Weekly Roundup - 07-28-11 - Final

CitiFX Technicals
July 28, 2011
Weekly Roundup
Tom Fitzpatrick 1-212-723-1344 thomas.fitzpatrick@citi.com Shyam Devani 44-207-986-3453 shyam.devani@citi.com Alex Good 1-212-723-3469 alexander.good@citi.com
Chart of the Week What are the interest rate markets telling us?
As we head to the end of the month we cannot help but be a little concerned about the way fixed income markets and curves are trading. The set ups here seems to us to be a classic anti-risk/ anti carry trade environment. From an anti risk dynamic that would support our concerns about the Equity market. From an anti carry trade dynamic that would support our concerns about what we think has become the Worlds largest carry trade The USD as a funding currency.
Foreign Exchange
Our favourite charts still suggest that the USD-index is set for a bounce and EURUSD set for a fall in the weeks ahead.
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Chart included: USD Index, EURUSD
Equities
We remain concerned here and still believe that a correction lower remains a significant danger.
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Chart included: Dow Industrials, S&P 500, VIX Index, Dow Transports
Commodities
Gold continues to perform strongly.
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Chart included: Gold
Emerging Markets
We have early warning signs that the rally in the ADXY is running out of steam and may be approaching an end Equity Indices in India, Brazil, Chile and Poland all look bearish
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Chart included: ADXY, Sensex, Bovespa, USDBRL, IPSA, WIG
Market Commentary -
for Institutional Client use only. Refer to information, disclosures and qualifications at the end of this publication.
Weekly Roundup
Chart of the Week: What are the interest rate markets telling us?
As we head to the end of the month we cannot help but be a little concerned about the way fixed income markets and curves are trading. U.S. 2s versus 5s curve
Source: Aspen Graphics / Bloomberg 27 July 2011.
While the World holds it breath and waits for a resolution to the U.S. debt crisis the 2s versus 5s has resumed its bull flattening dynamic. Amazingly it sits today (27th July) at 108 basis points which is exactly the same level as we were at on 28th July 2010 having flattened from a level of 161 basis points in January 2010. This time around we have flattened from 156 basis points in February 2011. Further flattening then continued in August, 2010 as the Equity market swooned and the S&P fell from 1,129 on 04 August to 1,040 (Down 8%) just 3 weeks later. Of course we know that this slide was arrested by the increasing guidance that QE2 was on the way. That is just not going to happen this time in our view. We are still 16% above that August high and a full 26% above the low that was posted in August last year at 1,040. By the time we reached that low in the S&P this curve had flattened to 85 basis points. That is certainly more than we would have expected to see this time, but not by any means impossible. However, if support around 104-107 basis points was to give way we would be concerned about an acceleration to the downside (Albeit we do not expect a move as far as we saw in 2010 to 70 b.p.s) One might almost be inclined to believe that this curve was now showing more concerns about economic slowdown/recession than debt concerns. (As in Europe, debt concerns would more likely see the curve bear flatten). However when this flattening began in Feb this year, 5 year yields were at 2.42% and are now at 1.53% and just 18 basis points of the years low. So what we actually have is a dynamic where: Q.E. has ended and that increased stimulus is no longer feeding through to the economy and asset markets. The chance of a U.S. Govt. debt downgrade has risen sharply. While in the near term this may well be a non-issue (The U.S. debt remains firmly investment grade) it is a shot across the bow with regard to fiscal responsibility. It is a warning that we have no choice but to cut back on the policies of recent years and start taking the fiscal imbalance seriously. Crude Oil remains firmly wedged at the moment close to $100 Growth has been slower than expected in H1 and the unemployment picture has shown some danger of deteriorating again. In effect the patient (U.S.A) has been continually on life support for the past 2 + years and we have run out of money to pay the electricity bills.
Market Commentary -
Weekly Roundup 28 July 2011
It is very hard to look at this dynamic and see how it can be positive for either the economy or the Equity market. On top of this the Global economy (Excluding the 2 huge developed zones of Europe and the U.S.) has to be getting a little worried. The game plan was that the developing World was in better shape to weather the storm while it waited for the inevitable return to health of these 2 major economic zones. Well guys, we hope you have a plan B because it looks like you might be waiting a lot longer than you thought. With these zones now having little choice but to show a greater level of fiscal and monetary responsibility that growth dynamic might be a lot more sluggish and the recovery a lot further down the line than previously thought. Once we stop fooling ourselves that these dynamics are technicalities caused by snow and the tragedy in Japan the lights are likely to go on that the economic dynamic remains stressed. When that happens the next realisation is likely to be that in a Global economy where the developed nations of the U.S.A., Japan as well as the Euro zone have a fever, then the rest of the World is likely to catch a cold At some stage we may even have to entertain the possibility that with the taps of monetary and fiscal stimulus being turned off at the same time as the fiscal drag/cost push effect of Oil and other commodities are kicking in, the bar to a new recession is getting lower from month to month.
2s minus Fed funds rate over Fed funds rate
This spread is back close to where it was in Oct-Nov last year just ahead of QE2 and has so far held that 8 basis point support area. This may well be the support area for a bounce with a double bottom forming (and we hope it is, because if 8 basis points were to give way there is no way that you could paint a positive dynamic on the back of that development).
Market Commentary -
U.S. 5 year yield
This chart continues to hold the 76.4% pullback support area at 1.35% following the low posted in late June. While that holds, the pattern looks to be a double bottom with a neckline at 1.80% which was tested earlier this month. As yet we have not managed a close above this area to complete this pattern and have moved back much closer to the supports again. Our view in June was that a low in yields was being posted and that we would see them move to higher levels in the 2nd half of the year. A close below 1.35% would put that view very much under question and suggest a danger that the November 2010 lows of 1.02% could be tested again. If so, then a re-test of the 2 year yield low at 31 basis points and a further bull flattening of the 2s versus 5s curve would be a likely consequence of such a break below 1.35% on 5 year yields.
U.S. 10 year yield
The pattern here continues to look like a double bottom with a neckline at 3.22%. A close above there would confirm this and suggest an extended move towards the Feb 2011 highs again around 3.76% A close below the 2.81-2.84% area would question this potential and suggest renewed losses (in yield) towards 2.67% (76.4% pullback level)
Market Commentary -
U.S. 30 year minus 2 year chart is concerning.
On one side we have the 2 year yield which is very tied to Fed funds rate expectations. On the other side we have the 30 year which is the least interfered with market (most QE taking place in the 5 to 10 year area) This spread was moving steadily higher since May but looks to have hit a brick wall around 394 basis points which happens to be the 76.4% pullback of the Feb-April fall. Now there is a danger of a double top forming off this level with the neckline at 381 basis points. In addition the 55 and 200 day moving averages are converged at 382-383 basis points. A break through this area of support would suggest a renewed fall to test the 368 basis point low seen in April-May. Below here and (like we saw with the 2s versus 5s spread in May) we would break the neckline of the 76.4% pullback and suggest an acceleration to the downside. This break, if it occurs, could come from 2 year yields rising at a pace faster than 30 year yields. That is not impossible and as long as it was not due to Sovereign concerns would be a positive development. If, however, it took place and yields were dropping (30 year yields dropping faster than 2 year yields) it would suggest economic concerns/financial market concerns or both. However (as a sweeping generalisation) over the last 2 years a flatter curve has tended to be associated with falling yields as can be seen below
Market Commentary -
U.S. 30 year minus 2 year chart overlaid on 30 year yields.
In June we articulated a view that yields had put in a base and would likely head higher over the course of the 2nd half of the year into 2012 with yield curves steepening. As yet, no developments have yet taken place to shake that view. However if some of the levels articulated above were to give way (levels outlined below) then it would start to pull away the building blocks for that view and suggest at a minimum that the view is too early if not totally wrong.
Levels we are watching that would start to question our June view of a base in yields and/or a curve steepening dynamic. U.S. 2s versus 5s: Breaking below 104-107 basis points with yields falling. U.S. 2s versus Fed funds: Breaking below 8 basis points. U.S. 5 year yields: Breaking below 1.35% U.S. 10 year yields: Breaking below 2.82-2.84% U.S. 2 s versus 30s : Breaking below 381-383 basis points with yields falling and in addition a further break below 368 basis points in a similar dynamic would be very concerning. A number of these levels giving way would suggest renewed financial market (Equities) and or economic concern is returning at a time when incremental monetary and fiscal stimulus (can kicking) would be extremely difficult (much higher bar than 2010). It would almost certainly need growth and employment disappointments combined with a bear market in equities (20%+ off the years high) to get us close to that bar.
So let us look at Europe (or more specifically Germany)
Market Commentary -
German 2s versus 5s curve- Sitting on the edge of a cliff?
This chart posted a perfect 76.4% pullback in January of this year and is now sitting on the support area from which that bounce materialised at 57 basis points. A close below here would suggest an acceleration to the downside.
German 2 year yield minus the ECB rate- Weve seen this movie before.
As the ECB moved to tightening mode and ultimately tightened rates we have seen 2 year German yields invert rapidly to ECB rates just as they did after the first misguided rate hike dynamic seen in 2008. (Who says history does not repeat itself?)
Market Commentary -
German 5 year yield-Failed to overcome resistance
The recent bounce in 5 year yields failed to overcome trend line and moving average resistance in the 2.15-2.20% area. In addition the 5 year yield has fallen sharply by 32 basis points in the last 4 trading days. There looks to be a real danger that it could revisit the July low at 1.63% and possibly the 76.4% pullback level at 1.57% A break below that latter level would suggest a danger of a move all the way back to the 2010 low at 1.18%
German 10 year yield-Similar chart
Similar support level dynamics at 2.50%; 2.42% and then 2.09%
Market Commentary -
German 2s versus 5s curve and 5 year yields
Bear flattening was a good sign
Bull flattening is not
At the start of 2011(From mid January to Mid April) this curve was bear flattening. That is what you expect to see in an improving economic dynamic where the market anticipates rate rises. However from Mid April onwards the curve has been bull flattening i.e. From the moment that the ECB raised rates in April it has looked like a mistake (Not to them it appears) The bull flattening has continued and we now stand at an important pivot on this curve. A break below the 57 basis point area with falling yields at the same time as bear flattening has continued in the peripheral countries would look to be the final nail in the coffin in yet another misguided move by the ECB. This would likely draw a line under this tightening cycle and put the ECB very firmly back on hold (Despite their continued and insistent hawkish rhetoric)
So we seem to have a danger in both zones of a move lower in yields and a further flattening of the curves. How does this stack up from a relative basis?
Market Commentary -
Germany equally weighted 2s; 5's and 10s minus U.S. equally weighted 2s; 5s and 10s
Source: Aspen Graphics /Reuters 27 July 2011.
This spread peaked in May-June and has been falling since. It is now at the low of the move down from that peak with little obvious support until at least 10 basis points (channel base) and after that the January low at minus 22 basis points.
Germany equally weighted 2s; 5's and 10s minus U.S. equally weighted 2s; 5s and 10s and EURUSD
There is an obvious disconnect now between where the spread is and where EURUSD is. The spread suggests EURUSD should be closer to the July low at 1.3837 while EURUSD suggests the spread should be more like 50 basis points. Which is correct? Our bias is to go with the spread in line with our recently expressed bullish USD/bearish EUR views (And the picture suggested on the interest rate charts above) and suggest that EURUSD could move significantly lower in the days ahead. When we saw a disconnect similar to this in Dec/Jan EURUSD was trading in a similar pattern and fell sharply from 1.3435 to 1.2860 over 5 trading days.
Market Commentary -
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EURUSD reversed lower in January as spread moved in other direction
EURUSD price action leading into sharp 5 day fall in January and today.
This suggests that from an FX perspective the interest rate charts above could be supportive for the USD vis a vis the Euro. That fits with our FX charts in the FX section below.
Market Commentary -
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To sum up: The charts above suggest concerns in both the Euro zone area and in the U.S. which are in danger of causing lower yields and flatter curves in both areas. At the margin the dynamic seems to be more supportive the USD than the Euro as the interest rate benefit moves back towards the U.S. The picture seems to be one of economic and sovereign concerns with a line being drawn, at least for the moment, under monetary and fiscal easing. This set up seems to us to be a classic anti-risk/ anti carry trade environment. From an anti risk dynamic that would support our concerns about the Equity market. From an anti carry trade dynamic that would support our concerns about what we think has become the Worlds largest carry trade The USD as a funding currency.
Market Commentary -
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Foreign Exchange
Our favourite charts still suggest that the USD-index is set for a bounce and EURUSD set for a fall in the weeks ahead.
USD-Index Daily chart
Source: Aspen Graphics / Reuters 27 July 2011.
The price action seen here in the last few months is very similar to that seen at the lows in March-July 2008 before the USD-Index moved substantially higher (choppy price action with multiple 76.4% pullbacks) If we were to follow suit with that period it suggested another move lower towards 73.50 or just below again before setting up a platform for renewed gains. This week the USD-Index hit 73.42 before bouncing strongly possibly setting us up for a dynamic similar to that which began on 15 July 2008 and saw the USD-Index 13% higher by September.
Market Commentary -
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USD-Index daily chart today compared to 2008.
Double 76.4% pullbacks at the lows
Source: Aspen Graphics / Reuters 27July 2011.
In 2008 we saw 2, 76.4% retracements, broke to a new high and then did a 76.4% pullback on the whole pattern when it broke the rising support line. A similar development today is suggesting that the USD-Index could very well be set for a renewed bounce from here The renewed rally began in mid July 2008 leading to a sharp rally into September.
Market Commentary -
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In addition, the monthly chart set up is very similar to that seen in the turn of the USD-Index in 1995
Turn in the USD-Index in April 1995 (10 years and 2 months after the bear market began in Feb 1985
Is history repeating itself in May 2011? (9 years and 10 months after the July 2001 peak)
As per our extensive write up of 17th June , 2011, we believe that the USD-Index could be turning here in a fashion similar to that seen in 1995 Then we had a sharp 2 year rally, then a correction in 1998 (Asian, Russia and LTCM crises) and a resumption of the trend into the 2001 peak. The main component of the USD-Index is the EURO which we continue to believe will also be its Achilles heel. As long as Europe keeps treating a solvency problem like it is a liquidity problem this issue will go into remission but not disappear. As a consequence we continue to believe that the EURO, without fiscal, economic and political convergence (together with a common Bond market) remains a Fixed exchange rate masquerading as a single currency 1995 was the year that the Euro zone had to go back to the drawing board after the collapse of the ERM (Exchange rate mechanism). It took the best part of 3-5 years before they instituted new structure (the Euro). Its flaws are different, but it is flawed nonetheless. Now is the time for the Euro zone to decide if it is a real Union or a Patchwork quilt of individual states Nothing in the Band aid approach seen so far convinces us that it is acting as the former. Without that commitment, it is unlikely that we have yet written the final chapter in this Horror story.
Market Commentary -
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EURUSD- Is it starting to turn again?
? 728 pips in 11 sessions and barely misses posting a key day reversal down at the high
700 pips so far in 11 sessions and barely misses posting a key day reversal down at the high
This is the 11th session since the low at 1.3837 on EURUSD. The bounce from 1.3968 low in May lasted 11 sessions. The pair then bounced 728 pips. So far in this move up since 1.3837 we have rallied 700 pips. If the follow through is going to be similar to end of early June we may well be turning down again now. Note: the bounce up from 1.4073 on June 16th to the 1.4580 high on July 4th lasted 12 sessions
In other related markets the average of the German curve (2's+5's+10's) minus the U.S. curve (2's+5's+10's) suggests a lower EURUSD and markets in the European periphery are worsening still with higher yields in Spain and Italy, wider spreads against Germany and a flatter curve in Italy (2's-10's)
Market Commentary -
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Germany equally weighted 2s; 5's and 10s minus U.S. equally weighted 2s; 5s and 10s and EURUSD
There is an obvious disconnect now between where the spread is and where EURUSD is. The spread suggest EURUSD should be closer to the July low at 1.3837 while EURUSD suggests the spread should be more like 50 basis points. Which is correct? Our bias is to go with the spread in line with our recently expressed bullish USD/bearish EUR views (and the picture suggested on the interest rate charts above) and suggest that EURUSD could move significantly lower in the days ahead. When we saw a disconnect similar to this in Dec/Jan EURUSD was trading in a similar pattern and fell sharply from 1.3435 to 1.2860 over 5 trading days.
Market Commentary -
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Equities
We remain concerned here and still believe that a correction lower remains a significant danger.
DJIA may be on the cusp of a double top and subsequent head and shoulders top.
Possible double top forming here with a neckline at 12,296 A close below would suggest losses to at least the June lows around 11,860 That, if it took place, would breach the neckline of a large head and shoulders top at 11,983 and suggest extended losses towards 10,800
Market Commentary -
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Similar picture on S&P 500
Slightly different short-term price action that fell short of the early July highs Overall it has a similar head and shoulders potential with a neckline at 1,262 below which a target of around 1,140 would come into play.
Market Commentary -
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VIX sitting close to a pivotal resistance
This is the 4th time we have had a bounce like this in just over a year. 1. April 2010: Rallies from 15.23% to 23.20% before falling away for 2 days to 18.44%.Subsequent rally breaks the 23.20% high and peaks at 48.20% on 21 May. 2. Feb. 2011: Rallies from 15.22% to 23.22% before falling away for 4 days to 17.63%.Subsequent rally breaks the 23.22% high and peaks at 31.28% % on 16 March 3. May 2011: Rallies from 15.15% through 23.20-23.22%% to 24.65% but closes below at 22.73% before falling away for 11 days back towards15% 4. July 2011: Rallies from 15.30% to 23.20% and holds the resistance to close the day at 22.98%. This looks similar to both April 2010 and Feb 2011 suggesting a possible pause for 2-3 days before higher again (01 August?- Day before debt ceiling expires? Are they going to make a mess of the negotiations?) The falls in 2010( April-July) and 2011 (Feb-March) were 17% and 7% respectively (Average 12%). Extrapolating that to the recent high suggests the potential for at least 1,261 (Almost identical to the head and shoulders neckline) if like Feb-march 2011. If like 2010, then the move could be expected to extend towards 1,125 (Close to the head and shoulders target of 1,140.) The average of the two would suggest a move towards 1,193 All this suggests that in the coming days a closing break above the 23.20% VIX level could see further losses in the Equity market as the VIX powers higher but that we may see a 24-48 hour pause first.
Market Commentary -
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As is often the case the Dow Jones transportation index may also be giving an early warning sign
It sits poised on rising trend line and 200 day moving average support at 5,154 to 5,190 and a possible double top neckline at 5,043 A close below the latter level would suggest extended losses towards at least the 4,500 area.
Market Commentary -
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Commodities
Gold continues to perform strongly
Gold may post a bullish outside month as a continuation
A monthly close above $1,557.75 would confirm this development and suggest that our 2011 target of $1,7001,750 remains achievable en route to our overall $2000+ target.
Market Commentary -
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Emerging markets
ADXY Index We have early warning signs that the rally in the ADXY is running out of steam and may be approaching an end Equity Indices in India, Brazil, Chile and Poland all look bearish
While the ADXY Index has made higher highs this week, we see early warning signs that the uptrend may be running out of steam The weekly momentum is showing negative divergence with the possibility to complete triple divergence (the third crossover has not yet occurred) In addition we see the two trend across the highs (long term and medium term) converge just above at 121
As yet there is not enough on this chart to suggest that the uptrend has absolutely come to an end but there is enough here to warrant caution, especially if we are right about our general USD view and the relationship in the overlay below stays in tact
Market Commentary -
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ADXY Index and DXY Inverted
Sensex
Over the past year the ADXY and DXY inverted have effectively moved together.
Held the trend resistance across the highs and is in line for a bearish outside week if we close below 18,415 at the end of this week The last time we saw a bearish weekly was in the first week of Jan 2011. The follow through saw a move down of more than 10% in the 5 weeks that followed The key support area to watch here is 17,300. A weekly close below would be a bearish break opening the way for the 15,500 support area (horizontal support and what may be channel base)
Market Commentary -
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Bovespa (Brazil)
Trading back below the 200 week moving average and is approaching the medium term double top neckline at 57,633 A weekly close below there would be a significant bearish break suggesting and eventual move down to the double top target at 44,000 Interim support is at 48,200. USDBRL
Momentum divergence reflects weakness in the downtrend Hammer pattern at the lows indicates a bounce (insert) Short term resistance is at 1.5850-1.5930 where the 55 day moving average, trend resistance and this months high converge A break of that open the way for the 200 day and horizontal resistance at 1.64
Weekly Roundup 28 July 2011 25
Market Commentary -
IPSA (Chile)
Remains below the 55 week moving average The support to watch now here is 4,215 which was the low in Feb this year and again in March A weekly close below would suggest losses down to the 200 week currently at 3,544. WIG Index (Poland)
Failed at the long term 76.4% retrace against the 2007 highs on the log chart Now trading below the 55 week moving average (46,820) for the first time since July 2009 A weekly close below the 55 week would suggest losses down to the 200 week moving average at 41,300.
Market Commentary -
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Contacts
CitiFX Value Added Services & Products
Global Head of Value Added Services & Products Stephane Knauf Corporate Solutions Group Stephane Knauf FX Technicals Tom Fitzpatrick Quantitative Investor Solutions Jessica James Structuring Group Stephane Knauf Value Added Products Philip Brass Nicolas Thomet London Zurich 44-20-7986-1614 41-58-750-7646 philip.brass@citi.com nicolas.thomet@citi.com London 44-20-7986-9486 stephane.knauf@citi.com London 44-20-7986-1592 jessica.james@citi.com New York 1-212-723-1344 thomas.fitzpatrick@citi.com London 44-20-7986-9486 stephane.knauf@citi.com London 44-20-7986-9486 stephane.knauf@citi.com
Market Commentary for Institutional Client Use Only. Refer to information disclosures and qualifications at the end of this publication
Weekly Roundup
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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 CONTRACT 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
EURUSD
Bearish weekly reversal at the trend highs
09 May
1.4156 **Target Met. Extended to 1.3871 (200 day)
1.4278
Gold
Breaking to new trend highs
13 July
$1,630
$1,616
Silver
Closed above the double bottom neckline suggest a turn back up
18 July
$44 and then $49+
$40.24
USDCHF
Channel base and positive divergence suggest a rally
18 July
0.84+
0.8016
USD Index (DXY)
Hold of support and effective 76.4% retrace against the lows
26 July
At least 76.71
74.31
Convictions represent the views of the CitiFX Technical staff and not actual trades.
Market Commentary for Institutional

Client Use Only. Refer to information disclosures and qualifications at the end of this publication
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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 today28 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
1,304
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 2.97% and 30Y at 4.27%
Crude
A move above $100 and possibly towards $120
Strong
$100 target met.
$97.38
Gold
$1,700 this year and as high as $2,000 eventually
Strong
Strong
$1,616
Palladium
A move above $1,000 this year
Strong
Strong
$829
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.
1.4278
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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
Instrument Position Date established Comment Entry Stop (If breached unless specified otherwise) Target Present level
Tactical Portfolio
Instrument Position Date established Comment Entry Stop (If breached unless specified otherwise)
Premium paid (cost 0.4%)
Target
Present level
USCHF
Long 0.84 Call Option expiry 16 August 2011
14 July 2011
Long term channel base along with potential positive divergence suggests a rally ahead
Spot ref: 0.8160
0.84+
0.8015
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Disclaimer for Charts / Graphs that show Market Data:

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Weekly Roundup - 07-28-11 - Final

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CitiFX Technicals

July 28, 2011

Chart included: USD Index, EURUSD

Chart included: Gold

Chart included: ADXY, Sensex, Bovespa, USDBRL, IPSA, WIG

Source: Aspen Graphics / Bloomberg 27 July 2011.

Weekly Roundup 28 July 2011

2s minus Fed funds rate over Fed funds rate

Source: Aspen Graphics / Bloomberg 27 July 2011.

Weekly Roundup 28 July 2011

U.S. 5 year yield

Source: Aspen Graphics / Bloomberg 27 July 2011.

U.S. 10 year yield

Source: Aspen Graphics / Bloomberg 27 July 2011.

Weekly Roundup 28 July 2011

U.S. 30 year minus 2 year chart is concerning.

Source: Aspen Graphics / Bloomberg 27 July 2011.

Weekly Roundup 28 July 2011

U.S. 30 year minus 2 year chart overlaid on 30 year yields.

Source: Aspen Graphics / Bloomberg 27 July 2011.

So let us look at Europe (or more specifically Germany)

Weekly Roundup 28 July 2011

German 2s versus 5s curve- Sitting on the edge of a cliff?

Source: Aspen Graphics / Bloomberg 27 July 2011.

Source: Aspen Graphics / Bloomberg 27 July 2011.

Weekly Roundup 28 July 2011

German 5 year yield-Failed to overcome resistance

Source: Aspen Graphics / Bloomberg 27 July 2011.

German 10 year yield-Similar chart

Source: Aspen Graphics / Bloomberg 27 July 2011.

Similar support level dynamics at 2.50%; 2.42% and then 2.09%

Weekly Roundup 28 July 2011

German 2s versus 5s curve and 5 year yields

Bear flattening was a good sign

Bull flattening is not

Source: Aspen Graphics / Bloomberg 27 July 2011.

Weekly Roundup 28 July 2011

Source: Aspen Graphics /Reuters 27 July 2011.

Source: Aspen Graphics /Reuters 27 July 2011.

Weekly Roundup 28 July 2011

EURUSD reversed lower in January as spread moved in other direction

Source: Aspen Graphics /Reuters 27 July 2011.

Source: Aspen Graphics /Reuters 27 July 2011.

Weekly Roundup 28 July 2011

Weekly Roundup 28 July 2011

USD-Index Daily chart

Source: Aspen Graphics / Reuters 27 July 2011.

Weekly Roundup 28 July 2011

USD-Index daily chart today compared to 2008.

Double 76.4% pullbacks at the lows

Source: Aspen Graphics / Reuters 27July 2011.

Weekly Roundup 28 July 2011

Source: Aspen Graphics / Reuters 27 July 2011.

Weekly Roundup 28 July 2011

EURUSD- Is it starting to turn again?

Source: Aspen Graphics / Reuters 27 July 2011.

Weekly Roundup 28 July 2011

Source: Aspen Graphics /Reuters 27 July 2011.

Weekly Roundup 28 July 2011

Source: Aspen Graphics /Reuters 27 July 2011.

Weekly Roundup 28 July 2011

Similar picture on S&P 500

Source: Aspen Graphics /Reuters 27 July 2011.