10.02.2012 Daily Technical Report

Euro weakens back into 1.3250.

EUR/USD is weakening today after the recent sharp rebound above the key level at 1.3250 (38.2% Fib Oct/Jan decline).

Only further sustained confirmation above 1.3250 unlocks an extended recovery into our target zones at 1.3440/60 and 1.3548 (02nd Dec high). Our long position is now

active in anticipation of this scenario.

Meanwhile, the bears need to push back beneath 1.3000 (psychological support), then 1.2879 in order to resume the major downtrend lower.

Inversely, the USD Index is holding steady above the key support level of 78.30. The pullback had unwound historic speculative net long positions from the month of

January (which tends to be seasonally positive for the US dollar).

Expect this level to act as one of the last points of defence for a potential re-launch of the greenback’s recovery which is still part of our bullish cycle strategy

for a further 20% gain over the multi-month period.

Stalled at 200 day moving average.

Exited long position.

GBP/USD has been working lower after the breach of the 1.5883 swing high failed to see much in the way of follow-through.

Still, while support at 1.5730/1.5789 holds the risk is seen for a fresh swing to the upside, with scope for an attack on 1.5932/1.6000 (200 day moving

average/psychological) then overhead resistance at 1.6096/1.6167 as the 1.5235 advance extends.

Loss of 1.5730 in the meantime would suggest completion of a top pattern calling for a deeper correction of the 1.5235 advance back towards former resistance at 1.5670

and possibly 1.5533 before a base can form for fresh gains.

Settling below 1.5500 would suggest that the 1.5235 rally was a completed bear market bounce, shifting odds in favour of an attack on the 1.5235 swing low.

Rally extends after triggering bull signal.

Profit target one achieved, raised stop to 77.50 to protect profits. USD/JPY is rebounding higher after triggering a bullish DeMark™ signal from oversold conditions

(see bottom intraday chart). This follows the recent failure at the 200-day average and long-term pattern ceiling.

Our view remains bullish, as USD/JPY verges toward a major long-term 40-year cycle upside reversal. Expect key cycle inflection points to resume sharply over the

multi-week/month horizon, into our upside trigger levels at 78.30, then 80.00/60 and 82.00, ahead of 83.30.

Meanwhile, confirmation below 75.60 helps resume the third price retracement (PIR III), we had been expecting, back to pre-intervention levels and potentially even a

new post World War II record low (75.35).

Sentiment in the option markets continues to suggest that USD/JPY buying pressure remains overcrowded as everyone continues to try and be the first to call the market

bottom, within the end of this multi-year contracting pattern (see top-right chart insert).

This may first inspire a temporary, but dramatic, price spike through psychological levels at 75.00 and perhaps even sub-74.00. Such a move would help flush out a

number of downside barriers and stop-loss orders, which would create a healthy price vacuum for a major reversal.

Remains vulnerable.

USD/CHF is holding around the recent swing low at 0.9115 as downside pressure builds.

While 0.9227/0.9263 caps the immediate risk is seen for breakdown towards psychological 0.9000 then the 200 day moving average (currently at 0.8754) ahead of a

reaction low at 0.8568.

In the meantime, re-capture of 0.9227/0.9263 would suggest that a base has formed, calling for a deeper correction of the 0.9596 bear swing towards 0.9339 ahead of

broken support at 0.9407 before a top can form for fresh weakness.

Re-capture of broken support at 0.9407 would look positive on a longer-term view, putting pressure back on the 0.9596 swing high and then the February 2011 reaction

high at 0.9776.

Retesting the 200-day average.

USD/CAD is retesting the 200-day average on the upside. This follows the recent break through key support, which was also part of the larger triangle pattern structure

(see right chart).

Only a sustained break beneath the 200-day average would signal moves into support at 0.9890 (28th Oct low).

Meanwhile, the bulls need to push back above key level at 1.0080 and 1.0250, in order to resume the potential larger cycle recovery higher.

In terms of the big picture, a directional confirmation above 1.0680 is still needed to unlock the recovery into 1.0850 plus. This would extend the upside breakout

from the rate’s ending triangle pattern, which was part of a major Elliott wave cycle (see top-left chart insert).

EUR/CAD, which tends to share a positive correlation with EUR/USD, is holding steady after the recent sharp rebound. However, the rate remains within a neutral trading

range while beneath 1.3252. A downside resolution would target 1.2999 and 1.2760 (10th Jan 2010).

Aussie triggers a bearish reversal.

AUD/USD has triggered a bearish reversal, (around the Sept/Oct peaks), unwinding from over-0extended momentum conditions.

Next resistance can be found at 1.0890 and 1.1081 (27th July peak).

Remember, failure to sustain a close above 1.0753/65 (Sept/Oct peaks) suggests temporary momentum exhaustion and perhaps a resumption of the bear cycle. This is

further compounded by a recent intraday DeMark™ bearish signal that remains active.

Our cycle analysis remains bearish and favours mean reversion back into 1.0405 (200-day MA), then 1.0146 (09th Jan low) and the parity level.

Keep in mind that such a move would signal a break from the multi-month distribution pattern and 3-year uptrend (see top-left chart insert).

Elsewhere, the Aussie dollar remains weak vs. the neighbouring New Zealand dollar. The rate’s multi-month trading range, which is around the 200-day average (currently

trading at 1.2912). Expect resumed setbacks over the multi-day/week horizon into 1.2750 and 1.2320.

The Aussie dollar is weakening against the Japanese yen, after failing to retest 83.95 (31st Oct high). Any potential mean reversion back beneath the 200-day average

would signal unwinding of global risk appetite capital flows.

Constructive price action.

GBP/JPY has breached the 122.06 swing high to signal completion of the correction of the 117.29 bull swing at 119.60.

While support at 120.49/122.06 holds the immediate risk is for further gains towards the 124.36/124.41 region initially where a lower top and the 200 day moving

average come in.

Further out the structure looks constructive as the rebound from 117.29 appears to be the early stages of a basing process ahead of the 116.84 major swing low posted

in September.

Settlement below 120.49 would suggest stalling upside momentum, while loss of the 119.60 reaction low would suggest that the rebound from 117.29 is a completed bear

market rally, putting pressure back on 117.29 then key support at 116.84.


Holding recent gains.

EUR/JPY is holding up well in the wake of the upside breach of the recent swing high at 102.21.

The breach signalled completion of the correction of the 97.04 advance at 99.25 setting the stage for the next leg of the 97.04 advance towards 105.70 (2nd Dec high)

ahead of the 200 day moving average (currently at 107.66) as a stronger recovery takes hold.

On the downside, we look for 101.66/102.21 (minor support/old swing high) to contain dips prior to seeing the gains unfold, with loss there to warn of stalling upside

momentum.

Loss of 99.25 would suggest the the entire advance from 97.04 was a bear market bounce, setting the stage for a return to 97.04 initially.

Potential basing process.

EUR/GBP has extended the rebound from 0.8265 to challenge the recent swing high at 0.8410.

The rebound is looking impulsive and has potential to test 0.8410, settlement above which would complete a base pattern calling for a return to the 0.8619 reaction

high ahead of 200 day moving average resistance at 0.8650.

In the meantime, loss of 0.8265/0.8300 would again risk an attack on the 0.8222 swing low, increasing risk of breakdown towards strong support coming in around 0.8142

(August 2010 low).

Promising recovery.

Showing signs of a promising recovery after basing ahead of key support at 1.2000.

While the rebound does looks constructive the bulls need to re-capture and hold above broken support at 1.2226 to suggest that a solid base has formed, turning the

focus to the 1.2474 swing high initially.

In the meantime, loss of the 1.2032 swing low would put pressure back on key 1.2000, a sustained break of which could see a large number of clustered stops hit

fuelling a sharp move lower towards 1.1500 initially as the long-term downtrend resumes.

Gold's bearish reversal remains active beneath $1755.

Gold's bearish engulfing pattern reversal remains active beneath the key level at $1755. Intraday price activity has rebounded back, but is still holding beneath the

recent pattern breakout zone. The recent DeMark™ exhaustion signal (which appeared on the 02nd Feb) is still weighing.

Our short strategy has already been activated in anticipation of this near-term downside risk which now offers a sharp decline back into the old trend-line and 200-day

average, both holding around $1650/57.

Moreover, a sustained confirmation beneath here would resume risk for a much larger decline that we have been anticipating, if a weekly close beneath $1530 is

confirmed. Keep in mind that our cycle analysis continues to highlight initial targets into $1460 and $1300 (see top-left chart insert).

Speculative (net long) flows also support this view having previously breached a key downside level which may threaten over 2-years of sizeable long gold positions.

This would trigger a temporary, but dramatic setback that would ultimately offer a unique buying opportunity into this coming summer of 2012 (chart not shown).

Only a sustained confirmation above $1810 will put the bearish scenario on hold and offer further extended recovery higher on gold.

Capped under 200-day average (34.9385).

Silver is holding steady, (lagging behind Gold's momentum) and still remains capped beneath its 200-day average which is currently holding at 34.9385.

This level and 35.6875 (Oct peak) is likely to restrain further gains and resume the larger decline over the coming days from the recent breakdown from a contracting

range pattern (see hourly chart below).

Support at 31.5450 and 30.0000 (psychological) now act as our downside trigger levels that would help unlock a resumption lower into 28.9500 and 26.1600 (29th

Dec-hammer pattern low).

Macro price structure continues to focus on the downside risks, following the major sell-off in September 2011. Such a dramatic move traditionally produces volatile

trading ranges. This allows the market

have enough time to recover and accumulate renewed buying interest.

Expect the larger trading range to hold between $37.0000 - 26.0700 over the multi-week/month horizon, with downside macro risk into $21.5165 (61.8% Fib-1999 bull

market) and $20.0000. This would still maintain silver’s long-term uptrend and help offer a potential buying opportunity for the eventual resumption higher.