Weekly technical analysis chart pack 23rd June 2014 James Brodie Chartered Market Technician

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1 Weekly technical analysis chart pack 23rd June 2014 James Brodie Chartered Market Technician This week the market will focus primarily on events in Iraq and its subsequent effect on the oil price. We will take at look at how this will affect the FX market and start with a look at the Canadian dollar, the currency most likely to benefit from the rising oil price. The other key event last week was the U.S. FOMC meeting and Janet Yellens subsequent dovish remarks. This heralded a move lower in implied volatility in G10 currencies to an all time low! USDCAD despite virtually no movement in respective interest rate differentials over the last 2 years, USDCAD appreciated by up to 12%. However the short term trend is now lower after the dovish FOMC statement from Janet Yellen and the rising oil price. In fact the Canadian dollar is the most highly correlated G10 currency to oil so as tensions escalate in Iraq and the oil price rises we will see further strength in the Canadian dollar (and USDCAD weakness). Key support comes in from the Fibonacci level, and from a 1 year trend channel support, but below here the currency will likely target parity, EURCAD - EURCAD is trending effortlessly lower on the back of the recent ECB easing policies and the rising oil price. The 200 day moving average held for 6 consecutive trading days but finally the price broke lower on Friday and also through the short term trend line support from April 7 th The first target lower is a 2010/2011 double top and then the , the 38.2% Fibonacci retracement line from the August2012/March2014 rally. EURUSD The dovish statement by Janet Yellen after the FOMC meeting last week not only pushed the EURUSD mildly higher but also sent G10 implied currency volatility to new, historic, all time lows. The EURUSD bounce came from the exact 50% Fibonacci retracement level from the 2009/2010 peak trough. A further 50% Fibonacci level from the 2009/2010 peak/trough lies just below at Just below at is the 2014 low and at is a 2 year rising trend line. Expect some congestion at these heavily supported levels but once

2 broken the EURUSD should continue its longer term trend lower, driven by interest rate movements. USDJPY USDJPY highlight the all time lows in G10 implied volatility, trading in an ever narrowing range. It has strong support at from both the 200 day moving average and a rising support line. This pair is currently driven by US interest rates and the Nikkei and will move aggressively again once or are broken. GBPUSD Strong UK data, and an aggressive Bank of England, set against a dovish Federal Reserve have propelled the short, medium and long term trends higher in Cable. The price now sits right on the 5 year high at , and a daily close above here will see further buying. It will be interesting to see how the exporters cope with the currency at these levels. EURGBP- EURGBP is oversold on both the daily Relative Strength Index and the daily Bollinger Bands so a short term correction is likely. But over the medium term while the interest rates continue to diverge and the short, medium and long term trends all continue lower, expect to see more selling. UK exporters will be hurting but until the data shows otherwise the long term trend lower will continue. AUDUSD The AUDUSD is now trapped in a 3 month congestion range (flag), with a close above or below being key for the next medium term move. Over this time though the difference between the Australian and the U.S. 2 year interest rates has fallen from a peak of 2.45% to a current low of 2.24%, this should weigh on the currency. The support and resistance lines are further supported by the 200 day moving average and a long term channel resistance respectively. Breaks of and are key for the next move. AUDNZD AUDNZD has briefly bounce off a trend channel support line but the 2 year interest rate differentials continue to move sharply lower and suggest the cross may target the lows of the year at in the next few weeks. EURJPY EURJPY, like USDJPY trades in a narrow range, frozen by the current lack of volatility. It has broken some medium term support and is currently retesting the 200 day moving average at It will take its direction from the Nikkei movement, and also be weighed down by the new ECB policy. MXNUSD - The MXNUSD is close to the centre of its 2 year range between and It is currently at the lower end of an upward sloping medium term trend channel and last week bounced off the 200 day moving average. While the 200 dma support holds at the trend is higher but a break below here would target the 61.8% Fibonacci retracement level and double bottom at

3 BRLUSD - With the long term trend lower from the 2011 peak at the BRLUSD has found short term support from the 200 day moving average at and a medium term double bottom at Any continued move higher in U.S. rates will weaken the BRLUSD and force the trend to continue lower especially once is broken. But any move above there is room for a protracted move higher. US 2 year government bond Despite the dovish tone from Janet Yellen at the FOMC press conference the trend in US yields is clearly higher. A break of key resistance at will see the yield rise quickly to the 0.535% 2013 peak and possibly beyond. This is crucial because a break higher will be bullish for the US dollar but bearish for equities, commodities and the housing market.

4 USDCAD USDCAD despite the interest rate differential between the U.S. and Canada remaining largely unchanged for 2 years the USDCAD currency has appreciated by upto 12% over that period. But this long term trend higher looks set to be broken as the oil price escalates. The Canadian dollar is the most highly correlated G10 currency to oil, and with the recent spike in the energy price we have seen a short term down trend in USDCAD from its peak in March at With oil futures trading on NYMEX (CL1) at highs for the year, further penetration through resistance levels at , and will see renewed strength in the Canadian dollar and downward pressure on USDCAD. Friday saw the currency break below the 200 day moving average and close fractionally below the 4 month trend line support. Next support lies at the Fibonacci retracement level, then , a 1 year trend channel support, and below there the long term trend turns lower and targets parity year trend channel resistance Short term resistance line day moving average % Fibonacci retracement level year trend channel support and 12 year support/resistance line Parity and 3 year support line year low

5 CADUSD vs US crude oil price Although the correlation between the Canadian dollar (USDCAD inverted here to CADUSD) and the crude oil price has broken down over the past 12 months, the long term correlation is obvious to see. With the oil price trading at the highs for the year on NYMEX (CL1) this will support the currency and penetration of key resistance levels , and will further strengthen the Canadian dollar, and weakness in USDCAD.

6 EURCAD EURCAD is trending effortlessly lower on the back of the recent ECB easing policies and the rising oil price. The 200 day moving average held for 6 consecutive trading days but finally the price broke lower on Friday and also through the short term trend line support from April 7 th The first target lower is a 2010/2011 double top and then the , the 38.2% Fibonacci retracement line from the August2012/March2014 rally Top Double top from 2014 head shoulders pattern month resistance line Double top from 2010/2011 peaks % Fibonacci retracement level % Fibonacci retracement level

7 EURUSD The dovish statement by Janet Yellen after the FOMC meeting last week not only pushed the EURUSD mildly higher but also sent G10 implied currency volatility to new, historic, all time lows. The EURUSD bounce came from the exact 50% Fibonacci retracement level from the 2009/2010 peak trough. A further 50% Fibonacci level from the 2009/2010 peak/trough lies just below at Just below at is the 2014 low and at is a 2 year rising trend line. Expect some congestion at these heavily supported levels but once broken the EURUSD should continue its longer term trend lower, driven by interest rate movements trend line (wedge) resistance top April 2014 low, June 2014 high day moving average % Fibonacci retracement level from 2009/2010 peak/trough % Fibonacci retracement level from 2010/2011 peak/trough **double bottom and 2014 low** Trend line support Double bottom and 2013 low low Multi-year low

8 EURUSD vs 2 year interest rate differentials The difference between the respective EUR and USD 2 year interest rates is now diverging aggressively as the ECB continue easing while the Federal Reserve continues tapering. Despite the dovish FOMC statement from Janet Yellen the U.S. overnight index swap (OIS) which prices Central Bank interest rate movements still implies 9 basis points of hikes by the Federal Reserve at the June 2015 meeting, confirmed by CME Fed Funds 30 day futures contracts. EUR 2 year interest rate yields minus the US 2 year interest rate yields has moved from +12 basis points to -29 in the last 6 months while the currency is back to largely unchanged levels. The divergence in these respective yields should weigh heavily on the EURUSD in the medium term.

9 USDDJPY USDJPY highlight the all time lows in G10 implied volatility, trading in an ever narrowing range. It has strong support at from both the 200 day moving average and a rising support line. This pair is currently driven by US interest rates and the Nikkei and will move aggressively again once or are broken **Cycle high, double top and 16 year resistance line** April 2014 short term peak Triangle resistance line Long term support/resistance line day moving average **double bottom** June 2013 low and 38.2% Fibonacci retracement level

10 USDJPY overlaid with the Nikkei equity index

11 GBPUSD Strong UK data, and an aggressive Bank of England, set against a dovish Federal Reserve have propelled the short, medium and long term trends higher in Cable. The price now sits right on the 5 year high at , and a daily close above here will see further buying. It will be interesting to see how the exporters cope with the currency at these levels Trend channel resistance % Fibonacci retracement level from 2007 peak to 2009 low Long term trend line resistance and 2014 high peak trend channel support double bottom swing low and 200 day moving average low and long term support/resistance level low and double bottom

12 EURGBP EURGBP is oversold on both the daily Relative Strength Index and the daily Bollinger Bands so a short term correction is likely. But over the medium term while the interest rates continue to diverge and the short, medium and long term trends all continue lower, expect to see more selling. UK exporters will be hurting but until the data shows otherwise the long term trend lower will continue Long term trend line resistance Double top and 2014 high Trend channel resistance Double bottom and double top Trend channel support low double bottom

13 EURGBP vs 2 year interest rate differentials A dovish ECB set against strong UK data and a central bank discussing the timing of rate hikes has forced interest rates to move in opposite directions, weighing heavily on the EURGBP cross.

14 AUDUSD The AUDUSD is now trapped in a 3 month congestion range (flag), with a close above or below being key for the next medium term move. Over this time though the difference between the Australian and the U.S. 2 year interest rates has fallen from a peak of 2.45% to a current low of 2.24%, this should weigh on the currency. The support and resistance lines are further supported by the 200 day moving average and a long term channel resistance respectively. Breaks of and are key for the next move Multiple top Swing high Trend channel resistance peak Triple bottom day moving average Rising neckline support low and cycle low

15 AUDNZD AUDNZD has briefly bounce off a trend channel support line but the 2 year interest rate differentials continue to move sharply lower (below chart) and suggest the cross may target the lows of the year at in the next few weeks Long term resistance line Long term Fibonacci retracement level Trend channel resistance Cycle high day moving average Short term low and trend channel support Quadruple bottom low Multi-year low.

16 AUDNZD vs 2 year interest rate differentials Over the last month the AUDNZD 2yr interest rate differential has fallen 26 basis points from -1.12% to -1.38%, however the currency remains largely unchanged at The rate move should weigh heavily on the currency over the next few weeks.

17 EURJPY EURJPY, like USDJPY trades in a narrow range, frozen by the current lack of volatility. It has broken some medium term support and is currently retesting the 200 day moving average at It will take its direction from the Nikkei movement, and also be weighed down by the new ECB policy **Cycle high** Triple top Trend line resistance Trend line resistance day moving average short term low low Double bottom % Fibonacci retracement level

18 MXNUSD The MXNUSD is close to the centre of its 2 year range between and It is currently at the lower end of an upward sloping medium term trend channel and last week bounced off the 200 day moving average. While the 200 dma support holds at the trend is higher but a break below here would target the 61.8% Fibonacci retracement level and double bottom at Sep 2013 peak Trend channel resistance peak and double day moving average Trend channel support Double bottom and 61.8% Fibonacci retracement level

19 BRLUSD With the long term trend lower from the 2011 peak at the BRLUSD has found short term support from the 200 day moving average at and a medium term double bottom at Any continued move higher in U.S. rates will weaken the BRLUSD and force the trend to continue lower especially once is broken. But any move above there is room for a protracted move higher peak peak medium term downward sloping resistance line day moving average and June low **2013/2014 double bottom** GFC low

20 U.S. 2 year government bond yield Despite the dovish tone from Janet Yellen at the FOMC press conference the trend in US yields is clearly higher. A break of key resistance at will see the yield rise quickly to the 0.535% 2013 peak and possibly beyond. This is crucial because a break higher will be bullish for the US dollar but bearish for equities, commodities and the housing market % 2011 double top 0.535% 2013 peak 0.475% 2014 peak and triple top 0.333% trend line support 0.290% 2014 low and triple bottom 0.258% 1 year low

21 James Brodie C.M.T. CIO, The Sherpa Funds Board member, Market Technicians Association (1 st July 2014) Twitter: jamesrbrodie The views and opinions expressed in this report reflect the personal observations and views of individual Sherpa Funds traders which may differ from or be inconsistent with proprietary positions of The Sherpa Funds. Traders at The Sherpa Funds may have taken trading positions for The Sherpa Funds in any currencies or securities mentioned herein in advance of disseminating these views and opinions. This report is for information only and is not a specific offer or solicitation to buy or sell. Historic performance is not indicative of future returns. Facts and data provided are from sources the trader believes to be reliable, but neither the trader nor The Sherpa Funds can guarantee they are complete or accurate. The Sherpa Funds will not be liable for any damages or losses in any way related to this report. The Sherpa Funds is regulated by the Monetary Authority of Singapore under Singaporean laws. All charts sourced from Bloomberg.