January 2013

First Quarter 2013
Stéphanie Aymès Phone: + 44 (0) 207 762 5898 stephanie.aymes@sgcib.com Loic de Galzain Phone: + 33 (0) 1 42 13 47 12 loic.de-galzain@sgcib.com

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 Euro-denominated assets to keep brightening until spring/summer (p8)

As highlighted in our previous „What the charts say!‟ last October, the easing of financial tensions in Europe has resulted in the confirmation of major trend reversal technical patterns on the Euro vs. all currencies, European sovereign CDSs and coreperipheral bond spreads and on the equity financial sector. The combined view on the EUR/USD and on European indices suggests they will outperform further into Q1/Q2 but the timing will be critical then.
 Commodities and emerging equities disconnect? (p25)

Except for Gold, where we expect prices to rally and peak between $1,800/$1,921 before starting a gradual decline in H2, commodities should recover overall, but with limited upside. On the other hand, the MSCI emerging is set to outperform (+20%) towards 2008 tops.
 Still some action in the FX space (p33)

In our previous report, we anticipated the major trend reversals on the JPY and the GBP. Even though these bearish trends prevail, we are getting indications that a pause is long overdue. Also, our attention now goes to the NOK and the AUD, more specifically on the EUR/NOK and the EUR/AUD as they may well be the next main FX movers. They are, in our view, completing four years of correction and have been showing signs of fatigue of late.
 Cherry picking on rates (p19)

While our central call for the US rates to bottom out still prevails, we believe UST10 yields may be entering the accumulation phase soon, and hence it could experience some hiccups along the way. The recent developments on European short-end rates are of particular interest as we see on Schatz and especially on Euribor the confirmation of major trend reversal patterns. We also identify some interesting convergence opportunities, with European peripheral bonds tightening the gap with the core, as well as certain opportunities among core bonds.
 Despite recent strength, our core scenario remains bullish on US equities which is maturing (p41)

Although the distribution phase has not started yet, the SP500 is gradually rising towards the multi-year high at 1550/75. The US High Yield index is also closing in on pre-crisis levels with a marked lack of momentum on indicators.




 Europe - intermediate outperformance Targets : Eurostoxx50: 1/ 3000 pts; 2/ 3300 CAC 40: 4000/4100 pts 2/ 4400 US: much more limited potential Target: S&P 500: 1/ 1550 +/- 2/ 1666  Global Emerging Markets: outperformance, but range-bound MT

Europe/Sectors Outperformance: Financials (Banks & Insurance) Consumer Staples - Pharma/Health - HPC – Food & Beverages Luxury Goods - Chemicals Underperformance Utilities, Basic Ressources (positive ST), Building Materials, Tobacco, Oil Services Neutral (relative accumulation): Integrated oils, Telecoms




Target 1 S&P 500 Nikkei 225 DJStoxx 600 FTSE 100 Eurostoxx50 CAC 40 Dax IBEX MIB 1550 11 400 315 6750 /6900 +/-50 3000 4000-4100 8130 9050 18000

Target 2 1660 12 875 335 7700 3300 4400 9000 9800/9900 19750

Source: SG Cross Asset Research


For now.exit from the triangular congestion zone above 340 pts. Since January.MSCI WORLD ($)  Intermediate positive trend . Portugal. entry volumes are identifiable in Japan and China. For the eurozone: Ireland.Potential: 410/420 +15 % A move above 360 should spark entry flows with the risk of a bubble forming. they have focused on the banking sector. Italy. Spain. Source: Reuters 5 .Target 1/ 385 (triangle target) .  Beyond immediate resistance at 360: .

Japan China Portugal Ireland Source: Reuters 6 .VOLUMES & ON-BALANCE VOLUMES. VERY CONCENTRATED FOR NOW....

Europe .VS MSCI WORLD (ADJUSTED FOR FOREX MOVEMENTS)  Outperforming .US .Japan Source: SG Cross Asset Research.Emerging Underperforming . © Waldata 7 .

10 pts . Source: Reuters 8 .20 pts Target 1/ 3000 +/.  ST resistance: 2800 +/.(+ 23 %) Eurostoxx50  ST resistance: 2800 +/.  The risk of sharp downward consolidation appears very limited considering the strength of the trend.pts (+ 23 %)  But.  A/B/C type technical recovery since 2009.(+10 %) 2/ 3300 +/.(+10 %) 2/ 3300 +/. LT trend remains negative.EUROPE: TARGET 1/ 3000 +/.

Outperformance vs MSCI World . the LT trend remains negative with the risk of a major peak between March/April and June/July 2013. Italy and Spain).Targeted inflows: solid flowback volumes (Ireland. Source: Reuters 9 . Portugal.  But.Southern Europe: the strong intermediate recovery is not over yet.  Indexes: recovery phase out to next spring .EUROPE DJStoxx 600 res 1/ 290/292 target 1/ 315 (+10 %) 2/ 345/350 +20%  Eurozone: stress reduction .

CAC 40 TARGET 1/ 4000-4100 2/ 4400 – 4500 (+ 20 %) CAC 40 CAC 40 in $ + 16 % Source: Reuters 10 .

FTSE 100 : TARGET 1/ + 8 % 2/ +20% Vs DJ Stoxx on support Source: Reuters 11 .

CHANGE OF TACK Telecoms: MT support accumulation vs negative Integrated Oils accumulation vs neutral Oil services: still negative Energy Equip vs Integrated Oils Risk 1 : 16 % Source: Reuters 12 .EUROPE – SECTOR VS DJSTOXX.

EUROPE – SECTOR VS DJSTOXX. (oversold ST but cycle peak in past) Building materials Source: Reuters 13 . NEGATIVE MT Utilities Real Estate Tobacco risk 1/ v-20 % Basic Ress.

EUROPE – SECTOR VS DJSTOXX. POSITIVE MT Food & Beverages Pharma Banks Chemicals Source: Reuters 14 .

000. First target hit at 1.200 Source: Reuters 15 .EUROPE. Target 2/ 1. COUNTRY Ireland Target 1/ 3950 2/ 4500 Italy MIB Target 23 000 Austria ATX target 3000 Greece.

4% of the previous correction.3835/1.EUR/USD: THE COMPELLING SIMILARITIES (PRICE TIME AND RANGE) WITH 2008/2009 AND 2010/2011 HELPS TO FORECAST 1.8%/76. each correction/impulsion in abc.4% 61.8% 61.4250  Since 2008. lasting either 6 or 12 months.20/1.8% 5/6-12 months 6 months EUR/USD.22) and are gearing up to test the five-year resistance at 1. monthly chart. Source: CQG 16 .4250 IN H1  Indicators and prices bounced off long-term supports (1. 76. with impulsions retracing 61.

CFTC non-commercial net futures positions. Source: Bloomberg 17 . Source: CQG EURUSD. weekly charts.potential 1. weekly chart.4250).EUR/USD: DEFINITE BUY SIGNALS PROMPTED BUT SHORT-TERM RESPITE IS NEEDED  Double buy signal by breaking the bearish channel upward (1.2970.2660/20) and confirming the inverted Head and Shoulders pattern (1. EURUSD. The weekly momentum indicators and the net noncommercial open interest are at absolute levels and hence need to pause.

Source: CQG 18 .2970 or even 1.4250.3835 and 1.EUR/USD: POSSIBLE PAUSE FIRST BEFORE HEADING FOR 1.3835 AND 1. EURUSD. The EUR/USD will then rally to 1.4250  Timing suggests a further rise into Q1 or even Q2 2013 The pair might ease back to the Head and Shoulders‟ neckline at 1. weekly charts.2660/20. This will enable indicators to ease and gain upside potential.

Source: Bloomberg 19 .05  EuriborM3-EuriborM4 set to widen towards 48/53 The spread broke the steep two-year tightening channel upwards and most likely completed a standard a/b/c/ correction last December. Daily indicators have been diverging from prices (i.e. the Euribor broke the wedge‟s lower support line (red dashed line). hence highlighting the maturing uptrend. This pattern. daily chart (log. albeit rare. moving in the opposite direction since 35/37). the euribor has been gradually climbing within a rising wedge. ERM3.e. materialises at the end of a sustained trend. Late 2012. 99.EURIBOR JUNE13: A COMBINATION OF TWO BEARISH REVERSAL PATTERNS  Prices should gradually bend towards the starting point of these reversal patterns (99. i.05) Since autumn 11. scale). prices have been enjoying an uptrend but amplitude has been contracting. In addition to the wedge. the euribor formed and confirmed a long reversal pattern (Rounding Top).

Source: CQG US2Y-EU2Y. it saw the formation of a Double Top. Like for every bearish reversal. monthly and daily charts. which is also the Double Bottom‟s potential. monthly chart. 36. Schatz.37%).SCHATZ YIELD: IS STABILIZING ABOVE THE MULTI-YEAR TREND LINE AND A FURTHER RALLY WILL SEE ITS SPREAD TIGHTEN OVER US2Y TO -41/-61  The monthly indicators have also bounced off the multi US2Y-EU2Y spread hit then rejected the key resistance zone of year support line and been diverging since May 10 (0. hence it should narrow towards the support line at -41/-61. Source: CQG 20 .

Source: Bloomberg 21 .weekly chart.Source: Bloomberg EUR 2s5s10s (pay 5Y).weekly chart. EUR 2s5s10s (pay 5Y). However the recent break below the rising wedge and the persisting divergences on indicators suggest it will edge lower to 20/16.EUR 2S5S10S FLY (PAY 5Y): 38 WILL BE DECISIVE  The 2s5s10s Fly has established itself within the upper part of the long-term range (38-77).

It should establish itself above the channel support at 13/10. Source: Bloomberg 22 . Source: Bloomberg GUILDER10Y-BUND10Y. Indicators have been diverging for a year (25/28).EUROPEAN CORE BONDS: 10Y FRANCE AND THE NETHERLANDS SPREADS OVER GERMANY ARE NOW TESTING CRUCIAL SUPPORTS  The 10Y OAT-BUND spread has stabilised above the 5- year channel support and the top of summer 11 at 55/45. It could potentially be forming a Double Bottom (80/87). 10Y GUILDER-BUND spread is completing a 4-year standard a/b/c/ flat correction. OAT10Y-BUND10Y. daily chart. daily chart.

. Source: Bloomberg 23 .EUROPEAN PERIPHERAL BONDS: MAJOR BEARISH REVERSAL PATTERNS TRIGGERED LAST SUMMER. ... THE CONVERGENCE WITH CORE IS UNDERWAY  Most definite configurations are 10Y spreads between Portugal/Spain and Germany. OT10Y-BUND10Y and BONOS10Y-BUND10Y daily charts..where a rounding top and a head-and-shoulders pattern were confirmed for the former. and a break below the 2-year wedge for the latter.

The BTP10Y is closing in on the broadening triangle support which has been developing since 2006. BTP10Y (log.EUROPEAN PERIPHERAL BONDS: BTP AND 10Y BTP-BUND SPREAD AT KEY SUPPORTS  10Y spread between Italy and Germany will have to break below 253 to catch up. 3.90%. It is breaking below the 5Y channel support but a clear break below 253 will confirm a major Double Top pattern. BTP10Y-BUND10Y.90% is also the steep corrective channel support which has been framing the correction since late 2011. scale) daily charts. Source: Bloomberg. at 3. CQG 24 .

TARGET 1325 Source: Reuters 25 .MSCI WORLD EMERGING ($) ST PAUSE BELOW 1090.

The indicator suggests the correction ended in April/May.e.GOLD SPOT: THE CORRECTION WHICH STARTED IN SEPT. red curve) to spark a sustained buy signal. the break above the multiyear channel at 1045. Last April/May it pulled back to the support zone corresponding to the corrections of October 06 and 08 (see arrows) and has tilted upwards. Gold spot. The Stochastic indicator has settled in bullish territory i. It has been acting as a reliable support during all corrections. Now. 70/75% for a long-time now (since mid-2003). It is at 1672 this month. Gold has never closed below the monthly moving average since then. It therefore lends weight to the bullish trend. the Stochastic needs to break above the moving average (see ellipse. Source CQG 26 .e. i. 11 IS COMPLETE  Indicators suggest Gold has bottomed out (at 1522 last April/May) The rally has been parabolic since 2009. quarterly chart.

the difference between the opening and closing price) engulfs that of August. Gold has been moving within a lengthy sideways/flat consolidation channel between 1522 and 1803/1827 and has briefly re-integrated the former channel lately. although there was a sudden increase in the bearish force. This break is more likely the result of the inertia in prices. Gold broke below the very steep rising channel which was containing the rise since late 2008 but this signal was not followed by an overall collapse of the flat price. The candlestick body in September (i. Source CQG 27 . The last buyers are swept away…. the bears haven‟t taken over.  Shallower correction but longer (offsetting) 4-month correction 4-month rally Last May. However. so much that the monthly closing price was below the August one (1623). monthly chart.e. BUT IT IS DE-STEEPENING  The break below the uptrend since 2008 was not fuelled by new sellers Like in 2008 (see red ellipse) bearish engulfing patterns formed in August/September11.  Timing suggests a pause as Gold has been correcting lower for four months Gold spot. there was no bearish monthly close the following month.GOLD SPOT: THE OVERALL LONG-TERM UPTREND PERSISTS. This suggests that. Indeed. After the strong rally and the all-time high printed in September 11 the opening price was equal to that of August (at 1803/1827) but Gold reversed sharply. in this instance.

ONE HAS BEEN TAKING SHAPE SINCE DEC.GOLD: EVERY CORRECTION SAW FORMATION OF INVERTED HEAD AND SHOULDERS. TRIGGER IS 1803  A Head and Shoulders is also being formed on the Dollar Index and will trigger in break of 79. weekly charts. Source CQG 28 . Source: Gold spot (log) and Dollar index.11.

GOLD: THE NET OPEN INTEREST REMAINS OVERALL LONG. daily chart Source: Bloomberg. LIKE PRICES IT BOUNCED OFF SUPPORT LAST MAY  Gold and CFTC net non-commercial: support hit last May Gold and Risk Reversal 1M: testing interim support Source: Bloomberg. daily chart 29 .

LONG-TERM SCENARIO: GOLD IS DUE TO HIT 1803/1921 IN H1 2013. Gold would hit the all-time high at 1921 or even a touch higher but would reverse downward very soon after.  But the rally to come may be the final one for a little while.  The correction from August 11 to May 2012 is most likely a wave 4// This correction aimed to retrace the rally from July 09 up to August 11 top. Gold hit the 38.e. IT MAY BE THE FINAL WAVE THOUGH…. hence completing a 5// wave sequence Given the various points outlined in the previous pages it looks like the up trend remains in place but starting to run out of steam. the panic rally like in August 11 or a failure. In the last instance. These corrections are most of the time shallow and interpreted as a pause within the overall up trend. This supports the idea that a final up wave (labelled 5//) has been unfolding since last May but sometimes this final wave can take shape with various forms: either standard or extreme i. Gold spot. Source CQG 30 .2% retracement 3 times at 1522. weekly charts.

crude oil near the upper part of the 1.BRENT: IT LOOKS LIKE A PULLBACK….5 year range Brent active monthly continuation chart. Source: CQG 31 .  The steep bullish dynamic since 2008 is broken.

weekly chart. weekly chart Source: Bloomberg 32 .BRENT: RANGE-BOUND CONFIGURATION  Brent (June13) is drifting higher towards the upper part of the 2-year range at 113 and 118 but with a lack of momentum. Source: CQG Brent June 13. Brent June 13.

7690 is the 50% retracement.7690 (dashed pink line). prompted a buy signal and highlights the risk zone of 0.8780 will reverse the 4-year bearish trend.7690. but also the pennant‟s lower limit in place since 2008.7750/0. Monthly leading indicators are reversing up. the objective for the current rally is 0. PAIR IS HEADING TOWARDS THE 5Y CHANNEL RESISTANCE AT 0. monthly chart. EURGBP. Source: CQG 33 . The weekly TD sequential indicator.8780.7750/0. when the EUR/GBP enjoyed a rally towards the pennant‟s upper limit and the reference level of the previous downtrend (red dashed line).7750/0.7690.8640/0. Such a buy signal occurred in 2010.8780  The pair hit a major support last summer at 0. which aims to identify price exhaustion and spot market bottoms/tops. 0. Only a break above the 5-year channel resistance/pennant at 0. When applying the same rule.EUR/GBP: MAJOR LONG-TERM SUPPORT HIT AT 0.8640/0.

A consolidation is overdue. which aims to detect any possible oversold/overbought configuration. 2009 and 2008. The weekly momentum indicator (here weekly Stochastic). EURGBP. weekly chart. hit the peaks of 2011.8160/0.EUR/GBP: DEFINITE BULLISH SIGNALS BUT RISK OF A SHORT-TERM PAUSE  Closing in on initial significant resistances The pair broke above the steep corrective channel.8580.8230 and reached the potential at 0. Source: CQG 34 . thereby validating the inverted Head and Shoulders pattern with a break above 0.

.75. USDJPY. monthly and weekly charts.00).55). ..50/92. Source: CQG 35 . most importantly to 100. a pause will have to take place (to 85.USD/JPY: THE BULLISH TREND REVERSAL PREVIOUSLY SPOTTED IS TAKING PLACE  Major support reached at 75. The USD/JPY breached the resistance line (red dashed line) with indicators diverging since 2009.as monthly indicators are at resistance and the pair is nearing the potential for the inverted Head and Shoulders (91. The pair is most likely retracing the 6year correction and should head towards the graphic levels of 95.00.50 followed by a one-year accumulation which formed a major bottom reversal (Inverted Head and Shoulders) The pair reached the long-term descending channel support and the correction has been desteepening ever since.00/101.. that is the congestion of 2000 to 2008 and the beginning of massive yen strength.  Despite the parabolic rally..

.as the pair is nearing the resistance of 123.2% retracement..37 which is composed of April 11 tops and 38. EUR/JPY.77 but a consolidation is close at hand. The break above the wedge‟s upper limit prompted a definite buy signal with monthly indicators flipping over into positive territory for the first time since 2008.. .80.EUR/JPY: 4-YEAR CORRECTION COMPLETED BY THE BREAK ABOVE THE FALLING WEDGE  The pair hit the lower limit of the exhaustion pattern (Wedge) then broke above it (104. monthly and weekly charts Source: CQG 36 .  The current rally aims to retrace the 4-year correction.60) It hit both the wedge‟s lower limit and the Fibonnacci projection at 92.. with projected targets at 132/138.

680 Source: Reuters 37 .300 2/ 12.NIKKEI 225: NEGATIVE VS MSCI WORLD RESISTANCE 1/ 11.

EUR/NOK. monthly and weekly charts. Source: CQG 38 . shoulders pattern. Source: CQG USD/NOK. The break of 6.PAIRS WHICH WILL MOST LIKELY CATCH UP: EUR/NOK AND USD/NOK  The EUR/NOK hit the lower part of the long-term broadening  The USD/NOK is potentially forming an inverted head and triangle and is completing a 4-year correction.00/6.10 will prompt a double buy signal (head and shoulders confirmation and the multi-year channel resistance). weekly chart.50/67 will prompt definite buy signals. The break above the falling wedge at 7.

17. Source: CQG 39 . weekly chart.4270) is being formed and will be confirmed by a break above 1.17/1. Source: CQG.16. Bloomberg EUR/AUD. A major inverted head and shoulders pattern (potential at 1. EUR/AUD.PAIRS WHICH WILL MOST LIKELY CATCH UP: EUR/AUD  The pair hit a multi-year low at 1. monthly charts. The TD sequential indicator also prompted a monthly buy signal and highlights the risk zone of 1.3027.

Bloomberg EUR/CZK. weekly chart. This kind of configuration happens after a sharp but brief rally (2008/2009) and is followed by a prolonged consolidation. monthly chart. Source: CQG 40 .90 will confirm the pattern.PAIRS WHICH WILL MOST LIKELY CATCH UP: EUR/CZK  The long-term bearish signals are gradually receding. Source: CQG. EUR/CZK. 25. The EUR/CZK is slowly forming a bullish pattern (Cup and Handle).

 The target for this major B wave. and the Dow Transport.US: S&P 500 TARGET 1/ 1550 (5%) 2/ 1660 (13%)  The recovery trend since 2009 still has all the characteristics of a major technical recovery with the minimum target at 1550+/10pts (weekly closing– 1575 on daily extremes) and immediate support at 1470/65. Source: Reuters 41 . new historical peak on the Russel 2000. initially set at +/.1550 is likely to increase to 1660/70 by next June/July.  Positive factors prevail: Positive Advance/Decline. S2 1340.

the index has been evolving within the upper part of the long-term range. the current uptrend could also be developing within a falling wedge.00. Overall.US HIGH YIELD (5Y): IS EDGING HIGHER TOWARDS PRE-CRISIS LEVELS BUT THE UPTREND IS RUNNING OUT OF STEAM  104. between 86. Source Bloomberg 42 .45/105.45/105.00. The indicators are toying with the overbought zone. High Yield (Markit CDX 5Y).00 and 97.  Similarities between the current uptrend and that of mid-2010/early 2011 Both were contained within a rising channel.00 is the main resistance region to watch: this is the all-time high (the pre-crisis level) and the top from early 2011.50 and 104. The wedge underlines the levels of 105.

Source: CQG 43 . The monthly MACD also hit support (last time being early 2009) and is breaking the signal curve (red line as indicated by the blue arrow).. .. MONTHLY INDICATORS ARE FLASHING EARLY BULLISH SIGNALS  1.00% is the major support zone. monthly chart.made up of the long-term channel‟s lower limits as well as the steeper one which has been developing since 2007. UST10Y in yield..UST10Y IN YIELD: HIT THE MULTI-DECADE DECLINING CHANNEL SUPPORT..38%-1.

daily chart. The weekly RSI broke the resistance line since 2011 too (red dashed line) but is approaching initial resistance. It has gradually recovered towards the first resistance zone at 2. but it will certainly be marked by price consolidation.UST10Y IN YIELD: IS BOTTOMING OUT BUT THERE COULD BE SOME HICCUPS ALONG THE WAY  The fall in yield since early 2011 is over. Source: CQG 44 .09% which consists of the 23. A clear and visible 5-wave sequence is complete and UST10Y (in yield) broke above the steep resistance line in place since early 2011 (at 1.6% retracement of the correction form early 2011 to July 2012 and of the congestion of September 11 to May 12. UST10 has entered into „the accumulation phase‟ in other words the primary uptrend is slowly building.25%).00/2. UST10Y in yield.

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The information herein is not intended to be an offer to buy or sell. and (3) the exemption set out in Regulation 35 of the FAR.sgresearch. analysts receive compensation based. may from time to time deal in. brokers or bankers. The value of securities and financial instruments is subject to currency exchange rate fluctuation that may have a positive or negative effect on the price of such securities or financial instruments. any securities or other financial instrument and including any expression of opinion. Singapore Branch and is provided only to accredited investors. Trading desks may trade. SG. and made available only to. involve numerous risks. Cap. The analyst(s) who author research are employed by SG and its affiliates in locations. Société Générale is a French credit institution (bank) authorised and supervised by the Autorité de Contrôle Prudentiel (the French Prudential Control Authority). The information and any advice contained herein is directed only at. LLC to conform with the requirements of US securities law. Warsaw and Moscow. Prior to buying or selling an option. including but not limited to. or derivatives of persons. SG is relying on the following exemptions to the Financial Advisers Act.

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