today's highlights - 07-11-11
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Market Commentary - for Institutional Client use only.
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11 July 2011 Tom Fitzpatrick (1-212-723-1344)Shyam Devani (44-207-986-3453)
Alex Good (1-212- 723-3469)CitiFX Technicals Portfolio [email protected]
Todays Highlights
Europe: European financial markets look to deteriorate further with pressure building in the short end of thecurves in the periphery while German yields move lower and the European Banks Index takes out the 2010 lows.
Italy:Italian German 10 year yield spread has taken out important resistance at 2.54% and is likely now to test3.25%. Italian 2s-10s curve continues to bear flatten and 2 year yields have seen a major break through3.22%-3.35% opening the way for an eventual test of the 4.50% area.Spain:Watch resistance on Spanish 10 year yields at 5.94%. Spanish 2s -10s still looks very similar (almostidentical) to what was seen at the end of 2010. Expect further bear flattening here.
Germany:10 year yields testing good support at 2.78%-2.80%. A close below opens the way for lower yields.German 2s-5s makes new trend lows. Bull flattening here reflecting a move to safety / concern with periphery.
European Banks:New trend lows. A breach of the channel base at 145 would open the way for 130.Equities: Short term weakness coming through on a number of indices
FTSE 100:Bearish key day reversal at the top of the range. Expect a test of 5,860 if not the 5,600 area.
DAX:Bearish key day reversal. Losses expectedNikkei 225:Held the 76.4% retrace of the move down from the Feb high which converged with the long termtrend resistance. The gap down today further suggests losses ahead
Sensex:Failing at the trend resistance. Weaker still below 18,670
Chart of the Day: Italy Germany 10 year yield spread
Source: Aspen Graphics / Bloomberg 11 July 2011
New trend highs and now through the resistance levels at 2.54% which was the low from April 1994(just prior to what became a blow out move in 1995 when the Italian German 10 year yield spreadwent to a high of 6.50% and DEMITL rallied from 953 to 1250+ by March 1995)
Resistance levels are now at 2.76% and 3.25%
TechnicalsTechnical Developments in the Foreign Exchange andAsset Markets
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Italy 10 year minus 2 year yield spread
Source: Aspen Graphics / Bloomberg 11 July 2011
Has been bear flattening over the past week and making new trend lows today
A breach of the channel base at 1.46% would suggest a move towards 1.00%
Italian 2 year yields
Source: Aspen Graphics / Bloomberg 11 July 2011
Last weeks close above the converged horizontal and trend resistance levels at 3.22%-3.35%marks a break higher on Italian 2 year yields.Resistance levels now come in above 4.50% (with the channel top at 4.79%)
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Spanish 10 year yields
Source: Aspen Graphics / Bloomberg 11 July 2011
Making new trend highs and the key level to watch now is 5.94% which was the high from 2000
Spanish 10 year minus 2 year yield spread
Source: Aspen Graphics / Bloomberg 11 July 2011
The bear flattening has taken the Spanish 2-10s curve through important supports at 1.80%
A close below here would open the way for the Nov 2010 low at 1.62%
The setup and price action is still very similar to that seen in the second half of 2010.
Rising yields in Spain, a widening spread to German yields and a flatter curve only reflects aworsening situation in Spanish markets.
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German 10 year yields
Source: Aspen Graphics / Reuters 11 July 2011
Closed below the 200 week moving average and is now testing important supports at 2.78%-2.80%where horizontal supports converge with the 50% retracement of the move from 2.08% in August2010 to 3.51% in April this yearA close below this area opens the way for 2.62%.
German 5 year minus 2 year yield spread
Source: Aspen Graphics / Reuters 11 July 2011
Taken out 59 basis points support and is making new trend lows
This bull flattening we are seeing reflects more a flight to safety rather than any recovery (whereone would expect to see the curve flattening with rising yields).
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European Banks Index
Source: Aspen Graphics / Bloomberg 11 July 2011
New trend lows today after taking out 149 which was the low from June 2010. This level should nowprovide resistance if tested
This mornings low was on the channel base at 146
A breach of 146 would be another bearish development opening the way for at least 130
Overall the charts above continue to point towards a worsening environment in European financialmarkets with pressure increasingly moving to the shorter end of the curves in the periphery of
Europe. They continue to suggest a weaker EUR across the board and we would not be surprised tosee a test of 1.3968 on EURUSD which is the key pivot in focus
EURUSD
Source: Aspen Graphics / Reuters 11 July 2011
1.3968 was the low from May 23rd
from where we bounced up to the 76.4% Fibonacci retracementagainst the highs.
A close below would be a significant bearish development.
76.4% Fibonacci
1.3968
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Equities
FTSE 100
Source: Aspen Graphics / Reuters 11 July 2011
Turning lower from the top of the range again after Fridays bearish key day reversal.
A repeat of the price action seen in Feb and May this year would see a test of 5,860, aconsolidation/bounce and another leg lower down towards the base of the range at 5,600.
Dax Index
Source: Aspen Graphics / Reuters 11 July 2011
Bearish key day down on Friday
Daily momentum crossing back down from stretched levels againShort term trend support comes in at 7,161 which is likely to be tested
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Nikkei 225
Source: Aspen Graphics / Reuters 11 July 2011
Held the 76.4% Fibonacci retracement of the move down from the highs in Feb this year. This comesin at 10,193 on the log chart.
Longer term trend resistance from the 2007 highs converges here
Daily momentum is stretched and crossing back down
The daily candles below show an evening star / shooting star pattern (gap up and then gap down).This was also seen in early May this year before a move down that took the index lower until midJune
Nikkei 225
Source: Aspen Graphics / Reuters 11 July 2011
76.4% retracementagainst the highs and
long term trendresistance
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Sensex
Source: Aspen Graphics / Bloomberg 11 July 2011
Failing at trend resistance which is at 19,060
Daily momentum crossing back down from the same levels as Jan and April 2011 when the marketturned lower
A close below short term support at 18,672-736 opens the way for 17,800 and possibly the trend
lows at 17,300.
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PLEASE NOTE THAT: The tables and information specified below under Short Term Conviction views, Long TermConviction views, CitiFX Technicals Portfolio, Strategic Portfolio, and Tactical Portfolio ARE NOT INTENDED AS, ANDDO NOT CONSTITUTE, AN OFFER, RECOMMENDATION, ADVICE OR A SOLICITATION TO BUY, SELL OR TO ENGAGE IN ANYSTRATEGY, WHATSOEVER, IN ANY FOREIGN CURRENCY CONRACT OR ANY INSTRUMENT OR INVESTMENT. EACHDECISION BY YOU TO ENTER INTO ANY FOREIGN CURRENCY CONRACT OR TO INVEST IN ANY INSTRUMENT OR ENGAGEIN ANY STRATEGY MUST BE BASED ON DILIGENCE AND ANALYSIS INDEPENDENTLY UNDERTAKEN BY YOU AND YOURADVISORS. PLEASE CAREFULLY REVIEW THE DISCLAIMERS AT THE LAST PAGE OF THIS DOCUMENT.
Short term conviction views 1
Instrument ViewDate view was
establishedTarget Level today
Crude
Bearish daily reversal at thehighs and breach of near termsupports suggest short termweakness
13 April
** $93 Target Met.
Possibleextendedmove to $83.40 (200
week movingaverage)**
In addition a move to$75 (Head and
shoulders target)cannot be ruled out.
$95.01
EURUSD Bearish weekly reversal at the
trend highs09 May
1.4156**Target Met. Extended
to 1.3871 (200 day)1.4126
GBPUSD Revisited but could not sustain
rising trendline, head andshoulders targeting 1.5345
21 June 1.5345 1.5966
USDJPY
76.4% against the lows, doublebottom type formation andinverted head and shouldersbreak suggest higher levels
28 June 82.10 80.73
Source: CitFXTechnicals Views 11 July 2011
1Convictions represent the views of the CitiFX Technical staff and not actual trades.
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Long term conviction views1
Summary of our strong conviction 2011 views as we open the year.
(As we continually note, when and if factors/dynamics change, we will adjust them into our thoughtprocess. These are our views we hold with conviction today. As we head through the year we willupdate our level of conviction on an ongoing basis.)
Instrument View for 2011 on 03 Jan 2011Conviction on 03
Jan 2011Conviction today-
11 July 2011Level today
S&P 500
Bearish year with double digit
percentage down close of 15-16% (1,055-1070) expected.
Intra year bear market (High tolow fall of 20%+ ) also a danger.
Peak could well come in theopening days of the year.
Strong Strong 1,343
U.S. long endyields
10 year yields to head towards4% and possibly 4.5% by end ofyear.
30 year yields to head towards5%
Strong Strong10Y at 2.97%and 30Y at
4.26%
Crude A move above $100 and
possibly towards $120Strong $100 target met. $95.01
Gold $1,700 this year and as high as
$2,000 eventuallyStrong Strong $1,543
Palladium A move above $1,000 this year Strong Strong $768
EURUSD
A move to high 1.40s (1.4850)by end of year) with possible1.50+ and even 1.60+ in early2012
Strong
Weak. We have nowchanged our year endview and believe that
the move seen to1.4940 on 04 May has
established a longterm peak earlier than
we thought.
1.4126
Data as at 11 July 2011
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CitiFXTechnicals PortfolioStrategic trades will likely be / intended to be of more medium term nature using the variety of building blocks that we articulate in thatmedium term view.Tactical trades by definition are likely to be more short-term and driven more by day to day price dynamics, risk management P&L etc.The strategic portfolio will be made up of 100 units of capital with the potential for modest leverage while the tactical portfolio willcomprise 50 units of capital also with modest leverage potential.These portfolios represent actual trades in FX, EM, Fixed income, Commodities or Equity indices
Strategic PortfolioData as at 11 July 2010
Instrument PositionDate
establishedComment Entry
Stop(If breached
unlessspecified
otherwise)
TargetPresent
level
Tactical PortfolioData as at 11 July 2010
Instrument PositionDate
established Comment Entry
Stop(If breached
unlessspecified
otherwise)
TargetPresent
level
GBPUSD Short 23 June 2011
Long term headand shoulders,
interest rate andequity
Spot Ref:1.6133
1.63051.5345-1.5370
1.5966
10 YearFuture(TYU1)
Short 24 June 2011
Held base of whatlooks like
corrective flag,potential double
bottom
124 14/32 125 1/2 3.10%(yield) 124.05/32
USDJPY Long 27 June 2011
76.4% Fibonacci
Hold + doublebottom + invertedhead and
shoulders + US 2year set up
80.79 80.0082.10,
possibly84.00
80.75
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CitiFX Value Added Services & Products
FX TechnicalsTom Fitzpatrick New York 1-212-723-1344 [email protected]
Shyam Devani London 44-20-7986-3453 [email protected]
Alex Good New York 1-212- 723-3469 [email protected]
CitiFX Value Added Services & Products Group Heads
Global Head of Value Added Services & ProductsStephane Knauf London 44-20-7986-9486 [email protected]
Corporate Solutions GroupStephane Knauf London 44-20-7986-9486 [email protected]
FX & Local Markets StrategySteven Englander New York 1-212-723-3211 [email protected]
FX TechnicalsTom Fitzpatrick New York 1-212-723-1344 [email protected]
Quantitative Investor SolutionsJessica James London 44-20-7986-1592 [email protected]
Structuring GroupStephane Knauf London 44-20-7986-9486 [email protected]
Value Added ProductsPhilip Brass London 44-20-7986-1614 [email protected] Thomet Zurich 41-58-750-7646 [email protected]
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