The Charts That Matter Next WeekThe Charts That Matter Next Week
Goldman Sachs InternationalFriday 13
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August 2010
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FX Sales Strats
John NoyceJohn.Noyce@gs.com+44 20 7774 2915
This is not research and is not intended as such. This has beenprepared by individuals on thesales/trading desks of the Securities Division. This material does not represent a formal or official view of Goldman Sachs as the views expressed herein are solely those of the author(s), which may differ from those of Global Investment Research.
From the trading desk
11
Have the G10 currencies peaked against the USD earlier than expected?..
Chart Source: Aspen Graphics Data: ReutersPast performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment mayoccur.
Foreign Exchange Strategies -From the Trading Desk
There are certainly a number of warning signsthat the last stage of the USD-weakness trendwe have been looking for (EURUSD to 1.35-1.37) is unlikely on a tradeable horizon
The chart opposite is our Broad/USD Index whichshows the performance of an equally weightedbasket of the “Old World G10”currencies versus theUSD, it’s USD-termed so lower is USD-strength.
Please note the Broad/USD Index is a product of theSecurities Division of GS.
As discussed in the daily update on Tuesday it hasturned lower from a near perfect hold of the 76.4retrace of the drop from the cycle highs lastNovember to the lows in June. As we often highlight76.4 retrace holds against cycle extremes such asthis are often seen at significant turning points.
The subsequent drop in the index, particularlyWednesday’s sharp fall has taken the market belowthe uptrend which had been forming since the Junelows.
Overall, as an overview chart this warns of a materialturn in the broader trend of the G10 currenciesversus that USD.
22
Another notable development is the magnitude of Wednesday’s EURUSD fall…
Chart Source: Aspen Graphics Data: ReutersPast performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment mayoccur.
Foreign Exchange Strategies -From the Trading Desk
On a daily close/close basis the market fell2.29%. The last time a similar move took placewas on 19
th
December ‘08 (-2.34%) –just as themarket was peaking following the December ‘08rally and beginning the fall into the March ‘09lows (1.4720 to 1.2457)
While we’re only making a comparison with one other event in this case, over the last few years we’vetended to find that “statistically significant”moves,such as Wednesday’s, tend to be seen at trend turnor acceleration points. Looking at this particular caseand put another way, violent pull backs such asWednesday’s are uncommon within healthy trends.
Taking this and some of the more classic analysisdiscussed on the following slides into account, makesus very seriously consider the idea that EURUSD willnot move to the 1.35-1.37 targets we’ve beendiscussing over recent weeks and that it’s alreadypeaked on a tradeable horizon.
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