Gold – Daily Chart

We have neutralised our forecast and may be in the process of forming an interim bottom

Instead of seeing a follow through sell-off in early October as expected the Gold price has gradually risen this past week and did so while positive divergence could be seen between the current October low at 1278.60 and the daily RSI. This points to a possible reversal higher being made which is why we have neutralised our view.

The odds of a reversal higher being made will increase once a daily close above the late September high at 1344.55 has been made. In this case a rise to above the 1375.37 September 19 high is likely to also be seen with the 2013 resistance line at 1383.78 then being in focus.

Although looking less likely at the moment, a drop through the September low at 1291.59 and the 1272.56 August low still cannot be excluded while the gold price remains below the late September high at 1344.55. Only failure at 1272.56 will confirm that gold continues to trade within its medium term downtrend. In such a scenario the 1200/1100 region will be back in the picture.

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And what if the unthinkable does happen?

And what if the unthinkable does happen? With the budget deadlock remaining and the deadline for raising the debt ceiling fast approaching the FX market shows no signs of USD weakness or even panic. Would a US default be even manageable? Or could the Fed solve the problem with even more bond purchases? While a rise in yields might be avoided a USD weakness could not. The only reasonable explanation for the current calmness of the FX market is the expectation that the problems will be solved last minute.

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EUR/PLN – Daily Chart

Seems to be slowly reversing its trend and should gradually slide back towards the 4.0000 mark

We have decided to neutralise our medium term outlook and turn bearish on our short term view because EUR/PLN is once again trading around the 200 day moving average at 4.1996 and overall looks weak to us.

Further range trading, mostly with a negative bias, should be seen into the year end with the currency pair expected to stay below the 4. 3098 September high.

As long as this is the case the odds favour a retest of the September low at 4.1443.

Failure there on a weekly basis will mean that a top has been formed with the 200 week moving average at 4.1190 then being in focus. It should be reached by the end of the first quarter of 2014.

Good resistance can now be seen between the 55 day moving average at 4.2296 and the late September high at 4.2403.

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USD holding up surprisingly well, considering

Considering the events of the last fortnight, with the US government shutting down, Fed tapering on hold and the ECB signaling a more relaxed stance over its monetary policy, we are a little surprised that the USD is not already much weaker. EUR/USD barely pushed above 1.36 last week before falling back again, while GBP/USD could not sustain gains above 1.62. There is as yet no end in sight to the shutdown, however, and if it persists through this week without resolution the situation will become more complicated by the proximity to the debt ceiling deadline on or around October 17th. This would certainly place more pressure on risky asset markets and presumably push the USD down as well as that date approaches.

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Summary Q3 2013

Trades by asset

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Maintain a negative bias to EUR/GBP

Targets the 0.7750 2012 low longer term

EUR/GBP remains under pressure following its recent break below the 2012-2013 up trend. The market last month failed at failed at the top of a 4 year down channel, which is currently located at .8738 and given the erosion of the 55 and 200 week moving averages the short, medium and longer term outlooks continue to look negative.

Our initial target is the 50% retracement of the move up from the 2012 low, this is located at .8285 and is expected to act as the break down point to 0.8160 (the 61.8% of the same move) and eventually head back to the 2012 low at 0.7757 and potentially to the base of the channel, currently at 0.7579. The 2012 low of approximately 0.7750 is achievable by the end of 2014.
Short term rallies will find fairly good resistance at 0.8570/0.8512 (June low and the 2 month downtrend) and should remain contained by the 0.8652 end of August peak for the negative bias to remain entrenched.
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S&P GSCI Total Return Index – Daily Chart

Erosion of the 200 day ma leaves the market vulnerable

The S&P GSCI Total Return Index has started to erode its 200 day ma at 4850, and this leaves the market still vulnerable on the downside. The market recently failed just ahead of 5165/85, this is the location of the 61.8% retracement of the move down from 2011. Near term risks remain for further losses.

The breach of the 200 day ma should see prices slump to the 4 month support line at 4701. Key support remains the 4 year uptrend at 4639. We would expect to see this hold the initial test. Please note that the 200 week ma lies at 4797.
Rallies will now find initial resistance now at 5000. Only amove above 5185 would imply ongoing strength to the 5400 2012 high.
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Gold – Daily Chart

Our forecast will stay bearish while gold trades below its September 19 high at 1375.37

We continue to believe that the medium term downtrend remains intact and will do so while no daily chart close above the September 19 high at 1375.37 is being made.

The September low at 1291.59 and the 1272.56 August low remain in focus.

Failure at 1272.56 will confirm that gold has resumed its medium term downtrend.

In such a scenario the 1200/1100 region will be back in the picture.
Only an unexpected rise above the 1434.05 August peak would void this forecast and target resistance at 1487.62/1488.17 instead. A first sign of this scenario becoming likely would be a daily close above the September 19 high at 1375.37.
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FX Week

Fiscal stand-off to keep USD pressured

FX markets have moved on from being fixated about the Fed to being focused on fiscal policy and negotiations in Washington DC. These will come to a partial head on Tuesday October 1st, with Congress needing to pass a spending bill by then which will give the federal government authority to release the funds to pay for government spending. The Republican dominated House of Representatives passed a bill overnight that would extend current spending levels through to December 15th, but it kept contentious measures removing funding from President Obama’s flagship healthcare program for at least a year. Senate Democrats have said they will reject the plan while President Obama has said he will veto it.

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EUR/USD – Daily Chart

Is in the process of forming its last up leg and should falter in the 1.35/1.37 region and then drop

EUR/USD practically retested the 1.3453 August high which offers short term support.

We still allow for one last push higher towards the 1.3670/1.3711 long term pivot to be seen before another medium term down leg to below the 1.3000 region is being made. This pivot includes monthly highs and lows which have been made since 2004 (see the monthly chart on the following page).

The anticipated top is expected to be in place before the end of October.

Only a daily close below the 1.3453 August high would alleviate immediate upside pressure and signal a slide back to the 55 day moving average at 1.3288 and the 200 day moving average at 1.3169.
A drop through the1.3104 current September low would confirm our longer term topping out scenario.
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Commodity Spotlight Agriculturals

Declining cattle numbers push US cattle prices to a record high

As compared with its mid-June level, the price of live cattle in Chicago is up 10% at 130 US cents per pound. Feeder cattle prices are now even higher than the record levels they achieved in the first half of 2012. Although prices are all reacting in the short term to the processing figures from the abattoirs and to the upcoming public holidays, the bigger picture is determined by cattle numbers: The number of animals added to the feedlots has been declining for months. This will further reduce the supply of cattle ready for slaughtering and thus of beef in the medium term, which ought to continue ensuring high price levels.

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US 2-10Y Swap Curve – Daily Chart

Short term narrowing should end in the 2.34/2.21 region and be followed by renewed widening

The US 2-10Y swap curve is once again narrowing and is now trading back below the 55 day moving average at 2.37.
Between it and the 2.34 late August low the swap curve is expected to stabilise. From there renewed widening should then be seen.

Above the 2.52 August high lurks the 2.55 March 2011 low and the 2.59 June 2011 high, both of which should be reached before the end of the year.

Further up the 2010 and 2011 peaks can be seen at 2.73 and also at 2.81.

We will retain our long term widening bias while the swap curve remains above the 2.155 late June low.
Support below the 2.34 level but above the 2.155 late June low can be seen around the 2.275 August low and at the next lower 2.21 late July low.
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USD/SEK Spot – Daily Chart

The July-to-September correction is expected to have ended at 6.3070; targets 6.7685/6.7868

A three legged Elliott wave abc correction lower seems to have ended at last week’s 6.3070 low.

Therefore we expect to see a rise back to the 6.7685/6.7868 resistance zone unfolding in the weeks to come. It is where the 200 week moving average and the 2011-13 resistance line meet (see the weekly chart on the following page).

Minor resistance sits at 6.4600/6.4714 (August lows) and can also be seen between the 200- and 55-day moving averages at 6.5171/6.5281.

Further up the three month resistance line comes in at 6.6395. It will need to be bettered for the 6.6939 current September high to be reached.
Once this high has been overcome, the 6.7685/6.7868 resistance zone will be back in the picture.
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NZD/USD – Daily Chart

Is seen reversing lower from its current September high at .8437 and eyes the .8180/07 zone

NZD/USD’s swift rally off its .7721 late August low has taken it to .8437 before it keeled over.
An top is thus in place and further short term weakness remains on the cards with the .8180 200 day moving average, 50%/38.2% retracement cluster of the April-to-June decline and the September rally as well as the August peak at .8164 being targeted.
Should it be slipped through, the .8107 July high and the next lower 50%/38.2% retracement cluster at .8079/63 could also be hit.
For now it is likely that the next lower 55 day moving average at .7994 will not be revisited for some time.
Any short term rallies should fizzle out ahead of the current September high at .8437. Should it unexpectedly be bettered, the 78.6% Fibonacci retracement at .8465 and the .8500 region will be targeted. This is not expected.
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Gold – Daily Chart

The downtrend remains intact despite last week’s brief surge higher

Last week the gold price suddenly shot up from its low at 1291.59 to the breached three month support line at 1375.37 from where it began to slide again.

Since the rejection from that resistance line is emphatic we believe that the medium term downtrend remains intact.
We will hold onto our bearish forecast while the gold price remains below the 1375 level on a daily closing basis.
Last week’s low at 1291.59 and the 1272.56 August low therefore remain in focus. Failure at the latter level will confirm that gold has resumed its medium term downtrend.
In such a scenario the 1200/1100 region will be back in the picture.
Only an unexpected rise above the 1434.05 August peak would void this forecast and target resistance at 1487.62/1488.17 instead.
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How fantastic is Angela Merkel’s victory?

Despite an overwhelming victory the lack of its coalition partner could turn Angela Merkel ́s triumph into a dilemma. Investors should have in mind the even a delay of building a new government can not completely ruled out.

The German election result was of no great significance for the FX market so far. First of all it had generally been expected that Angela Merkel would win the election and secondly the euro-critical “Alternative für Deutschland“ (AfD) did not manage to obtain 5% of the vote and there-fore does not get any seats in parliament.

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S&P GSCI Total Return Index – Daily Chart

Market has sold off to its 200 day ma at 4848

The S&P GSCI Total Return Index has sold off to its 200 day ma at 4848, where we would expect to see some consolidation. The market recently failed just ahead of 5165/85, this is the location of the 61.8% retracement of the move down from 2011. Near term risks remain on the downside.

Failure at the 200 day ma at 4848 would see prices slump to the 4 month support line at 4690. Key support remains the 4 year uptrend at 4632. We would expect to see this hold the initial test.
Rallies will now find initial resistance no w at 5000. Only a move above 5185 would imply ongoing strength to the 5400 2012 high.
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EUR/PLN – Daily Chart

Swift recovery points to the resumption of the medium term uptrend

Last week the decline in EUR/PLN took it to 4.1443, to marginally above the 200 week moving average at 4.1180, before shooting back up to the 55 day moving average at 4.2606.
We are of the opinion that another significant interim low has thus been made and that the currency pair has thus resumed its uptrend.
The next upside targets are the 6.2646/58 resistance zone (38.2% Fibonacci retracement and early August high), the June-to-September resistance line at 4.2962 and the current September high at 4.3098.
Once the latter has been bettered, the 4.3708 June peak and then the 2008-13 resistance line at 4.3900 will be back in the picture.
Support is seen at 4.1928/4.1807 and at 4.1443. Unexpected failure at 4.1443 would target the 4.1180 zone.
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Dollar crushed – but holds key support VS CHF and JPY

USD/CHF holds the 2012-2013 uptrend at .9092

USD/CHF has crashed lower to the 2012-2013 support line lies at .9092. Currently our favoured view is for losses to hold this uptrend, however we would need to see a rapid bounce back above the .9146 August low just to alleviate immediate downside pressure and signal a return to .9261 – the 23.6% retracement of the move down from July.

Failure to hold over .9090 will see USD/CHF sell off to the .9023 2013 low and then the .8931 2012 low.

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