Gold – Daily Chart

Recent short term stabilisation was much weaker and shorter than expected; drops further still

The gold price stabilised last week as expected but did so for a much shorter time period than we had anticipated with it currently heading lower again.

We have thus reverted back to our short term bearish view and will retain it while the precious metal trades below its 1257.27 late November high.

The 1208.08/1180.04 June/July lows and also the July 2010 low at 1156.55 as well as the 2008-11 61.8% Fibonacci retracement at 1154.72 are thus back on the map, the first of which could be hit within a matter of days.

Minor resistance can be seen along the downtrend channel resistance line at 1245.80 and then between the October low at 1251.58 and the November 26 high at 1257.27.

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GBP: It’s a buy it up situation

Improvements in UK economic data, improving sentiment and still light positioning mean that sterling’s rally is nowhere near done yet.

It seems that GBP is enjoying something of an Indian summer. Since September the pound
has been amongst the best performing currencies in G10 and has defied predictions of a pullback
by a majority of analysts. In our view not only is the pound’s strength justified on a fundamental
basis but in fact there is more to come. Coming into 2013 the pound lost ground as the
combination of low growth and relatively high inflation (at least higher than peer countries) took
its toll. In addition to this the amelioration of the euro zone crisis weakened safe haven flows
towards the UK, which benefitted GBP over the course of 2011 and 2012. This led to a pronounced
sterling sell off with EUR-GBP edging towards highs around 0.88 in February. Our
view then was that rallies in this region would not be sustained and this has proven to be the
case. On a PPP basis the pound is simply too cheap at those levels.

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S&P GSCI Total Return Index

Topside capped by downtrend and 200 day ma – vulnerable on the downside.

The S&P GSCI Total Return Index appears to be stalling at the 3 month downtrend at 4777. Indeed the recent high registered at 4788.70 is indicated to be the end of wave 4 or the end of the short term corrective rebound.

As a consequence attention reverts to the downside and the 2009-2013 support line at 4655. A close below here and the 4630 recent low should be enough to trigger another leg lower.

The resistance line at 4777 is reinforced by the 55 and 200 day moving averages at 4809/4805. While capped here a short term negative bias will remain entrenched.

A weekly close below 4630 would be very negative and target initially the 4493.50 2013 low.

Failure here will target 4442/47, the 50% retracement of the move from the 2009 low to the 2011 high and the 78.6% retracement of the move from 2012. This represents our medium term downside target.

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EUR/PLN – Daily Chart

Held in check by the 200 day ma

EUR/PLN has reached and is stalling at the 200 day ma at 4.2070. It is essentially sidelined above the 78.6% Fibonacci retracement of the April-to-June rise at 4.1523.

As long as the current November low at 4.1517 and the 4.1443 September low underpin, further upside prices should be seen these are currently being capped by the 200 day ma at 4.2070.

If bettered, the 50% retracement and the late September high at 4.2318/4.2403 will be back in the picture as well.

Further range trading should be seen into 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 at some stage. Failure there on a weekly basis will mean that a top has been formed with the 200 week moving average at 4.1219 then being in focus. It should be reached by the end of the first quarter of 2014.

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S&P GSCI Total Return Index

Near term strength viewed as corrective only

The S&P GSCI Total Return Index has still not registered a close below the 4 year uptrend and we have now re-drawn it, this is located at 4649 currently

We view the near term rebound as corrective only and while we acknowledge the resistance line at 4787 and the 55 and 200 day moving averages at 4814/17, current Elliot wave analysis is suggesting that we should allow for a slightly deeper retracement to 4858/72, the 50% retracement.

A negative bias will persist while capped by 4872.

A weekly close below 4649 would be very negative and target initially the 4493.50 2013 low.

Only an unexpected move above 4941 (mid-October high) would neutralise the chart and negate our bearish view as this would imply recovery to 5114/5185.

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EUR/USD outlook is negative

Favour failure circa 1.3600/13

EUR/USD despite a strong rebound to end the week, the market has not done enough to shake off the negative vibe given by the key day reversal charted on Wednesday. As a consequence the recent high at 1.3584 is still viewed as an intermediate peak. We look for the 1.3295/94 zone to be retested (current November low and the 50% retracement of the move up from July) and would again allow for this to hold the initial test.

Note that the market has recently eroded its 4 month uptrend and appears to be developing a potential rising wedge pattern. This will complete on a close below 1.3440 and target initially 1.3177, which is in close proximity to the 61.8% retracement at 1.3166. If we utilise the move down from October and measure down a move of equal magnitude this would offer a potential target of 1.2892.

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NZD/USD – Daily Chart

Retests key support at .8232/.8106, a fall through which will eye the .7873/.7683 region

NZD/USD is once again trading within the .8232/.8164 significant support zone, made up of the October 10 low, 38.2% and 50% Fibonacci retracements, 200 day moving average and the July peak.

Once a drop through the July peak at .8106 has been seen, our forecast of a reversal lower being formed will be confirmed.

In this case the psychological .8000 zone and then the .7873/.7683 region (200 week moving average and the June to August lows) will be back in the picture.

We will retain our view of a top being formed as long as NZD/USD stays below the .8408/16 current November highs.

Resistance below this area can be seen along the 55 day moving average at .8304 and the channel resistance line at .8361.

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Gold – Daily Chart

Positive divergence and key day reversal point to short term stabilisation – cover your shorts

Our short term gold forecast has been neutralised because of the positive divergence which can be seen on the daily RSI and Monday’s bullish key reversal day as well as the 2008-13 uptrend line at 1225.06 underpinning. Therefore cover at least some of your shorts at current levels.

The previous 1278.41/1272.56 support zone (61.8% Fibonacci retracement and August low) should, because of inverse polarity, now act as resistance, together with the 50% retracement of the 2008-11 advance at 1301.12 and the 38.2% Fibonacci retracement of the August-to- November low at 1306.47.

Further resistance can be seen between the 1326.44 November 7 high and the 2013 resistance line at 1327.38.

Only a, for now unexpected, drop through Monday’s low at 1227.61 will put the 1208.08/1180.04 June/July lows and also the 2008-11 61.8% Fibonacci retracement at 1154.72 back on the map.

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USD-JPY: Do not fear new highs

USD-JPY: Do not fear new highs. Even if USD-JPY appreciated notably recently, its upward potential is still considerable. From a balance of payments point of view a weak yen is exactly what Japan needs. Yet so far markets are not pricing in sustainable inflation.

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EUR/PLN – Daily Chart

Stays sidelined above the 78.6% Fibonacci retracement at 4.1523

EUR/PLN is still sidelined above the 78.6% Fibonacci retracement of the April-to-June rise at 4.1523.

As long as the current November low at 4.1517 and the 4.1443 September low underpin, the 200 moving averages at 4.2061 should be retested, which is again expected to stall the topside.

If bettered, the 50% retracement and the late September high at 4.2318/4.2403 will be back in the picture as well.

Further range trading should be seen into 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 at some stage. Failure there on a weekly basis will mean that a top has been formed with the 200 week moving average at 4.1210 then being in focus. It should be reached by the end of the first quarter of 2014.

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Divergent USD trends

Major currency pairs are taking their lead from central banks, with the USD gaining at the expense of the JPY as Fed ‘tapering’ appears to be drawing nearer, while declines in EUR/USD are being delayed by uncertainty about the future policy direction of the ECB. The coming week will be partly truncated by US Thanksgiving holidays on Thursday, but important data also looms in the Eurozone where November CPI data is released.

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EUR/USD – stay bearish

Even though EUR/USD continues its gradual ascent the current move higher looks corrective and we still expect to see a drop back towards the 200 day ma at 1.3218 unfold before the end of the year.

EUR/USD has recently seen emphatic rejection from the 61.8% retracement of the move down from 2011. This implies that the entire move higher from the 1.2042 July 2012 low was nothing more than a correction. The Elliott wave count on the weekly chart denotes 1.3833 as the end of the 4th wave.

Also recently the market failed just ahead of the 1.3958/1.4002 key resistance which represents the 50% retracement of the move down from the 2008 peak and also the 2008-2013 resistance line.

As a consequence we remain bearish and we look for losses initially to the 200 day ma at 1.3218, the 61.8% retracement at 1.3165 then the 1.3104 September low.

Longer term we would expect to see the market drop towards its 200 MONTH moving average at 1.2083 by end of 2014.

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Gold – Daily Chart

A slip through the redrawn six month support line at 1265.02 will confirm our bearish outlook

Our short term gold forecast will stay bearish while the precious metal does not make a daily close above the 2013 downtrend line at 1335.94.

It once again probes the 1277.07/1265.02 support zone, made up of the 61.8% Fibonacci retracement and the six month support line, which looks increasingly under pressure.

Once it has been fallen through, the October low at 1251.58 will be back on the map and should then be slipped through as well.
Failure at the this level will confirm our medium term bearish view.

Minor resistance is seen at the November 14 high at 1294.66 and then around the 50% retracement at 1307.04 and also between the 1326.44 November 7 high and the 38.2% Fibonacci retracement at 1346.21.

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Why isn’t CHF weaker?

Since the amelioration of the euro zone crisis analysts have consistently argued for
weaker CHF exchange rates, yet they have not manifested. We argue that CHF is now
the last remaining safe haven and as such tends to lag moves in G10 FX.

At the height of the euro zone debt crisis moves in EUR-CHF typically tracked changes in peripheral
yield spreads. Analysts argued that as the euro zone crisis subsided and in particular as peripheral spreads tightened EUR-CHF would automatically trade at higher levels. The three key indicators of the euro zone crisis that we follow; yield developments, Target2 balances and EUR-USD shorter dated volatilities all clearly illustrate an easing of the situation. Yet EUR-CHF remains glued to levels around 1.23. It is abundantly clear that something else is going on and therefore that it requires an explanation.

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EUR/PLN – Daily Chart

Drifts back towards the 78.6% Fibonacci retracement at 4.1523 and thus remains sidelined

EUR/PLN is drifting back down towards the 78.6% Fibonacci retracement of the April-to-June rise at 4.1523.

As long as the current November low at 4.1517 and the 4.1443 September low underpin, the 200- and 55-day moving averages at 4.2037/57 should be retested.

If bettered, the 50% retracement and the late September high at 4.2318/4.2403 will be back in the picture as well.

Further range trading should be seen into 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 at some stage. Failure there on a weekly basis will mean that a top has been formed with the 200 week moving average at 4.1210 then being in focus. It should be reached by the end of the first quarter of 2014.

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EUR/CZK – Monthly Chart

Is heading towards the 2006 low at 27.41 and the 61.8% Fibonacci retracement at 27.48

EUR/CZK’s rally is ongoing with it having risen above the 27.00/10 resistance area where the 38.2% Fibonacci retracement of the 2008-2009 rally and the June 2009 high can be seen.

We thus have to allow for the 2006 low at 27.41 and for the 61.8% Fibonacci retracement of the 2009-2011 decline at 27.48 to be reached.

In this resistance zone we will expect the currency pair to stall.

Should this not be the case, the March 2007 low at 27.61 will be another potential upside target.

Support below the minor psychological 27.00 level is seen around the 26.62 October 2009 high and also in the 26.29/28 zone where the 50% retracement of the 2008- 2009 advance and the May 2010 high meet.

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GBP/USD potential top will complete on a close below 1.5895

We believe the pattern developing on the GBP/USD chart is a potential top. The market has failed twice recently at the 1.6255/60 region. The rally last week stopped dead at the 1.6122 61.8% retracement of the recent move down and focus this week is on the 1.5895 mid October low. A close below here is required in order to complete the potential top and offer a downside measured target to 1.5533.

This is a minimum downside target, however given the close proximity of the 200 day ma at 1.5495 this is likely to provoke some profit taking.

In addition to the potential top, the market has also recently backed away from its 2009-2013 downtrend, this is located at 1.6308 and reinforces overhead resistance. Our longer term bias is therefore negative and this suggests that longer term we should in fact see a slide sub 1.50 once more.

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S&P GSCI Total Return Index

We await a weekly close below the 4 year uptrend at 4670

The S&P GSCI Total Return Index has sold off through its 4 year uptrend at 4670, but has failed to register a weekly close below here. We view this as a premature break lower, rather than false and would allow for a near term rebound ahead of further losses.

Currently rebounds from this trend line are indicated to terminate ahead 4717/72, well ahead of the 200 day ma at 4835 and the 55 day ma at 4882.

A negative bias will persist while capped here. A weekly close below 4677 would be very negative and target initially the 4493.50 2013 low.

Only a move above 4941 (mid October high) would neutralise the chart and negate our bearish view as this would imply recovery to 5114/5185.

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Gold – Daily Chart

A slip through the six month support line at 1270.16 will confirm our bearish outlook

Our short term gold forecast will stay bearish while the precious metal does not make a daily close above the 2013 downtrend line at 1344.50.

It currently probes the 1277.07/1270.16 support zone, made up of the 61.8% Fibonacci retracement and the six month support line. It may hold there for a few days.

Once it has dropped through it, however, the October low at 1251.58 will be back on the map and should be slipped through as well.
Failure at the this level will confirm our medium term bearish view. We still favour our bearish outlook but have to allow for a minor bounce back being seen first, though.

Minor resistance is seen around the 50% retracement at 1307.04 and also between the 1326.44 November 7 high and the 38.2% Fibonacci retracement at 1346.21.

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