2012 and a subsequent break above the Ichimoku Cloud pattern.

Although a second and more important channel top at 0.8624 was taken out in early February, the topside has been limited as the weekly studies move to overbought levels.

We note that 76.4% retracement of the 2011-2012 decline at 0.8770 has contained the topside as the weekly studies reach their most overbought levels since 2008.

While a weekly close below initial support at 0.8591 would argue for a retracement phase in this regard, valuation-driven pullbacks to 0.8463 and uptrend support at 0.8199 are expected to attract renewed buying interest.

A weekly close above 0.8770 is now required to generate a new phase of bullish price momentum in the cross, targeting 0.8884 and 0.9083 thereafter.

Place a stop below the 40-week (200-day) moving average at 0.8149 for this view.



Studies at most overbought levels since 2008

Pivot for current uptrend @ 0.8199

76.4% retracement level stalls advance as valuations reach

overbought levels

Multiple bullish channel breakouts


44

44

Bearish Trend Reversal for EUR/AUDThe recent corrective rally in EUR/AUD has failed to pierce a key descending channel top at 1.3246.

This channel top was practically flush with 61.8% Fibonacci retracement of the 2011-2012 decline at 1.3250.

In addition, the weekly studies have traced out a year-long bearish divergence, adding a further impediment to a move higher.

We note that the subsequent bearish trend reversal below 1.2641 has ended the multi-month corrective phase that had been in place and reasserted the long-term downtrend.

This shifts the focus down to 1.2425 (the 40-week/200-day moving average) and 1.2159 (the November low) as the next support targets to watch.

There is little in the way of significant support below 1.2159 until the 2012 low at 1.1611 (there is minor support at 1.1990).

Recent developments suggest that resistance at 1.2667 and 1.2937 will attract selling interest.

Place a stop above the channel top at 1.3169 for this view.



Bearish divergence forms on weekly studies

Initial support located @ 1.2425 and 1.2159

Rejection of descending channel top as divergence forms on weekly studies; followed by bearish trend reversal

Descending channel pattern defines long-term downtrend


45

45

EUR/NZD Looks Set to Break Lower….. Again The recent multi-month rally in EUR/NZD has failed to pierce the top of the Ichimoku Cloud pattern as the weekly studies trace out a bearish divergence.

We note that prices are now testing uptrend support at 1.5770 in this regard – with a weekly close below this level triggering a bearish trend reversal.

This outcome would effectively end the multi-month corrective phase and reassert the long-term downtrend, with the trend reversal shifting the focus down to a congestive triple bottom at 1.5468 as an initial support target.

Secondary support is located below here at 1.5138 and 1.4967.

The current backdrop suggests that resistance at 1.5919 and 1.6361 will attract selling interest .

Place a stop above the Ichimoku Cloud top at 1.6554 for this view.



Bearish divergence

Close below 1.5770 would end correction via bearish trend reversal, expose 1.5468 and 1.5138 next

Rally stalls ahead of Ichimoku Cloud top as study divergence forms

Congestive triple bottom @ 1.5468


46

Fixed Income Market Overview

SECTION III

Global yields are poised for a short-term rally based on valuation concerns.

These rallies are viewed as a selling opportunity given the intermediate uptrends that have been in place since secular lows formed in mid-2012.

We tend to be more biased toward steeper swap rate curves in general.

Forward/forward swap rates continue to display are more cautious outlook for inflation.


47

Key Yield Levels to Watch – Fixed Income

10-year yields: 30-year yields:

US: 1.70 and 2.11 US: 2.96 and 3.40CAN: 1.56 and 2.09 CAN: 2.35 and 2.68AU: 3.09 and 3.72 UK: 2.83 and 3.52UK: 1.41 and 2.18 EZ: 2.02 and 2.53 EZ: 1.13 and 1.73Spain: 4.64 and 5.51Italy: 4.07 and 5.01


48

48

Bearish Trend Reversals for US 10-Year YieldsUS 10-year yields have been grinding higher after registering bearish breakouts above 1.65 and 1.97 in October and February respectively.

We note that the series of “higher lows” that have formed for yields since the 2012 secular low suggest that bearish sentiment has been increasing gradually.

This is illustrated by the ascending channel pattern that has been guiding yields higher.

The channel has also pushed yields above their 40-week (200-day) moving average at 1.74, as well as the top of the Ichimoku Cloud pattern.

Given the current bearish backdrop, we prefer to fade rallies in bonds, using pullbacks to yield support at 1.83 and 1.70 (the channel base) as a selling opportunity.

We note that minor yield resistance is located at 2.06, followed by the more important ascending channel top at 2.11.

A weekly close above 2.11 would add to bearish sentiment, leaving little in the way of resistance until 38.2% Fibonacci retracement of the 2011-2012 rally at 2.29, followed by a double top at 2.40.

Place stops below 1.60 for this view.



Double top @ 2.40

Close above channel top @ 2.11 would amplify recent bearish breakouts,

open up 2.25/2.29 area next

Yields approach overbought levels

Important yield support against ascending channel base @ 1.70

Initial Fibonacci retracement target to watch


49

49

US T-Note Futures Probe Bottom of Range US T-note futures (roll adjusted) have been trapped in a sideways trading range between 130-22 and 133-19 since last June.

The big question is whether this pattern will be a continuation pattern or a reversal pattern?

Our preference is to fade rallies to resistance at 133-19 and 134-7, looking for a test of initial support at 131-8, followed by a return to the bottom end of the range at 130-22.

A weekly close below 130-22 is ultimately required in order to resolve the trading range to the downside.

This would cause an increase in bearish sentiment, exposing the long-term ascending channel base at 128-14 thereafter.

Conversely, a weekly close above 133-19 would resolve the rectangle pattern to the topside, shifting the focus up to 134-27 and 136-2 as bullish sentiment increases.

As the latter outcome would place our bearish view in doubt, we would implement 134-27 as a stop loss in order to maintain adequate risk/reward.


Support: 130-22 128-14 125-7Resistance: 133-19 134-27 136-2Source: Bloomberg, RBC Capital Markets

Neutral valuations

Support trendline converges with rectangle base @ 130-22, which serves as a downside pivot for

the current consolidation

Rectangle top @ 133-19 formed via double top

Key ascending channel base located at 128-14 is flush

with Ichimoku Cloud


50

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Mar'09

Jun'0

9Sep

'09Dec'

09Feb

'10May'

10Aug

'10Nov'

10Ja

n'11

Apr'11

Jul'11

Oct'11

Dec'11

Mar'12

Jun'1

2Sep'

12Nov'

12

120

122

124

126

128

130

132

134Non-Commercial Net as % of OIUS 10y Futures (RHS)

50

Long Positions Build in T-Note Futures Despite Higher Yields

Net long positions by leveraged players offset large asset manager short positions

Source: Bloomberg

US T-note futures oversold

Long positions reach recent extremes


51

51

US 30-Year Yields Near Key Resistance Trendline US 30-year yields have been grinding higher after registering a series of bearish breakouts above trendlines at 2.86 and 2.89 in September and December respectively.

Like the 10-year yield complex, the series of “higher lows” that have formed since the 2012 secular low suggest that bearish sentiment has been increasing gradually.

This is illustrated by the ascending channel pattern that has been guiding yields higher.

The channel has also pushed yields above their 40-week (200-day) moving average at 2.89 as well as the top of the Ichimoku Cloud pattern.

Given the current bearish backdrop, we prefer to fade rallies in bonds, using pullbacks to yield support at 3.06 and 2.96 (the channel base) as a selling opportunity.

Although the recent high at 3.28 serves as initial yield resistance, we note that 38.2% Fibonacci retracement of the 2011-2012 rally at 3.34 as well as the trendline at 3.40 are more important levels to watch.

In particular, a weekly close above 3.40 would add to bearish sentiment via a trend reversal, exposing a double top at 3.49 thereafter, followed by 50% retracement at 3.61.




Bearish trend reversals highlight yield resistance @ 3.34 and key

trendline @ 3.40

Potential Fibonacci retracement targets to watch

Strong yield support against ascending channel base @ 2.96

Yields approach overbought levels


52

52

US 5s/10s Swap Rate Curve Retains Steepening BiasThe US 5s/10s swap rate curve has moved to new highs for the current uptrend as a steepening bias remains prevalent.

The steepening bias has been sustained by the recent break above resistance at 103 bps – which effectively resolved an inverted head and shoulders pattern to the topside.

The resolution of this pattern has pushed the spread above the Ichimoku Cloud and shifts the focus up to resistance at 111 bps next, followed by 76.4% retracement at 116 bps.

Tertiary resistance is located at 120 and 125 bps respectively.

The inverted head and shoulders has a measured move objective of ~139 bps over the longer-term.

Although the weekly studies are approaching overbought levels, valuation-driven pullbacks to support at 103 bps and the 40-week (200-day) moving average at 93 bps should attract steepening interest.

Place a stop loss below 88 bps for this view. Key Support & Resistance Levels:

Support: 103 93 88Resistance: 111 116 120Source: Bloomberg, RBC Capital Markets

Double top @ 131 bps

Initial support located @ 103 and 93 bps, with key uptrend

support @ 78 bps

Break above 61.8% Fibonacci retracement level exposes 76.4%

retracement @ 116 bps

Weekly studies approach overbought levels


53

53

Valuations Stretched for US 10s/30s Swap Rate Curve The US 10s/30s swap rate curve has recently pushed out to a new high for the current cycle, reinforcing the steepening bias that is present in the market.

We note that prices remain well above the Ichimoku Cloud pattern and the 40-week (200-day) moving average in this regard.

However, upward momentum is beginning to slow as the weekly studies trace out a bearish divergence from overbought levels.

While this set-up favours a pullback in the spread, corrective flattening moves to support at 90 and 83 bps are expected to present new steepening opportunities after last year’s bullish breakout from a descending channel pattern.

To the topside, the 100 threshold serves as psychological resistance, followed by the 2010 high at 108 bps.

There is little in the way of resistance above here until the 123 bps level.

Place a stop below 76 bps for this view.



Prices eye 2010 high @ 108 bps after bullish resolution of

descending channel/flag pattern

50% Fibonacci retracement level contains flattening

pullback in 2011

Bearish divergence forms from overbought levels

Support @ 90 and 83 bps, with key trendline @ 76 bps


54

54

US 5-Year/5-Year Forward Swap Rate Resolves WedgeThe US 5-year/5-year forward swap rate pierced a falling wedge top at 2.84 in late December.

This triggered an increase in paying interest, which eventually pushed the swap rate above the Ichimoku Cloud top at 3.10.

An ascending channel top at 3.37 is now in play as valuations approach overbought levels.

While this level may trigger a pullback in prices, the resolution of the falling wedge pattern suggests the moves to support at 3.18 and 2.90 will attract paying interest.

A weekly close above initial resistance at 3.37 would add to paying momentum, exposing secondary resistance targets at 3.52 (38.2% Fibonacci retracement of the 2011-2012 downmove) and 3.68 (the October 2011 reaction high).

Place a stop below the ascending channel base at 2.73 for this view.



Weekly studies nearly overbought

Close above channel top would expose 3.52 and 3.68 next

Double bottom forms near 2.42

Ascending channel base @ 2.73 serves as pivot for paying interest

38.2% Fibonacci retracement located @ 3.52


55

55

Bearish Breakouts for US 15-Year/15-Year Forward Swap Rate The US 15-year/15-year forward swap rate has registered a number of bearish breakouts since December.

In particular, we note that the break above the dashed line at 3.46 resolved an inverted head and shoulders pattern to the topside.

The resulting break above the Ichimoku Cloud top added to paying momentum, with the weekly studies now moving into overbought territory.

While a valuation driven pullback is possible as part of this setup, the resolution of the inverted head and shoulders pattern suggests that moves to support at 3.63 and 3.42 will attract paying interest.

50% Fibonacci retracement of the 2011-2012 downmove at 3.88 serves as the next resistance target to watch on the topside, followed by 61.8% retracement at 4.16.

We note that the inverted head and shoulders pattern has a measured move objective of ~ 4.39.

Place a stop below the 40-week (200-day) moving average at 3.28 for this view.



Studies reach overbought levels

Resolution of inverted head and shoulders pattern increases paying interest

Support located @ 3.63 and 3.42 ahead of 200-dma

Break above 38.2% Fibonacci retracement @ 3.59 opens up the next retracement levels @ 3.88 and 4.16


56

56

Treasury-Bund Spread Near Key Long-Term Resistance The 10-year Treasury-Bund yield spread has widened aggressively after the bullish resolution of a symmetrical triangle pattern above 27 bps in late 2012.

In addition, the subsequent break above a triple top that formed between 41-45 bps resolved an inverted head and shoulders continuation pattern to the topside.

We note that the spread is now approaching a key long-term resistance trendline that dates back to 2006 at 60 bps.

A weekly close above this level would produce another bullish breakout that would increase widening pressure and shift the focus up to 67 bps and 75 bps as the next resistance targets to watch.

The head and shoulders pattern has a measured move objective of ~ 1.17 bps over the longer-term.

The current backdrop suggests that support at 45 and 27 bps will attract widening interest.

Place a stop below the ascending channel base at 20 bps for this view.Key Support & Resistance Levels:


Weekly studies approaching overbought levels

Close above 61.8% Fibonacci retracement level resolves inverted head and shoulders

pattern to the topside Pivot for widening thesis against ascending channel base @ 20 bps

Close above key long-term resistance trendline @ 60 bps would add to widening momentum, expose 67 and 75 bps next


57

57

CAN 10-Year Yields Reject Ichimoku Cloud TopThe recent backup in CAN 10-year yields stalled right against an ascending channel top at 2.07 that was flush with the Ichimoku Cloud top.

In addition, 50% Fibonacci retracement of the 2011-2012 rally at 2.04 effectively capped the topside in yields as their valuations moved toward overbought levels.

The peak in yields has also been reinforced by recent rhetoric from the Bank of Canada, which has been less hawkish in nature.

While this raises the scope for a pullback in yields, we note that the ascending channel pattern that has formed since September 2012 reflects underlying bearish sentiment.

As such, moves to yield support at 1.75 and 1.66 are expected to attract selling interest in bonds.

The ascending channel top at 2.09 will now have to be cleared in order to trigger a new bearish phase in bonds in this regard.

This would then shift the focus up to 61.8% retracement at 2.15, followed by 76.4% retracement at 2.29.

Place a stop below the 2012 low at 1.56 for this view.



Must clear channel top @ 2.09 for new bearish phase, with additional resistance located against 61.8% and

76.4% retracement levels at 2.15 and 2.29

50% Fibo retracement @ 2.04 caps recent backup in yields

Studies approach overbought readings in yield terms

Bearish breakout, with yield support @ 1.75 & 1.66


58

58

CGB Futures in Neutral ConsolidationCGB futures (roll adjusted) have been in a triangular consolidation since last August.

We note that prices are now probing the top end of the pattern after rejecting a rough double bottom at 132.86 that forms the base of the triangle.

Based on the series of “lower highs”that have formed since the peak in prices, rallies to resistance at 136.21 and 137.56 are expected to attract selling interest for another test of the downside.

A weekly close below what is now a triple bottom at 132.86 is required to produce a new phase of bearish price momentum, exposing secondary support levels at 130.62 and 129.78 thereafter.


Neutral study valuations

Resistance against triangle top @ 136.21 and secular high at 137.56



Bearish trend reversal is followed by formation of a triple bottom near 132.86. This level must now

break to trigger a new bearish phase


59

59

CAN 30-Year Yields Channeling Higher CAN 30-year yields have been channeling higher since posting a series of bearish trend reversals above the 2.33-2.38 region in August and December respectively.

We note that the ascending channel top that converged with the Ichimoku Cloud top at 2.67 has contained the backup in yields so far.

Although the weekly studies are trending higher, they are approaching overbought readings.

While this will set the stage for a pullback in yields, the ascending channel pattern that is in place suggests that moves to support at 2.49 and the channel base at 2.35 will attract selling interest in bonds.

A weekly close above the ascending channel top at 2.68 is now required in order to produce a new phase of bearish price momentum at the long end, with this outcome shifting the focus up to 38.2% Fibonacci retracement of the 2011-2012 rally at 2.83.

Additional resistance is located above here against the 50% retracement level at 3.03.

Place a stop below the double bottom at 2.18 for this view.



Close above channel top @ 2.68 would clear the Ichimoku Cloud and add to bearish sentiment

Yield valuations nearing overbought levels

Key support located against channel base @ 2.35

Potential Fibo retracement targets to watch and consider

on a close above 2.68


60

60

Flattening in CAN 5s/10s Swap Rate Curve Stalls The CAN 5s/10s swap rate curve ended a flattening phase in 2012 via the formation of a triple bottom at 50 bps.

We note that the curve steepening that resulted from the formation of this triple bottom is stalling against a strong resistance trendline at 69 bps, which formed the base of a rectangle pattern between 2008-2010.

In addition, the weekly studies are approaching overbought levels for the spread.

This setup suggests that a pullback is forthcoming, with a close below initial support at 63 bps paving the way for a move toward 57 bps followed by the low at 50 bps.

Based on our bearish strategies for outright yields, we would use pullbacks to 57 and 50 bps to put on steepening trades once again.

Needles to say, a weekly close above the strong resistance at 69 bps is now required to initiate new curve steepening momentum, exposing 75 bps followed by the 78-79 bps area thereafter.

Note that the 78 bps level represents 50% Fibonacci retracement of the 2011-2012 flattening phase.




Close above strong resistance @ 69 bps required for new steepening momentum

Triple bottom @ 50 bps and resulting bullish trend reversal above 58 bps

ends curve flattening phase

Studies approaching overbought levels

Fibo retracement levels to watch; triangle measured move objective is equal to 32.8% retracement level


61

61

CAN 10s/30s Swap Rate Curve Posts Trend Reversal The CAN 10s/30s swap rate curve has been consolidating within a triangle pattern since 2009.

However, we note that the recent bullish trend reversal above 47 bps has introduced some curve steepening risk to the market.

While this view is tempered somewhat by the overbought nature of the weekly studies, recent price action suggests that valuation-driven pullbacks to support at 40 bps (the 40-week and 200-day moving averages) and the triangle base at 35 bps will attract steepening interest.

With 50% Fibonacci retracement of the 2011-2012 flattening phase at 51 bps hit recently, the market focus will now shift up to the 61.8% retracement level at 56 bps ahead of the key triangle top at 60 bps.

A weekly close above 60 bps would uphold the steepening view and highlight the 2011 high at 70 bps thereafter.

Place a stop below the 2010 low at 30 bps for this view.



Resistance located @ 51 and 56 bps ahead of key triangle top @ 60 bps

Valuations hit overbought levels

Trend reversal increases steepening momentum

Key triangle base @ 35 bps

Retracement targets to watch on the topside


62

62

CAN 5-Year/5-Year Forward Swap Rate Resolves Wedge The CAN 5-year/5-year forward swap rate rejected the 2.63 level last year via the formation of a double bottom pattern.

The weekly close above trendline resistance at 2.84 in late 2012 confirmed a bearish trend reversal, with the resulting increase in paying interest leading to a break above the 3.00 threshold.

We note that an ascending channel pattern is now guiding prices higher, with a weekly close above the channel top at 3.21 expected to add to paying interest.

This would then target 3.28 and 3.36 ahead of the 38.2% Fibonacci retracement level at 3.45 (note that this level is flush with the high from 2012).

The channel in place suggests that valuation-driven pullbacks to support at 2.89 and 2.77 will attract paying interest for another push higher.

Place a stop loss below the low at 2.63 for this view.



Studies approach overbought levels

Close above ascending channel top and Ichimoku Cloud top @ 3.21 required for new paying

momentum, would expose 3.28 and 3.36 thereafter

Double bottom forms @ 2.63, followed by bearish trend reversal

Initial Fibonacci retracement level located @ 3.45, which is flush

with 2012 high


63

63

Bearish Breakout for CAN 15-Year/15-Year Forward Swap Rate Paying interest increased in the CAN 15-year/15-year forward swap rate when prices posted a bearish breakout above 2.61 in December.

We note that the resulting resolution of a falling wedge pattern has pushed prices above the Ichimoku Cloud top as well as the 2012 high at 2.98.

With the weekly studies now moving to an overbought extreme, a pullback in rates is probable.

However, the resolution of the wedge pattern suggests that moves to support at 2.77 and the channel base at 2.64 will attract renewed paying interest.

38.2% Fibonacci retracement of the 2011-2012 rally at 3.13 serves as initial resistance now, followed by 3.26 and the 50% retracement level at 3.38.




Studies move to overbought levels

Prices clear Ichimoku Cloud top, with resistance located @ 3.13 and 3.26

Topside retracement targets to watch

Support located at 2.77 and against channel base @ 2.64


64

64

10-Year CAN-US Yield Spread Re-tests Triangle BaseThe 10-year CAN-US yield spread remains within a consolidative triangle pattern that has largely contained price action since 2009.

We note that the spread is currently testing the triangle base at -11 bps.

However, we are concerned that a “false break” may materialize, as the weekly studies have moved to oversold levels.

As such, we would be somewhat cautious if the spread is not able to cleanly break below the -11/-13 bps region.

Under such a scenario, a return widening move toward resistance at -3 bps cannot be ruled out as the valuations seek to move to more neutral readings, with moves to this area expected to attract renewed narrowing interest.

A clean break below -13bps would be more encouraging, favouring an eventual move toward -23 bps and -27 bps.

Place a stop above secondary resistance at +4 bps for this view.Key Support & Resistance Levels:

Support: -11 -23 -27Resistance: -3 +4 +16Source: Bloomberg, RBC Capital Markets

Clean break below -11/-13 bps region required to validate triangle breakout, exposing -23 bps as

additional narrowing takes place

Resistance located @ -3 bps and +4 bps expected to attract

narrowing interest

Trend reversal increases narrowing momentum

Weekly studies at oversold levels


65

65

AU 10-Year Yields Test 61.8% Retracement Level AU 10-year yields posted a bearish breakout above the 40-week (200-day) moving average at 3.28 in mid-December.

We note that this level also coincided with a resistance trendline that had been guiding yields lower since May 2011.

The resulting extension higher then pierced a broader descending channel top at 3.51, subsequently stalling right against 61.8% Fibonacci retracement of the 2012 rally at 3.72.

Although the near overbought nature of the weekly studies suggests that a pullback in yields is in order, the prior trend reversal suggests that pullbacks to yield support at 3.29 and 3.09 should attract renewed selling interest in bonds.

While a daily close above the channel top at 3.63 would place the bears on firmer footing, we stress that a close above 61.8% retracement at 3.72 will have to be seen in order to produce a new phase of bearish price momentum.

This would then shift the focus up to secondary resistance levels at 3.96 (76.4% retracement) and 4.19.




Break above 3.72 would expose 76.4% retracement @ 3.96, followed by 4.19

Bearish trend reversals, with 61.8% Fibo retracement level and Ichimoku Cloud top @ 3.72 containing backup in yields so far

Studies approach overbought levels in yield terms

Ascending channel base @ 3.09 serves as yield support


66

66

AU 3-Year Futures Post Bearish Trend ReversalsThe long-term uptrend in AU 3-year futures (roll adjusted) began to falter in late 2012 when prices posted bearish trend reversals below the 40-week (200-day) moving average at 97.42 as well as a support trendline at 97.33.

The resulting selloff has pushed prices below the Ichimoku Cloud pattern and was followed by a long-term trend reversal below a key trendline dating back to 2008 at 97.05.

Although valuations have subsequently moved to oversold levels, the bearish developments discussed above suggest that valuation-driven retracements to resistance at 97.28 and the Ichimoku Cloud top at 97.53 will attract renewed selling interest.

We note that a weekly close below 23.6% retracement of the 2008-2012 advance at 96.89 would add to bearish price momentum, shifting the focus down to secondary support targets at 96.66 and 96.35 (the March 2012 low that effectively formed a double bottom pattern).

Place a stop above the trendline at 97.69 for this view.



Resistance @ 97.28 and 97.53 expected to attract selling interest, with trendline @

97.69 serving as a stop loss

Bearish trend reversals shift the focus down to 96.66 and 96.35

Valuations move to oversold levels

Initial support located against 23.6% retracement level


67

67

AU 10-Year Futures Test Triangle BaseLike their 3-year counterparts, AU 10-year futures (roll adjusted) have also posted initial bearish trend reversals – this time below the 40-week (200-day) moving average at 96.70 as well as below a trendline dating back to 2011 at 96.62.

Although the oversold nature of the weekly studies suggests that a short-term bounce higher is possible, the trend reversal indicates that valuation-driven retracements to resistance at 96.51 and 96.80 should attract renewed selling interest.

The next support level is located against a triangle base at 96.26.

A weekly close below this level would reaffirm bearish sentiment via the downside resolution of the triangle pattern.

This would then favour a deeper selloff toward secondary support targets at 96.04 (38.2% Fibonacci retracement of the 2011-2012 rally) and 95.84.

50% retracement is located below here at 95.66, followed by the March 2012 reaction low at 95.47.

Place stops above the trendline at 97.04 for this view.



Bearish trend reversals expose triangle base @ 96.26, followed by secondary

supports @ 96.04 and 95.84

Initial Fibo retracement levels to watch after a break below the triangle base @ 96.26

Studies move to oversold levels

Resistance located @ 96.51 and 96.80


68

68

AU 3s/10s Futures Curve Displays Flattening RisksThe AU 3s/10s futures curve has spent the last few years retracing the sharp curve steepening that was witnessed between 2007-2009.

We note that the bearish trend reversal that took place below 54 bps in July 2012 effectively ended the steepening phase that was in effect between 2010 and 2011.

This has set he stage for a test of redrawn trendline support at 51 bps as the weekly studies attempt to issue a sell signal from overbought levels.

A weekly close below 51 bps would add to curve flattening momentum, exposing secondary support targets at 45 and 38 bps (just above the 50% Fibonacci retracement level at 37 bps).

Based on the downside risks that are present in the curve, moves to resistance at 62 and 70 bps will attract flattening interest.

Place a stop loss above the 2012 high at 76 bps for this view.



Resistance @ 62 and 70 bps expected to attract flattening interest


Bearish trend reversal adds to curve flattening risks. Would be confirmed on a break below support @ 51 bps, targeting 45 and 38 bps thereafter.


69

69

AU 1-Year/1-Year Forward Swap Rate Forming a Base?The AU 1-year/1-year forward swap rate posted a bearish trend reversal above 3.05 in early March.

We note that this also coincided with a break above the 40-week (200-day) moving average at 3.06.

Prices are now attempting to enter the Ichimoku Cloud as paying interest increases and the weekly studies display upward momentum from neutral valuation levels.

This backdrop suggests that pullbacks to support at 3.12 and 2.99 should attract paying interest for a continued move higher.

Initial resistance is located against 38.2% Fibonacci retracement of the 2012 decline at 3.34, followed by the August 2012 reaction high at 3.43.

50% retracement is located above here at 3.53.

Place a stop loss below 2.92 for this view.



Prices poised to enter Ichimoku Cloud pattern

Bearish trend reversal above 3.05 triggers increase in paying interest. Next resistance

levels located @ 3.34 and 3.43

Neutral valuations

Support located @ 3.12 and against trendline @ 2.99


70

70

Bearish Backdrop for AU 5-Year/5-Year Forward Swap RateThe AU 5-year/5-year forward swap rate posted a bearish trend reversal above 4.51 in late December.

With the channel breakout simultaneously taking out the 40-week (200-day) moving average at 4.49, the resulting increase in paying interest has caused prices to enter the Ichimoku Cloud pattern.

Although the weekly studies have moved to overbought levels, the channel breakout suggests that valuation-driven pullbacks to support at 4.60 and 4.52 will attract paying interest for an extension to the Ichimoku Cloud top at 4.99 (this level is flush with the December 2011 low).

A weekly close above 4.99 would sustain paying interest momentum, shifting the focus up to 38.2% Fibonacci retracement of the 2011-2012 decline at 5.06, followed by 5.18.




Initial resistance located @ 4.99, followed by 5.06

Initial Fibonacci retracement levels to watch after bearish channel breakout

Valuations reach overbought levels

Uptrend support located @ 4.52; flush with Ichimoku Cloud base


71

AU Cross Market Outlook: Widening Risks IncreaseAU-US 10-Year Spread Poised to Widen

The AU-US 10-year spread recently posted a bullish trend reversal above a trendline dating back to September 2011 at 1.55.

The weekly studies remain lodged in neutral territory as prices enter the Ichimoku Cloud pattern.

The trend reversal has increased widening risks, with the December 2012 high at 1.67 serving as an initial resistance target.

Secondary resistance levels are located at 1.71 and 1.77 ahead of the major descending channel top at 1.88.

Support at 1.51 (the 40-week/200-day moving average) and 1.40 is expected to attract widening interest.

Place a stop below the 2013 low at 1.36 for this view.

AU-UK 10-Year Spread Forms Triple Bottom

Widening risks for the AU-UK 10-year spread have been more acutely pronounced based on the recent sharp move higher in the spread.

We note that this sharp widening was the result of a bullish trend reversal above 1.52 in March.

The move higher has also pushed prices above the top of the Ichimoku Cloud pattern.

These developments feature 50% Fibonacci retracement of the 2010-2012 narrowing phase at 1.76 and the key long-term resistance trendline at 1.82 as the next resistance targets.

Support at 1.51 and 1.33 is expected to attract widening interest.

Place a stop loss below the key triple bottom at 1.25 for this view.

Source: Bloomberg

Trend reversal increases widening risks; resistance

@ 1.67 and 1.77

Uptrend support @ 1.40

Trend reversal

Next resistance levels for the widening phase located @ 1.76 and 1.82

71

Use triple bottom @ 1.25 as a stop loss for the widening bias

Neutral valuations

Neutral valuations


72

72

Backup in 10-Year Gilt Yields Stalls on Valuation Concerns The multi-month backup in 10-year Gilt yields stalled at 2.27 as the weekly studies approached overbought levels (in yield terms).

With the studies now attempting to issue a sell signal, a weekly close below the ascending channel base at 1.86 would favour a deeper pullback in yields.

However, based on the series of “higher lows” that have been in place since a triple bottom formed near 1.41 in August, moves to support at 1.72 and 1.60 are expected to attract intermediate selling interest in Gilts.

Initial resistance is located at 1.98 and 2.18 in this regard – with a weekly close above 2.18 required in order to trigger a new phase of bearish price momentum via a trend reversal.

This would then shift the focus up to the channel top at 2.33.




Studies approach overbought levels; issue sell signal

Resistance located @ 1.98 and 2.18 ahead of channel top @ 2.33

Close below 1.86 would expose 1.72 and 1.60, where selling interest is expected to materialize

Bearish trend reversal resolves falling wedge pattern to the topside

Triple bottom @ 1.41


73

73

Gilt Futures Tracing Out a Longer-term Top? Gilt futures (roll adjusted) continue to attempt to trace out a broad topping process after forming a triple top near the 122.00 threshold.

While the near-oversold nature of the weekly studies suggests that a corrective bounce is in store, we prefer to fade such rallies.

Hence, while a close above congestive resistance at 118.78 would favour an extension higher, moves to secondary resistance at 119.71 and the triple top at 121.78 are expected to attract renewed selling interest.

A return below initial support at 117.53 would place this view on firmer footing, shifting the focus down to secondary support between trendlines at 115.09 and 115.63.

Tertiary support is located against the 2013 low at 114.56.

We note that a close below this low would not only add to bearish momentum, but it would also take prices below the base of the Ichimoku Cloud pattern.

Place a stop above the secular high at 122.45 for this view (the high was 122.21 in July 2012).

Valuations approach oversold levels

Triple top forms near 122 threshold in 2012, followed by bearish breakout below

40-week (200-day) moving average



Trendline support comes in between 115.09 and 115.63; we prefer to fade corrective rallies


74

74

30-Year Gilt Yields Form Double Top Near 3.50 The backup in 30-year Gilt yields has stalled via the formation of a double top near 3.50 in mid-February.

We note that this level is practically flush with 38.2% Fibonacci retracement of the 2011-2012 rally at 3.52.

With the weekly studies also approaching overbought levels in yield terms, we note that a close below initial support at 3.12 would favour a deeper pullback in yields.

However, based on the bearish trend reversal above 3.13 in January, valuation-driven retracements to secondary support at 3.00 and 2.90 are expected to attract renewed selling interest in long Gilts.

While a return above initial resistance at 3.29 would help the bearish view and shift the focus up to 3.44 next, we stress that a close above the 3.52 level will have to take place in order to produce a new phase of bearish price momentum.

This would expose 3.61 and 3.72 thereafter.

Place a stop below the double bottom near 2.83 for this view.



Bearish trend reversal after double bottom forms near

2.83

Valuations approach overbought levels

Support @ 3.12 and 3.00

Key resistance against double top @ 3.50 and 38.2% retracement @ 3.52


75

75

UK 5s/10s Swap Rate Curve Eyes Double Top The UK 5s/10s swap rate curve has been in a sideways/rectangular consolidation range since 2010.

However, the break above a descending triangle top at 86 bps in March 2012 has given way to curve steepening activity as prices near the top of the multi-year range.

This has also pushed prices back above the Ichimoku Cloud pattern.

While initial resistance is located against the recent high at 103 bps, we stress that a weekly close above the double top at 112 bps is required in order to resolve the consolidation to the topside.

This outcome would add to curve steepening momentum and shift the focus up to the 120 and 130 bp thresholds as the next resistance targets to watch.

Although the weekly studies are nearing overbought levels (suggesting that the top of the range will not be cleared during the current move higher), valuation-driven pullbacks to support at 88 (the 40-week/200-day moving average) and 80 bps are expected to attract steepening interest.

Place a stop below the double bottom at 70 bps for this view.



Double top @ 112 bps serves as key resistance level to watch. This is actually a triple top if

we go back to the high from 1993!

Bullish breakout increases steepening interest

Support @ 88 and 80 bps, followed by key double bottom @ 70 bps



76

76

UK 10s/30s Swap Rate Curve Maintains Steepening Trend The UK 10s/30s swap rate curve continues to display a steepening bias as per the ascending channel that has been guiding prices higher since 2008.

We note that the curve has just pushed up to new highs in this regard, with a trendline drawn off of the highs from 2010 and 2012 at 119 bps serving as the next resistance target to watch.

A weekly close above this level would sustain the steepening bias, exposing 125 bps and 134 bps thereafter.

The ascending channel base at 101 bps serves as strong support, followed by 90 bps and an old double top from 2011 at 85 bps.

We view pullbacks to 101 bps and 90 bps as an opportunity to put on steepening trades based on the long-term uptrend that is in place.

We would employ 85 bps as a stop loss for this view.



Next resistance level located @ 119 bps

Key supports located against channel base @ 101 bps as well as old double top

from 2011 @ 85 bps

Curve has been above the 40-week (200-day) moving average and Ichimoku Cloud since 2011

Neutral valuations


77

77

UK 5-Year/5-Year Forward Swap Rate Holds Channel BaseThe UK 5-year/5-year forward swap rate remains within a secular downtrend as per the descending channel that has been in place since the late 1990’s.

However, we note that 5 attempts to take out the 2012 low near 2.76 have been met with failure, followed by an increase in paying interest after the bearish break above congestive resistance at 3.05 that also served as a descending channel top.

Although a pullback is likely from the top of the Ichimoku Cloud as the weekly studies approach overbought levels, we view moves to support at 2.96 (the old channel top) and 2.88 as a chance to reassert paying interest, looking for a re-test of initial resistance against 23.6% retracement of the 2009-2012 decline at 3.31.

A close above this level would also clear the Ichimoku Cloud pattern, with the expected increase in paying interest exposing secondary resistance levels at 3.42 and 3.65.

Place a stop loss below the series of lows at 2.76 for this view.



Resistance located against 23.6% retracement level @ 3.31


Strong congestive support @ 2.76

Paying interest increases after bearish breakout above the 3.05 area


78

78

UK 15-Year/15-Year Forward Swap Rate Tests Key ResistanceThe UK 15-year/15-year forward swap rate is testing a key triangle top and resistance trendline at 4.20 that dates back to 2000.

With the weekly studies moving to overbought levels, it is unlikely that we will see a sustained break above this important price level just yet.

Rather, the stage appears to be set for a valuation-driven pullback to support levels at 3.81 and 3.69 as the studies attempt to move to more neutral levels.

Based on the uptrend that has been in place since 2008, we view corrective moves to these two levels as a paying opportunity.

A close above the trendline at 4.20 would produce a bearish long-term trend reversal in this regard, with the resulting increase in paying interest shifting the focus up to secondary resistance at 4.30, followed by a triple top at 4.38.

Additional resistance is located at 4.45 and 4.59.

Place a stop below the triangle base that denotes uptrend support at 3.56 for this view.Key Support & Resistance Levels:


Key 13-year resistance trendline located @ 4.20,

followed by triple top @ 4.38


Bearish fanline breakouts trigger increased paying interest

Uptrend support and pivot located @ 3.56


79

79

Treasury-Gilt Yield Spread Displays Widening Bias The 10-year Treasury-Gilt yield spread has been displaying a widening bias since early 2009, when a double bottom formed at -108 bps.

We note that 76.4% retracement of the 2006-2008 narrowing phase at 17 bps has contained the widening activity so far.

However, with the weekly studies issuing a buy signal from oversold levels, the spread appears poised to test a redrawn resistance trendline at 13 bps.

A close above this level would add to widening momentum – and bring the multi-year high at 17 bps back into view.

Tertiary resistance is located above here at 23 and 30 bps.

The series of “higher lows” that have been in place since 2009 suggest that support at -9 and -17 bps should attract widening interest.

Place a stop below the ascending channel base at -22 bps for this view.


Support: -3 -9 -22Resistance: +13 +17 +30Source: Bloomberg, RBC Capital Markets

Pivot for widening view located @ -22 bps

Close above resistance @ 13 bps would target high at 17 bps, followed by 23 bps

Studies oversold and issue buy signal

76.4% retracement level stalls widening momentum in 2012


80

80

Cyprus – a Selling Opportunity in 10-Year Bunds? Recent backups in Bund yields have stalled against 50% Fibonacci retracement of the late-2011-2012 rally at 1.75, effectively forming a double top at 1.73 on the weekly chart.

We note that yields are now testing the ascending channel base at 1.35 as the fallout in Cyprus raises further questions about the fate of the Eurozone.

With yields forming a key double bottom against 1.13 last year, we believe that moves to the bottom end of the 1.26-1.73 trading range that has been in place since last June can be viewed as a selling opportunity.

As such, moves to the 1.26-1.30 area are viewed as a selling opportunity, looking for a re-test of the 40-week (200-day) moving average at 1.46.

A weekly close above this level would shift the focus up to secondary resistance at 1.60 ahead of the double top at 1.73.

We stress that this level will have to be cleared in order to produce a new bearish phase of price momentum, exposing the channel top at 1.82 initially after the Ichimoku Cloud top is taken out.

Place a stop below the double bottom at 1.13 for this view.



200-dma @ 1.46 serves as initial yield resistance now, followed by 1.60 and

the double top @ 1.73

50% Fibonacci retracement level @ 1.75 contains backups in yields after the bearish trend reversal

above 1.38. Note the formation of a double top in this regard

Neutral valuations

Initial support @ 1.35 and 1.26, followed by key double bottom @ 1.13


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81

Bund Futures Re-test Top End of Their Trading Range Bund futures (roll adjusted) are attempting to pierce the top end of their recent trading range, as denoted by a double top at 143.64.

While we acknowledge that a weekly close above this level should produce additional topside momentum, our view for 10-year Bund yields on the previous page suggests that rallies to resistance at 145.71 and 146.38 will present a selling opportunity.

A return below the 40-week (200-day) moving average at 141.23 is now required to place this view on firmer footing, as it would shift the focus down to the channel base at 139.24 that is flush with the Ichimoku Cloud pattern.

This level will have to be pierced in order to trigger a downside breakout and new bearish price momentum, exposing the June reaction low at 137.10 thereafter.

Place a stop above 147.00 for this view in order to maintain acceptable risk/reward.

Neutral valuations; bearish divergences forming

Close below 200-dma @ 141.23 required to neutralize topside pressure; would shift focus down to channel base @ 139.24



Moves to channel top @ 145.71 expected to attract selling interest


82

82

30-Year Bund Yields Stall at 38.2% Retracement Level 30-year Bund yields posted bearish trend reversals above 2.18 and 2.39 in July and January respectively.

We note that 38.2% Fibonacci retracement of the 2011-2012 rally at 2.53 has contained the topside so far in this regard.

With the recent fallout in Cyprus now causing yields to test the ascending channel base at 2.20, we cannot rule out a short-term break below this level if the uncertainty persists.

However, based on the recent trend reversals, we would view pullbacks to yield support at 2.02 as a new selling opportunity ahead of the 2.00 threshold for another attempt to move higher.

Initial resistance is located at 2.41 in this regard, with a weekly close above this level shifting the focus back up to the 38.2% retracement level at 2.53.

We stress that this level must be taken out in order to produce a new bearish phase for Bund yields, exposing the channel top at 2.70 thereafter.




Yield support located @ 2.20 and 2.02, with the latter level expected to attract selling interest

38.2% Fibo retracement level contains backups in

yields so far

Neutral valuations

Resistance located @ 2.41 and 2.53 ahead of the channel top @ 2.70


83

83

Euro 5s/10s Swap Rate Curve Re-tests Congestion AreaFlattening pullbacks in the Euro 5s/10s swap rate curve have largely been limited to the 38.2% Fibonacci retracement level at 53 bps over the last 3 years.

With the weekly studies attempting to turn higher again, we note that the curve is testing an area of congestive resistance at 84 bps after the recent bullish channel breakout above 73 bps last July.

Hence, a daily close above 84 bps would add to curve steepening momentum, shifting the focus up to 90 bps ahead of the 2010 high at 96 bps.

The current backdrop suggests that pullbacks to support at 66 (the old channel top) and 60 bps should attract steepening interest.

Place a stop below the 38.2% retracement level at 53 bps for this view.



38.2% Fibo retracement level contains pullbacks

since 2010

Close above 84 bps would add to steepening momentum, expose 90

and 96 bps thereafter

Support @ 60 and 66 bps expected to attract steepening interest

Studies turning higher from neutral valuation levels


84

84

Euro 10s/30s Swap Rate Curve Hitting New HighsThe Euro 10s/30s swap rate curve has displayed a sharp steepening bias since posting a bullish channel breakout above 33 bps last June.

We note that the breakout allowed prices to move above both the 40-week (200-day) moving average and the Ichimoku Cloud pattern.

With this development subsequently pushing the spread above 76.4% retracement of the 2003-2008 flattening phase at 59 bps, prices are now probing new cyclical highs.

With the weekly studies at neutral valuation levels, a weekly close above 70 bps would sustain the steepening bias via a bullish breakout that would highlight 77 and 81 bps as the next resistance targets to watch.

Pullbacks to the recent low at 54 bps and the July 20 reaction high at 47 bps are expected to attract steepening interest based on the uptrend that is in place.

Place a stop below the 61.8% Fibonacci retracement level at 40 bps for this view.



Support @ 54 and 47 bps expected to attract steepening interest

Studies correct to neutral levels

Recent steepening phase exceeds 76.4%

retracement level

Close above high @ 70 bps would open up 77

and 81 bps next

Bullish channel breakout


85

85

Euro 5-Year/5-Year Forward Swap Rate in Consolidation The Euro 5-year/5-year forward swap rate produced the bearish resolution of a falling wedge pattern above 2.66 last September.

However, paying interest has been minimal despite this fact, with the rate failing to break above 2.90 in this respect.

With prices still mired in a descending channel pattern, we stress that a weekly close above the channel top that is flush with the Ichimoku Cloud at 2.82 will have to be seen in order to produce a bearish trend reversal that would encourage additional paying interest.

This outcome would then shift the focus up to secondary resistance levels at 2.95 (the 2011 low) and 3.03 (38.2% Fibonacci retracement of the 2011-2012 decline).

Given the downtrend that remains in place, the focus now turns to double bottom support at 2.47 – with a weekly close below here opening up 2.38 and 2.33 on the downside as receiving interest increases.

There is little support below 2.33 until the 2012 secular low at 2.17.Key Support & Resistance Levels:


Limited paying momentum despite resolution of falling wedge pattern

is somewhat worrisome

Support against key double bottom @ 2.47

Studies at neutral levels

Must pierce channel top at 2.82 in order to trigger a bearish trend

reversal and increase in paying interest


86

86

Topside Risks for Euro 15-Year/15-Year Forward Swap Rate The Euro 15-year/15-year forward swap rate remains entrenched in a long-term downtrend.

However, we note that prices are attempting to form a base via an inverted head and shoulders pattern.

As this pattern plays out, it has caused the swap rate to break above the top of Ichimoku Cloud pattern.

A weekly close above 50% Fibonacci retracement of the 2011-2012 decline at 2.82 would confirm the resolution of the inverted head and shoulders pattern, thereby shifting the focus up to 2.90 and the 3.06-3.08 region as paying interest increases.

The 3.08 level represents 61.8% Fibonacci retracement of the 2011-2012 decline.

Although the weekly studies are approaching overbought levels, valuation-driven pullbacks to the November low at 2.47 and 2.33 are expected to attract paying interest.



Support: 2.57 2.47 2.33Resistance: 2.82 2.90 3.06

Source: Bloomberg, RBC Capital Markets

Close above 2.82 would expose 2.90 and 3.08 next

Weekly studies approaching overbought levels

Look for paying interest to increase on a close above 38.2% Fibo retracement @ 2.82 as potential inverted head and

shoulders pattern forms


87

87

10-Year Gilt-Bund Yield Spread: Further Widening Expected The 10-year Gilt-Bund yield spread has widened significantly since posting a bullish channel breakout above 31 bps in late October.

This breakout also allowed the spread to trade above its 40-week (200-day) moving average as well as the Ichimoku Cloud pattern.

The recent consolidation against 50% Fibonacci retracement of the 2011-2012 narrowing at 52 bps, as well as a redrawn resistance trendline at 54 bps has allowed the weekly studies to move from overbought to more neutral levels.

The current backdrop suggests that pullbacks to support at 40 bps (38.2% retracement) and 35 bps (the 40-week/200-day moving average), will attract widening interest.

A weekly close above 54 bps would affirm this view, shifting the focus up to the next resistance target at 58 bps, followed by the 62-64 bps region.




Studies resolve overbought readings

Close above trendline @ 54 bps would add to widening momentum, expose 58 and 64 bps next

Fibonacci retracement levels to watch as part of the

widening phase

Support @ 40 and 35 bps expected to attract widening interest


88

10-Year Peripheral Yield Outlook: Prefer Spain Over ItalyBullish Long-Term Breakout for 10-Year Spanish Yields

10-year SPGB yields posted a bullish long-term trend reversal below a multi-year ascending channel base at 5.37 in December.

The next key support level to watch for in yields is located at the convergence of a trendline and the 76.4% retracement level at 4.64.

A weekly close below this level would add to bullish price momentum, exposing 4.50 and 4.27 as the next support targets to watch.Additional yield support is located below here between 3.95 and 4.10.

Although the yield valuations are lodged in oversold territory, the bullish channel breakout suggests that retracements to resistance at 5.17 and 5.51 will attract buying interest in bonds.

Place a stop loss above the 40-week (200-day) moving average at 5.74 for this view.

Italian Yields Poised for a More Material Correction?10-year BTP yields have entered in to a corrective phase as the weekly studies resolve oversold readings.

We note that a falling wedge pattern is also forming – with a break above yield resistance at 5.01 favouring a greater correction.

This outcome would shift the focus up to secondary resistance levels at 5.24 and 5.59.

Moves to these levels are expected to attract renewed buying interest for another push lower.

Initial yield support is located at 4.25 and 4.07 – but a close below the wedge base and long-term support trendline at 3.95 is required for a new phase of bullish price momentum.This outcome would then highlight the 2010 low at 3.71.Place a stop above 5.90 for this view.

As we are more cautious on Italy relative to Spain due to the falling wedge pattern discussed above, we favour Spain to outperform Italy on a cross market basis. Source: Bloomberg

Resistance @ 5.17 and 5.51 expected to attract buying interest in SPGBs

Bullish channel breakout features initial targets @ 4.64 and 4.27

Yield studies lodged at oversold levels

88

Studies resolving oversold readings

We are concerned that a close above the falling wedge top @ 5.01 would trigger a more material retracement

Must pierce convergence of support @ 3.95 in order to trigger new bullish phase in BTPs


89

Peripheral-Bund Spread Outlook: Stretched ValuationsSPGB-Bund Yield Tests 50% Fibonacci Retracement Level

The 10-year SPGB-Bund spread has bounced off of 50% Fibonacci retracement of the 2009-2012 widening phase at 3.31 as the weekly studies trace out a bullish divergence from oversold levels.

A weekly close above the descending channel top at 3.57 would project greater widening toward secondary resistance at 3.86 and 4.27 in this regard.

However, moves toward the 4.16-4.27 region are expected to attract renewed tightening interest based on the September break below the 40-week (200-day) moving average.

A weekly close below the recent low at 3.24 would generate a newphase of narrowing momentum, exposing the channel base at 2.96 ahead of 61.8% retracement at 2.65.


BTP-Bund Spread Stalls Against 61.8% Retracement Level

The 10-year BTP-Bund spread has bounced off of 61.8% Fibonacci retracement of the 2009-2011 widening phase at 2.46 as the weekly studies moved to their most oversold levels since 2004.

A weekly close above the descending channel top at 3.26 would trigger a bullish trend reversal and favour greater widening toward secondary resistance levels at 3.54 and 3.85.

Based on the bearish long-term trend reversal that took place last September, corrections toward the 3.85-4.21 region are expected to attract renewed tightening interest.

Initial support is located at 2.95, with a weekly close below 2.73 required to neutralize the topside risks that are present.

This would produce new tightening momentum that would expose secondary support against 2.46 and the convergence of a long-term trendline and the channel base at 2.19.

Place a stop above the trendline at 4.44 for this view. Source: Bloomberg

Close above channel top @ 3.57 would trigger corrective

phase in the spread



Oversold; bullish divergence

89

61.8% Fibo retracement stalls narrowing phase

Studies at most oversold levels since 2004

Close above channel top @ 3.26 would trigger corrective

phase in the spread

50% Fibo retracement stalls narrowing phase


90

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RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regardto local time zones in overseas jurisdictions. RBC Capital Markets' research is posted to our proprietary websites to ensure eligibleclients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may bedone by the sales personnel via email, fax or regular mail. Clients may also receive our research via third-party vendors. Please contactyour investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. RBC CapitalMarkets also provides eligible clients with access to SPARC on its proprietary INSIGHT website. SPARC contains market color andcommentary, and may also contain Short-Term Trade Ideas regarding the securities of subject companies discussed in this or otherresearch reports. SPARC may be accessed via the following hyperlink: https://www.rbcinsight.com. A Short-Term Trade Idea reflectsthe research analyst's directional view regarding the price of the security of a subject company in the coming days or weeks, based onmarket and trading events. A Short-Term Trade Idea may differ from the price targets and/or recommendations in our publishedresearch reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result ofthe differing time horizons, methodologies and/or other factors. Thus, it is possible that the security of a subject company that isconsidered a long-term 'Sector Perform' or even an 'Underperform' might be a short-term buying opportunity as a result of temporaryselling pressure in the market; conversely, the security of a subject company that is rated a long-term 'Outperform' could be consideredsusceptible to a short-term downward price correction. Short-Term Trade Ideas are not ratings, nor are they part of any ratings system,and RBC Capital Markets generally does not intend, nor undertakes any obligation, to maintain or update Short-Term Trade Ideas.Short-Term Trade Ideas discussed in SPARC may not be suitable for all investors and have not been tailored to individual investorcircumstances and objectives, and investors should make their own independent decisions regarding any Short-Term Trade Ideasdiscussed therein.

Analyst Certification

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RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBCCapital Markets, LLC, RBC Europe Limited, RBC Capital Markets (Hong Kong) Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada,Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation orwarranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness.All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and areprovided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. Thismaterial is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons whoreceive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor ifyou are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Pastperformance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analystcompensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province inCanada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may beoffered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. RBCCapital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/or internal compliance policies. If this is thecase, the latest published research reports available to clients may not reflect recent material changes in the applicable industry and/or applicable subject companies.RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report is not, and under no circumstances should be construedas, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securitiesbroker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liabilitywhatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be


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To U.S. Residents:This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which acceptsresponsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a brokeror dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and placeorders with RBC Capital Markets, LLC.To Canadian Residents:This publication has been approved by RBC Dominion Securities Inc.(member IIROC). Any Canadian recipient of this report that is not a Designated Institution inOntario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and thatwishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC DominionSecurities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada.To U.K. Residents:This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized and regulated by Financial Services Authority ('FSA'), in connection withits distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FSA.However, targeted distribution may be made to selected retail clients of RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in theUnited Kingdom.To Persons Receiving This Advice in Australia:This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been preparedfor general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting onthis material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition orpossible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product andconsider that document before making any decision about whether to acquire the product.To Hong Kong Residents:This publication is distributed in Hong Kong by RBC Investment Services (Asia) Limited, RBC Investment Management (Asia) Limited and RBC Capital Markets(Hong Kong) Limited, licensed corporations under the Securities and Futures Ordinance or, by the Royal Bank of Canada, Hong Kong Branch, a registered institutionunder the Securities and Futures Ordinance. This material has been prepared for general circulation and does not take into account the objectives, financial situation, orneeds of any recipient. Hong Kong persons wishing to obtain further information on any of the securities mentioned in this publication should contact RBC InvestmentServices (Asia) Limited, RBC Investment Management (Asia) Limited, RBC Capital Markets (Hong Kong) Limited or Royal Bank of Canada, Hong Kong Branch at17/Floor, Cheung Kong Center, 2 Queen's Road Central, Hong Kong (telephone number is 2848-1388).To Singapore Residents:This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch and Royal Bank of Canada (Asia) Limited, registered entities grantedoffshore bank and merchant bank status by the Monetary Authority of Singapore, respectively. This material has been prepared for general circulation and does not takeinto account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing anyproduct. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance.If you have any questions related to this publication, please contact the Royal Bank of Canada, Singapore Branch or Royal Bank of Canada (Asia) Limited.To Japanese Residents:Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd., a registered type one financialinstruments firm and/or Royal Bank of Canada, Tokyo Branch, a licensed foreign bank.

.® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license.Copyright © RBC Capital Markets, LLC 2013 - Member SIPC

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Copyright © Royal Bank of Canada 2013All rights reserved


Fixed Income & Currency Strategy Research Team

RBC Capital Markets, LLC:

Stevyn Schutzman Global Head of FIC Strategy & Research and Chief Macro Strategist

(212) 618-2553 [email protected]

Europe

RBC Europe Limited:

James Ashley Senior European Economist +44-20-7029-0133 [email protected]

Sophie Aslan Analyst, European Rates Strategy +44-20-7029-0049 [email protected]

Norbert Aul European Rates Strategist +44-20-7029-0122 [email protected]

Adam Cole Head of G10 FX Strategy +44-20-7029-7078 [email protected]

Sam Hill, CFA UK Fixed Income Strategist +44-20-7029-0092 [email protected]

Jens Larsen Chief European Economist +44-20-7029-0112 [email protected]

Elsa Lignos Senior Currency Strategist +44-20-7029-7077 [email protected]

Peter Schaffrik Head of European Rates Strategy +44-20-7029-7076 [email protected]

Asia-Pacific

Royal Bank of Canada – Sydney Branch:

Su-Lin Ong Head of Australian and New Zealand FIC Strategy

+612-9033-3088

[email protected]

Michael Turner Fixed Income & Currency Strategist +612-9033-3088 [email protected]

Royal Bank of Canada – Hong Kong Branch:

Sue Trinh Senior Currency Strategist +852-2848-5135 [email protected]

North America

RBC Dominion Securities Inc.:

Mark Chandler Head of Canadian FIC Strategy (416) 842-6388 [email protected]

Ian Pollick Fixed Income Strategist (416) 842-6362 [email protected]

George Davis Chief Technical Analyst (416) 842-6633 [email protected]

Paul Borean Associate Strategist (416) 842-2809 [email protected]

Nick Chamie, CFA Global Head of FX Strategy & Emerging Markets Research

(416) 842-2802 [email protected]

Irina Skrylev Associate (416) 842-2802 [email protected]

RBC Capital Markets, LLC:

Michael Cloherty Head of US Rates Strategy (212) 437-2480 [email protected]

Tom Porcelli Chief US Economist (212) 618-7788 [email protected]

Jacob Oubina Senior US Economist (212) 618-7795 [email protected]

Dan Grubert Associate Strategist (212) 618-7764 [email protected]

Yiran Wang Associate (212) 618-7897 [email protected]

Chris Mauro Head of US Municipals Strategy (212) 618-7729 [email protected]

Jordan Taylor Associate (212) 618-3556 [email protected]

global technical outlook - spring 2013€¦ · global technical outlook (semi-annual, intermarket...

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