Weekly technical analysis chart pack – 2nd June 2014

James Brodie – Chartered Market Technician

EURUSD – EURUSD continues to trend lower after recent comments by ECB head Mario

Draghi. The key central bank meeting on 5th June will be the main focus for the market this

week, and likely herald the direction of the currency for the medium term. 1.3477 and

1.4000 are key support and resistance levels.

EURUSD vs 2 year interest rate differentials – the upcoming ECB meeting on 5th June could

herald a new wave of EURUSD selling if the respective 2 year interest rates break out of

their current range. Federal Reserve tapering and fresh ECB easing will weigh on the

currency.

USDJPY – USDJPY continues to trade is a tight range. Key resistance comes in at 105.44 from

a 16 year resistance line, while support lies at 100.78. A break of one of these trend lines

will hail the start of a new medium term trend.

USDJPY vs NIKKEI – the long term correlation between the currency and the equity index

continues with a slight downside bias to the currency.

GBPUSD – Cable is showing some early signs of weakness after the price broke through the

base of the 6 month trend channel last week. A close above 1.7000 is required to resume

the uptrend.

AUDCAD – appears to have formed a short term top at 1.0350 as interest rate movements

continue to favour the Canadian dollar. A break back below 1.000 will herald a resumption

of the down trend.

AUDCAD vs 2 year interest rate differential – over the last 3 years while the currency has

remained unchanged the respective two year interest rates have converged by 230 basis

points This will keep an underlying selling pressure on the currency.

NZDUSD – recent US dollar strength is the cause of the short term move lower in the

NZDUSD cross. Last week’s break below 0.8517 marks a medium term top is in place with

long term support at 0.8052.

AUDNZD – Appears to have based at 1.0493. This quadruple bottom with a low of 1.0432

has held for over 30 years with the range being 1.4238 – 1.093.

EURJPY – both EUR weakness and JPY strength has contributed to the recent weakness in

the EURJPY cross. A medium term top is in place at 145.69 with the price action now making

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a series of lower highs. A break below the 200 day moving average at 138.73 will resume the

downtrend.

US 10 year treasury note– The US 10 year government bond yield is probably the most

important chart in the financial markets at the moment with its influence on equities,

currencies, commodities as well as interest rates of course. After a break out of the 30 year

resistance line last year the price has come all the way back down to retest that trend line.

Without any exogenous factors the price action will struggle to go lower from here, with a

likely retest of the 3.05% peak before a move towards 4.00% in the long term.

EURUSD

The EURUSD has recently failed to break out of its 6 year trend channel and fallen below the

200 day moving average. While the short term trend is lower the market awaits the much

anticipated ECB meeting on 5th June for confirmation of the recent move. Interest rates

continue to weigh on the currency.

Resistance

1.4000 2014 top

1.3730 long term trend channel top

1.3644 200 day moving average

Support

1.3477 double bottom and 2014 low

1.3420 trend line support

1.2746 double bottom and 2013 low

1.2043 2012 low

1.1877 multi-year low

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EURUSD vs 2 year interest rate differentials

While EURUSD has risen from 1.1877 to 1.3993 over the last two years the difference

between the respective EUR and USD 2 year interest rates has remained unchanged, close

to 10 basis points. While the Federal Reserve looks committed to keep tapering from their

Quantative Easing policy and the ECB looks set to start a new aggressive wave of easing, a

break lower in the two year interest rate differential would force the EURUSD lower, back

towards the 1.1877 multi-year low.

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USDDJPY

USDJPY continues to trade in an ever narrowing range, though it has recently broken the 1

year trend line support from June 2013. The key resistance level is 105.44, the cycle high,

double top from 1st January 2014, and resistance from 16 year trend line. Key support is

now at 100.78. A close below this level would confirm a top is in place and target 94.00 in

the medium term.

Resistance

105.44 Cycle high and double top

104.13 April 2014 short term peak

102.10 long term trend line

100.90 short term resistance line

Support

101.40 200 day moving average

100.78 double bottom

93.95 June 2013 low and 38.2% Fibonacci retracement level

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USDJPY vs NIKKEI

As the Nikkei continues to flirt with the key 14,000 (13,885) level an end of day close below

here would herald a fresh wave of USDJPY selling. The market remains caught between the

notions of “risk on” and “risk off”, interest rates higher versus equities lower.

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GBPUSD

The 1 year trend higher for GBPUSD from 1.48 to 1.70 is starting to show signs of weakness,

with the currency breaking out through the bottom of a 6 month trend channel. Below

1.6460 will confirm a top is in place, while a break of 1.7000 is needed to resume the

uptrend.

Resistance

1.7332 50% Fibonacci retracement level from 2007 peak to 2009 low

1.7043 2009 peak

1.6996 2014 high

1.6778 trend channel resistance

Support

1.6460 swing low

1.6390 200 day moving average

1.6310 long term support and resistance level

1.6252 2014 low

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AUDCAD

The long term convergence of the respective interest rates (see below chart) keeps an

overall selling pressure on the currency. This selling will accelerate as the price breaks below

1.0000. The key focus this week will be Canadian employment data on 6th June. Resistance

lies at 1.0350.

Resistance

1.0718 2013 peak

1.0350 2014 high

1.0118 short term cycle lows

1.0048 2013 swing high

Support

0.9862 200 day moving average

0.9412 2014 low

0.9172 2013 low

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AUDCAD vs 2 year interest rate differentials

AUDCAD has decoupled from its long term correlation with the two year interest rate

differentials. While the currency has remained unchanged since the start of 2011 the

respective interest rates have converged by 230 basis points. This will keep long term

pressure on AUDCAD to move lower.

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NZDUSD

The strength of the USD lies behind the recent weakness in the NZDUSD cross, with a break

of the key 0.8517 level last week confirming a medium term top is in place. The near term

target is 0.8352 as the currency has been the weakest G10 performer of the last week.

Resistance

0.8843 2011 peak

0.8780 2014 peak

0.8517 short term resistance level

Support

0.8352 200 day moving average

0.8052 2014 low

0.7684 quadruple bottom

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AUDNZD

AUDNZD based in January 2014 at 1.0493 and in the last 20 years has based multiple times

between 1.05 and 1.0432 (2005) levels. However the recent move higher in the cross has

yet to be confirmed by the respective interest rate differentials.

Resistance

1.1755 Long term Fibonacci retracement level

1.1000 200 day moving average

Support

1.0912 Triple top

1.0845 Trend line

1.0748 short term low

1.0495 2014 low

1.0432 Multi-year low.

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EURJPY

Both EUR weakness and JPY strength has contributed to the recent weakness in the EURJPY

cross. A medium term top is in place at 145.69 with the price action now making a series of

lower highs. A break below the 200 day moving average at 138.73 will resume the

downtrend.

Resistance

145.69 cycle high

142.24 trend line resistance

138.73 200 day moving average

Support

138.73 200 day moving average

136.23 2014 low

125.99 38.2% Fibonacci resistance line

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U.S. 10 year Treasury Note

The US 10 year government bond yield is probably the most important chart in the financial

markets at the moment with its influence on equities, currencies, commodities as well as

interest rates of course. After a break out of the 30 year resistance line last year the price

has come all the way back down to retest that trend line. Without any exogenous factors

the price action will struggle to go lower from here, with a likely retest of the 3.05% peak

before a move towards 4.00% in the long term.

Resistance

4.00 Double top and Fibonacci projection level

3.05 2013 cycle high

2.82 double top

Support

2.40 2012 peak

1.61 2013 low

1.38 multi decade low

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James Brodie C.M.T. CIO, The Sherpa Funds Board member, Market Technicians Association (1st July 2014) Email: james.brodie@thesherpafunds.com 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.