Technicals

Technical Developments in the Foreign Exchange and Asset Markets 04 July 2011 Tom Fitzpatrick (1-212-723-1344) Shyam Devani (44-207-986-3453) Alex Good (1-212- 723-3469) CitiFX.Technicals@citi.com

CitiFX Technicals Portfolio

Todays Highlights
Fixed Income U.S. 5 year yield: Weekly reversal at the lows from key levels further supporting the indications for higher yields. U.S. 10 year yield: Weekly Closed the week above the 3.05%-3.13% area and also posted a weekly reversal pattern. Foreign Exchange EURGBP: 76.4% Fibonacci retracement of the move down from the 2009 high holds as resistance and the pair fails to close above the May 2011 high (0.9043). A short term move down seems likely German UK 2 year yield spread: Turning lower from the top of the range on the daily chart GBPUSD: Re-tested the head and shoulders neckline as resistance at 1.6140. A turn back down again? EURUSD: Negative divergence on the 240 min chart reflecting weakness in this move up and suggesting a turn down again. Similar indications were seen at the May and June highs.

Chart of the Day: U.S. 5 year yield

76.4% retrace Channel base Weekly momentum crossing up Weekly reversal at the lows

Source: Aspen Graphics / Reuters 04 July 2011

Not only is this Chart of the day it is one of our favourite charts across markets at this stage Having held the 76.4% Fibonacci retracement of the move from 1.01% in Nov 2010 to 2.42% in Feb 2011 which came in at 1.34%, U.S. 5 year yields posted a strong weekly reversal at the lows last week. The lows also converged with the channel base last week. Weekly momentum has also crossed back up again from stretched levels. We continue to believe this is a decent platform for yields to move higher. A close above short term resistance at 1.79% would be yet another indication of higher yields and would open the way for at least the channel top at 2.30%.

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U.S. 10 year yield

04 July 2011

Source: Aspen Graphics / Reuters 04 July 2011

Posted a weekly closed above the 3.05%-3.13% resistance area. Weekly momentum has turned back up from stretched levels. Weekly reversal at the trend lows (insert) All of the above further suggests higher yields ahead

U.S. 10 year yields daily chart

Source: Aspen Graphics / Reuters 04 July 2011

The next short term resistance levels are at 3.24%-3.25% which was the base of the range throughout Dec 2010 and Jan 2011 and also provided resistance in May 2011 when yields were heading lower. A close above there (preferably weekly close above) would add further strength to our bias that yields can head higher towards the 3.60% resistance area (over the medium term we ultimately expect a test of 4%+).

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EURGBP

04 July 2011

76.4% retrace and failure to close above the May high

Source: Aspen Graphics / Reuters 04 July 2011

Effectively held the 76.4% Fibonacci retracement of the move down from the 2009 high (0.9413) to the June 2010 low (0.8067) which comes in at 0.9095 (Fridays high was 0.9084) The market has also failed to close above the May 2011 high (0.9043) despite having rallied above over the past 2 sessions. Daily momentum is stretched and is beginning to cross back down. Overall the rally seen last week is beginning to look tired and we would not be surprised to see a short term move lower A close below 0.8976 would add strength to this bias.

German UK 2 year yield spread

Source: Aspen Graphics / Reuters 04 July 2011

Has turned back down from the top of the range at 88 basis points and the spread is also below the May and June highs (81-82 basis points). A move lower here would suggest a short term move lower on EURGBP as the overlay below highlights

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CitiFX Technicals

04 July 2011

German UK 2 year yield spread and EURGBP daily chart overlay

Source: Aspen Graphics / Reuters 04 July 2011

GBPUSD H S S
Neckline retest

Source: Aspen Graphics / Reuters 04 July 2011

The bounce up over the past few sessions has so far stalled at the head and shoulders neckline which comes in today at 1.6139 (and is providing resistance) A continued hold here would make the bounce up since the 1.5912 low look corrective and would suggest a move back down again Overall the pattern targets sub 1.54

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EURUSD 240 min chart

04 July 2011

Source: Aspen Graphics / Reuters 04 July 2011

The 240 min chart above is again showing negative divergence (not triple divergence) This was also seen at the May 2011 high and the early June high (again it was not triple divergence then either) This suggests weakness in the move up and warns of a turn back down again. Supports are at 1.4442, 1.4102, 1.4073 and the May low at 1.3968.

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04 July 2011

PLEASE NOTE THAT: The tables and information specified below under Short Term Conviction views, Long Term Conviction views, CitiFX Technicals Portfolio, Strategic Portfolio, and Tactical Portfolio ARE NOT INTENDED AS, AND DO NOT CONSTITUTE, AN OFFER, RECOMMENDATION, ADVICE OR A SOLICITATION TO BUY, SELL OR TO ENGAGE IN ANY STRATEGY, WHATSOEVER, IN ANY FOREIGN CURRENCY CONRACT OR ANY INSTRUMENT OR INVESTMENT. EACH DECISION BY YOU TO ENTER INTO ANY FOREIGN CURRENCY CONRACT OR TO INVEST IN ANY INSTRUMENT OR ENGAGE IN ANY STRATEGY MUST BE BASED ON DILIGENCE AND ANALYSIS INDEPENDENTLY UNDERTAKEN BY YOU AND YOUR ADVISORS. PLEASE CAREFULLY REVIEW THE DISCLAIMERS AT THE LAST PAGE OF THIS DOCUMENT.

Short term conviction views

Instrument

View

Date view was established

Target

Level today

Crude

Bearish daily reversal at the highs and breach of near term supports suggest short term weakness

13 April

** $93 Target Met. Possible extended move to $83.40 (200 week moving average)** In addition a move to $75 (Head and shoulders target) cannot be ruled out. 1.4156 **Target Met. Extended to 1.3871 (200 day)

$95.06

EURUSD

Bearish weekly reversal at the trend highs

09 May

1.4517

EURCHF

Breached 5 month consolidatiojnj with a double top in place, could see small pull back first (see portfolio)

23 May

1.16

1.2197

GBPUSD

Revisited but could not sustain rising trendline, head and shoulders targeting 1.5345

21 June

1.5345

1.6072

USDJPY

76.4% against the lows, double bottom type formation and inverted head and shoulders break suggest higher levels

28 June

82.10

80.50

Source: CitFXTechnicals Views 29 June 2011

Convictions represent the views of the CitiFX Technical staff and not actual trades.

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04 July 2011

Long term conviction views

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 thought process. These are our views we hold with conviction today. As we head through the year we will update our level of conviction on an ongoing basis.)

Instrument

View for 2011 on 03 Jan 2011

Conviction on 03 Jan 2011

Conviction today04 July 2011

Level today

S&P 500

Bearish year with double digit percentage down close of 15-16 % (1,055-1070) expected. Intra year bear market (High to low fall of 20%+ ) also a danger. Peak could well come in the opening days of the year.

Strong

Strong

1,339

U.S. long end yields

10 year yields to head towards 4% and possibly 4.5% by end of year. 30 year yields to head towards 5%

Strong

Strong

10Y at 3.18% and 30Y at 4.38%

Crude

A move above $100 and possibly towards $120

Strong

$100 target met.

$95.19

Gold

$1,700 this year and as high as $2,000 eventually

Strong

Strong

$1,496

Palladium

A move above $1,000 this year

Strong

Strong

$758

EURUSD

A move to high 1.40s (1.4850) by end of year) with possible 1.50+ and even 1.60+ in early 2012

Strong

Weak. We have now changed our year end view and believe that the move seen to 1.4940 on 04 May has established a long term peak earlier than we thought.

1.4523

Data as at 04 July 2011

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CitiFX Technicals

04 July 2011

CitiFX Technicals Portfolio

Strategic trades will likely be / intended to be of more medium term nature using the variety of building blocks that we articulate in that medium 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 will comprise 50 units of capital also with modest leverage potential. These portfolios represent actual trades in FX, EM, Fixed income, Commodities or Equity indices

Strategic Portfolio
Data as at 04 July 2010

Instrument

Position

Date established

Comment

Entry

Stop (If breached unless specified otherwise)

Target

Present level

Tactical Portfolio
Data as at 04 July 2010

Instrument

Position

Date established

Comment

Entry

Stop (If breached unless specified otherwise)

Target

Present level

EURGBP

Long 0.8450 Put Option (expiry 06 July)

25 May 2011

Price action is similar to that seen at the highs in October 2010 suggesting further losses Long term head and shoulders, interest rate and equity Held base of what looks like corrective flag, potential double bottom 76.4% Fibonacci Hold + double bottom + inverted head and shoulders + US 2 year set up Dominant pattern is still a double top that targets 1.16

Spot ref. 0.8666

Premium paid

0.8450

0.9021

GBPUSD

Short

23 June 2011

Spot Ref: 1.6133

1.6305

1.53451.5370

1.3098

10 Year Future (TYU1)

Short

24 June 2011

124 14/32

125 1/2

3.10%(yield)

122.05/32

USDJPY

Long

27 June 2011

80.79

80.00

82.10, possibly 84.00

80.70

EURCHF

Short

01 July 2011

1.2283

1.2425

1.16

1.2330

CitiFX Technicals Products

Today's Highlights - Sent Monday, Tuesday and Wednesday. Technical Strategy focused publication detailing important technical developments in the past 24 hours and looking at possible implications for other markets. Main focus is the FX market but the piece also covers important developments in Equity, Fixed Income and Commodity markets, especially where we believe the moves are significant for FX. The publication also includes a daily grid with short comments on each major currency pair and support/resistance levels Weekly Roundup - Sent late Thursday European time. Detailed coverage of all G10/EM FX Markets and related asset markets, with charts of each market. The document is hyperlinked to ease use and navigation. It should be thought of as an e-mailed website that can be kept for reference over the following week. Bulletins Ad hoc pieces sent where we believe particularly significant developments have taken place. Often based on interrelationships between markets.

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Portfolio Updates - We run a portfolio on the back of our ideas/views and as such send e-mails detailing changes to positions (targets/stops etc.) in relation to this.

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FX Technicals
Tom Fitzpatrick Shyam Devani Alex Good New York London New York 1-212-723-1344 44-20-7986-3453 1-212- 723-3469 thomas.fitzpatrick@citi.com shyam.devani@citi.com alexander.good@citi.com

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FX & Local Markets Strategy

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FX Technicals
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