Cleared for external distribution in:
                     EMEA(1), U.S.(1) , Hong Kong(1), Japan(2) and Australia(1)
    ...
An outline of the main topics covered…
    Slides                 Topic                                                   ...
EURUSD has moved very close to its LT target region, upside looks relatively limited…
                                    ...
The market has peaked just below cyclical 76.4 retrace resistance at 1.5164…
            76.4 retrace of the ‘08 fall at 1...
The market begins to correct, we’re likely in the early stages of a topping process…
       Break below the 55-dma opens c...
So if we assume the market corrects to the 200-dma, what happens next?..
                  One last look back to the ’92-’...
Looking at the straight classic technicals…
      Monthly oscillators are at the top of the range and trying to turn down ...
So to sum it all up, how do believe things can play out…
                                                                 ...
Correlated markets for now argue that an extended topping process makes sense…
      To argue for a sustained uptrend in t...
Oil turning sharply lower is the one thing which warns of a more imminent problem…
                                       ...
As a final cross asset chart, U.S. 10-year notes in EUR-terms have held support…
                                         ...
To put a valuation spin on things, EURUSD is in extreme territory…
                                                       ...
Although quite an independent story, downside for USDJPY now looks limited…
                                              ...
Again on the slightly fundamental side, USDJPY too is stretched relative to fair value…
                                  ...
The real key to USDJPY remains U.S. short-end yields…
      USDJPY is still well correlated to short-end U.S./Japan yield ...
Two other charts worth keeping in mind…
        Our Broad/JPY Index still stands over 17% below its 200-wma               ...
If we are seeing the lead edge of U.S. stabilisation, long-CADJPY is interesting…
      Bull flag against the 55-wma with ...
With G3 views in mind, there’s a lot of focus on G3/EM-Asia crosses…
          EURKRW for example looks structurally heavy...
JPYKRW also remains an interesting chart from a LT perspective…
      The October ‘08 to March ‘09 highs were against chan...
INRJPY is another interesting cross. In the process of basing as in ‘00?..
                                               ...
IDR also looks like a MT out-performer relative to EUR and JPY…
                        EURIDR looking back to the mid-’90...
Finally JPYIDR, this also looks heavy from a big picture perspective…
                                                    ...
No signs of a sustainable turn towards a stronger GBP as yet…
      GBPUSD has repeatedly pivoted around 1.70 over the las...
On a LT basis the UK yield curve remains very important for GBP…
                                                         ...
With 2-year yields stuck at the base of the range, 10-year yields are concerning…
                                        ...
NZD looks exhausted…
                       “When the leaders start to turn…” ..?..                                       ...
The big picture structure still looks heavy on EURSEK…
                                                                   ...
Charts that “bother” us: If 111 ever breaks on the Long-Bond we have a problem…
                                          ...
Charts that “bother” us: USDMYR has a potentially very bullish Elliott structure…
                                        ...
Product Specific Risk Disclosure
The ideas detailed in this presentation may involve the purchase of options, in this case...
Europe, Middle East and Africa Disclaimer (Continued)
Leverage: Where this Product is subject to leverage, the risk/reward...
Europe, Middle East and Africa Disclaimer (Continued)
CONFLICTS OF INTEREST

     • The price and/or the redemption amount...
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  1. 1. Cleared for external distribution in: EMEA(1), U.S.(1) , Hong Kong(1), Japan(2) and Australia(1) (1) Not for distribution to retail investors (2) Cleared for external distribution only to qualified institutional investors in Japan Themes and Ideas for Q1 2010 and beyond FX Sales Strats December 2009 John Noyce John.Noyce@gs.com +44 20 7774 2915 Goldman Sachs International
  2. 2. An outline of the main topics covered… Slides Topic Main Points Limited upside and may well be entering a protracted topping process. EURUSD is now moving very close to the 1.5285-1.5325 target region implied by the '92-'95 comparison. Coupling this with an historically stretched daily moving average setup, return to over-bought levels 2-11 EURUSD on monthly oscillators and the oil market breaking lower, warns of the upside from here being relatively limited and the market likely beginning a protracted topping process. To open a sustained USD-rally, assuming current correlations hold, a break of 0.87-1.07% on U.S. 2-year yields and/or (likely or) a break of 1,029 on the S&P would be very helpful. The downside is looking quite limited from here. The market having now declined a similar percentage from the '07 high to that from the '98 highs before stabilising. Monthly oscillators are again attempting to diverge positively. We'd look to accumulate USDJPY on dips. The key 12-14 USDJPY to a sustained uptrend is likely to be U.S. short-end yields given the still very strong correlation between USDJPY and short-end yield spreads. JPY should remain an under-performer. Our Broad/JPY Index still stands 17% below its 200-wma. With the Q1-'09 low being right against 15-16 Cross/JPY the cyclical lows from '00 and '95 overall risks still look to the upside from a MT-LT (multi-week/-month) perspective (i.e. JPY-weakness). CNYJPY which is likely gaining in importance sits close to the cyclical lows from January '05 and November '99. EM-Asia out-performance? Short positions in EUR/EM-Asia are being discussed by the market as one of the "thematic trades for 2010". 17-21 G3/EM-Asia This makes sense when you look through the charts of related crosses. EURKRW looks particularly heavy from a multi-month perspective. JPYKRW, INRJPY, EURIDR and JPYIDR also argue for EM-Asia out-performance. No sigs of a sustained recovery yet. GBPUSD at best stuck in a range, at worst preparing for a significant decline and EURGBP still looks within its broad uptrend for now. The key to a sustained recovery in GBP looks to be a stabilisation in the UK yield curve (from the current 22-24 GBP cyclical wides). This doesn't look likely yet with short-end yields stuck at the bottom of the range but long-end (10-year Gilts) attempting to complete a structure pointing to significantly higher yields (4.5% initial target). Looking weak. The monthly chart of NZDUSD has formed a pair of exhaustive candle patterns against the cycle extremes. This is similar to 25 NZD the price action seen at the February/March '08 highs. A structurally bearish setup. The Head and Shoulders top which developed from December '08 to July '09 implying significantly lower 26 EURSEK levels over time. The eventual target is toward 9.00. What charts particularly concern us and could be a problem for the above? The majority of the charts we've covered in the sections detailed above generate a cohesive picture. There are however a couple which we believe warrant close attention; (1) the U.S. Long-Bond 27-28 "Things to Watch" Future (30-year) where there is a risk of the market completing a multi-year H&S top, below 111 would be a real problem and (2) USDMYR which has a concerningly clear and bullish Elliott setup, for a managed currency it's amasing how technically it trades. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 1 This is not a product of GS Research and as such may differ from published views.
  3. 3. EURUSD has moved very close to its LT target region, upside looks relatively limited… …the market having now recovered a very similar %age from the October ‘08 low to that from the August ‘93 low  While this analysis only compares EURUSD’s price action since the ‘08 highs with one other period, it does appear relevant to continue putting a reasonable amount of emphasis on it. The size of the down moves from the ‘92 and ‘98 highs were extremely similar in size, the basing structures formed at the lows are near identical and the sharp rally that followed is similar. The underlying backdrop was also similar in terms of U.S. long-end fixed income being under significant pressure at the beginning of both moves – i.e. the USD weakening despite higher yields.  Once the market had recovered approximately 80% of the ’92/early-’93 sell off it made an initial sharp downside correction and then entered a broad period of consolidation prior to eventually turning toward a broader downtrend seeing the USD strengthen significantly. As detailed on slides 5 and 7 this makes us think the market can enter a protracted period of broad consolidation against the highs (possibly multi- month).  In conclusion, while this type of historic comparison won’t continue to hold for an indefinite period, there are a number of further developments on EURUSD itself and other Chart Source: Aspen Graphics Data: Reuters correlated markets which adds confidence to the idea of the upside likely being quite limited from here. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 2 This is not a product of GS Research and as such may differ from published views.
  4. 4. The market has peaked just below cyclical 76.4 retrace resistance at 1.5164… 76.4 retrace of the ‘08 fall at 1.5164, high so far at 1.5145 The October ‘08 low on AUDUSD shows why this hold is important ? Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  As we often highlight holds of 76.4% retraces against cycle extremes tend to be  To highlight the significance of this type of retrace hold the above chart shows seen at significant turning points. AUDUSD from ‘99 onwards.  The fact that the high of EURUSD’s recovery so far is only 19 pips (0.0019)  The October ‘08 low at 0.6007 was only marginally above the 76.4 retrace of the below the 76.4 retrace of the ‘08 decline therefore looks very important. entire cyclical swing from the ‘01 lows to the ‘08 highs at 0.5971. This hold set Particularly given the sharp downside correction over recent sessions. the stage for the very sharp, over 50%, rally we’ve seen during ‘09. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 3 This is not a product of GS Research and as such may differ from published views.
  5. 5. The market begins to correct, we’re likely in the early stages of a topping process… Break below the 55-dma opens correction to 200-dma at 1.4118 There is a distinct similarity, in inverse, to last December’s setup 55-dma in blue 200-dma in green Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  Over recent weeks we’ve detailed the historically stretched nature of EURUSD’s uptrend in terms of the number of days the market had spent above the 55-dma on a consecutive close basis. Excluding the marginal close below on the 17th of August, this was actually the largest number of consecutive daily closes above the 55-dma on record (back to 1975). It seems fair to ignore the marginal close below on the 17th of August as the USD Index did not make the comparable break on that date.  On Monday 7th December EURUSD and the USD Index made their first simultaneous closes below and above the 55-dma respectively. This risks a larger correction of the up move from the March lows with the 200-dma at 1.4118. This is a similar situation, in inverse, to that which prevailed in December ‘08 where the market relatively violently broke the 55-dma and filled the gap to the 200-dma. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 4 This is not a product of GS Research and as such may differ from published views.
  6. 6. So if we assume the market corrects to the 200-dma, what happens next?.. One last look back to the ’92-’95 comparison… …zooming into the actual topping process Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  The ‘92-’95 comparison again gives us some useful input. Following the initial peak at 1.3837 in April ’95, where the market had recovered approximately 80% of the September ‘92-August ’93 sell off, it begins to form a topping structure, but it’s a drawn out multi-month process.  Looking at the zoomed chart on the right and tracking the colour coding; following the rally to 1.3837, EURUSD sells off sharply breaking below the 55-dma for the first time in a number of months and nearly closes the gap to the 200-dma, it then recovers to make a marginal new high for the cycle around 3-months later, from there a broader down move starts and that level is not seen again for nearly 12-years. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 5 This is not a product of GS Research and as such may differ from published views.
  7. 7. Looking at the straight classic technicals… Monthly oscillators are at the top of the range and trying to turn down The weekly charts are also looking tired Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  While it’s very difficult to trade off monthly oscillators alone they do tend to be  Poor weekly price action against the highs with the bearish weekly reversal from very useful as “risk/reward” indicators. They have now moved back to the top of late-October never invalidated on a weekly close basis. the range for the first time since July ‘08 and therefore from a multi-week/-month  Weekly oscillators are also turning lower with negative divergence against the perspective it’s an interesting time to look for signs of the market peaking/turning to the downside. most recent marginal new highs. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 6 This is not a product of GS Research and as such may differ from published views.
  8. 8. So to sum it all up, how do believe things can play out… …an initial move close to the 200-dma, followed by a recovery toward the highs and then another larger down move  The colour scheme used on the chart opposite is the same as that used for the historic comparison chart on slide 5.  In brief it appears that the market may well be entering a drawn out, i.e. lengthy, topping process.  Using the colour scheme opposite: Following the trend into the cycle highs the market completes a correction to the 200-dma which stands at 1.4118 – similar in inverse to the move from December ‘08. It then bounces from the 200-dma, similar to last December and also very similar to the price action seen at the ’95 highs – the comparison with ‘95 implying the risk of a double top (marginal new high beyond 1.5145). From here the market may well set a significant peak and prepare to decline on a trend basis.  The charts on the following slide highlight why it seems reasonable to expect the topping process to be drawn out and also what we’re watching for signals of a more immediate turn taking place. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 7 This is not a product of GS Research and as such may differ from published views.
  9. 9. Correlated markets for now argue that an extended topping process makes sense… To argue for a sustained uptrend in the USD we’d need to see yields break higher (U.S. 2-year yields above 1.07%) or equities lower (S&P below 1,029) Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  The S&P has definitely lost upside momentum, the initial bounce from the March  Despite the upside surprise in the U.S. employment numbers on the of 4th lows to the June highs being relatively fast and aggressive, but the most recent December U.S. 2-year yields have been unable to break the resistance region leg being far more gradual and overlapping. centred on 0.87% to 1.07%. A clear theme during ‘09 has been that G10  To make a clear case for a material peak to be in place and open a more notable currencies begin to out-form once their short-end yields break higher (AUD and downside move a break of the support region from 1,087 to 1,078 would be NOK as examples). Therefore, for the USD to break sustainably higher on a needed in the absence of any new negative price action. To add confidence the broad basis in a positive environment it would likely need to be related to a break market would then need to follow through below the prior low from 2nd March at higher in 2-year U.S yields, the 0.87-1.07% region therefore still looks important. 1,029 to break the chain of higher highs and higher lows developing since July. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 8 This is not a product of GS Research and as such may differ from published views.
  10. 10. Oil turning sharply lower is the one thing which warns of a more imminent problem… Oil has broken below an important support region opening 65.18-65.05 initially  The recent downside turn in oil has come as a significant surprise, the market breaking lower from a downward sloping flag like consolidation which is a pretty rare development.  There was a series of at least six well defined supports converged from 75.64 to 72.39; uptrend from the February lows, 55-dma, channel base from the October highs, the recent corrective low and the interim highs from the June-October consolidation. The market has now however broken this region relatively aggressively. The next support area stands down at 65.18-65.05 where the 200-dma is converged with the interim low from 25th September. A move of this magnitude looks very possible.  The chart below shows how highly correlated EURUSD and Oil have been over recent months. Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 9 This is not a product of GS Research and as such may differ from published views.
  11. 11. As a final cross asset chart, U.S. 10-year notes in EUR-terms have held support… This chart was one of the lead indicators that the USD was breaking down in May  One of the key themes as the USD initially began to break lower in May was that it coincided with rising long-end U.S. yields. The market becoming concerned about the negative price implications implied by the level of issuance likely to take place during ‘09 and the potential future inflationary impact of Quantitative Easing. This simultaneous weakening of the USD and U.S. Asset Markets caused a very sharp depreciation in the value of U.S. Fixed Income in foreign currency terms.  This chart aims to represent this theme. It shows U.S. 10-year Note Futures divided by EURUSD. The recent low on this chart from 23rd October was between the target of the double topping structure which completed in May and the 76.4 retrace of the entire rally.  As with the major USD/Europe crosses themselves there’s now a significant gap between the 55- and 200-day moving averages, implying risk the market continues to correct higher, which given FX is the higher vol. component would imply a lower EURUSD rate. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 10 This is not a product of GS Research and as such may differ from published views.
  12. 12. To put a valuation spin on things, EURUSD is in extreme territory… EURUSD very seldom moves significantly above/below 2 standard deviations from fair value  The chart opposite shows EURUSD spot in blue, and GS Research’s GSDEER (Goldman Sachs Dynamic Equilibrium Exchange Rate Model) fair value estimate for EURUSD in Red. This is then overlaid with a two standard deviation range around the fair ? value estimate in green.  As can be seen, EURUSD very seldom moves more than 2 standard deviations away from fair value, and has never sustained such a move for an extended period when it has happened. The market tending to subsequently reverse sharply back towards fair value.  Again looking back to the ’92/’95 period with which we’ve made a number of comparisons, the market moved more than 2 standard deviations above fair value as it peaked in ‘95. It them consolidated at that extreme and eventually turned back toward fair value. This is another similarity between the price action from July ‘08 to now and from September ‘92 to April/August ‘95. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 11 This is not a product of GS Research and as such may differ from published views.
  13. 13. Although quite an independent story, downside for USDJPY now looks limited… The percentage decline from the June ‘07 high is now very similar to that from the August ‘98 peak  While we’re as yet to see concrete evidence of a base on USDJPY, the market is moving into good support.  The decline from the August ’98 highs to the November ‘99 lows was 31.42%. At the 27th November ‘09 low the market had declined 31.67% from the June ‘07 peak. Since then the market has stabilised.  On a log scale chart, as would be expected, the base of the channel which can be drawn off the August ‘98 high also comes in just below at 83.07.  Monthly oscillators are also attempting to diverge positively against the base of the move. The ideal triple positive divergence can no longer form, but double divergence as has been seen at a number of other significant highs/lows on USDJPY can still complete.  Overall, while we don’t yet have full confirmation of a base, the downside is certainly beginning to look quite limited. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 12 This is not a product of GS Research and as such may differ from published views.
  14. 14. Again on the slightly fundamental side, USDJPY too is stretched relative to fair value… As with EURUSD, USDJPY very seldom moves significantly above/below 2 standard deviations from fair value  The chart opposite shows USDJPY spot in blue, and GS Research’s GSDEER (Goldman Sachs Dynamic Equilibrium Exchange Rate Model) fair value estimate for USDJPY in Red. This is then overlaid with a two standard deviation range around the fair value estimate in green.  As can be seen, looking back to 1990, USDJPY has only once, at the ‘95 lows, moved notably outside this two standard deviation range.  While difficult to enter trades purely based on fair value arguments it is very interesting that the market stands at such a valuation extreme at this juncture given other technical signals tend to warn that the market is nearing/at downside targets and showing signs of stabilisation. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 13 This is not a product of GS Research and as such may differ from published views.
  15. 15. The real key to USDJPY remains U.S. short-end yields… USDJPY is still well correlated to short-end U.S./Japan yield spreads This brings us back to the 2-year yield chart shown on Slide 8 Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  This chart shows USDJPY in red overlaid with the spread between U.S. and  Following the positive surprise from the U.S. employment numbers on Friday 4th Japanese 2-year yields in green. December there was an initial upside spike in short-end U.S. yields. This caused the market to test the pivot region from 0.87 to 1.07%, but it was unable to break  As can be seen, while the pure technical arguments for USDJPY to be nearing beyond and has since slumped back into the range. Overall, a break of the pivot the extreme of the range are strong, to generate a sustained uptrend it would resistance from 0.87 to 1.07% would therefore appear an important signal for likely need to be associated with a turn higher in U.S. yields. USDJPY. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 14 This is not a product of GS Research and as such may differ from published views.
  16. 16. Two other charts worth keeping in mind… Our Broad/JPY Index still stands over 17% below its 200-wma CNYJPY is nearing the cyclical extremes from Jan. ‘05 and Nov. ‘99 An equally weighted basket of the G10 currencies against the JPY. The basket being JPY-termed, so higher is JPY-weakness Chart Source: Aspen Graphics Data: Reuters  We included this chart in our Q1 outlook for ‘09. At that time the Index was just Chart Source: Aspen Graphics Data: Reuters approaching the cyclical lows from ’00 and ‘95, i.e. the JPY was nearing its strongest point ever against the broad group of “old world” G10 currencies.  Due to the move in USDCNY from July ‘05 to July ‘08 there are subtle differences between CNYJPY and USDJPY.  It initially bounced sharply from this extreme but has consolidated over recent months. It has however broken above the 55-wma with a large gap remaining to  Interestingly CNYJPY is now moving very close to the near flat trend across the the 200-wma. Over time it appears very possible that it continues to fill the gap to lows from January ‘05 and November ‘99. This may well be increasing Japanese the 200-wma, i.e. the JPY remains weak in the cross markets. domestic focus on the recent sharp strengthening of the JPY. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 15 This is not a product of GS Research and as such may differ from published views.
  17. 17. If we are seeing the lead edge of U.S. stabilisation, long-CADJPY is interesting… Bull flag against the 55-wma with constructive 55-/200-wma setup A double top on December ‘10 Canadian BA Futures supports CAD Chart Source: Aspen Graphics Data: Reuters  If you are of the view that the US economy is in the process of stabilising, which seems feasible given November’s near zero print in Non-Farm Payrolls, long- CADJPY appears an interesting trade. The long-CAD leg should be supported Chart Source: Aspen Graphics Data: Reuters by “positive contagion” from the U.S. and supported commodity prices. The  This chart shows the December ’10 Canadian BA (Banker’s Acceptance) Future. short-JPY leg (i.e. long-USDJPY) should be supported by stabilising U.S. yields Lower implies higher expectations for Canadian domestic yields. with which USDJPY is highly positively correlated.  The contract has recently peaked against the prior high from 15th January ‘09,  Overall, long-CADJPY from a MT-LT (weekly-monthly) perspective seems to this implies a significant double top may well be in the process of forming, make sense as we move into 2010. pointing to lower levels/higher yields. This should support CAD in the crosses. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 16 This is not a product of GS Research and as such may differ from published views.
  18. 18. With G3 views in mind, there’s a lot of focus on G3/EM-Asia crosses… EURKRW for example looks structurally heavy on the LT… …and MT charts Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  This chart shows EURKRW calculated through EURUSD and USDKRW back to  This is the weekly chart of EURKRW going back to ’03. It’s been consolidating ‘93. below the 55-wma for the last 2-/3-months. The 55-wma is now gradually downward sloping for the first time since January ’07, indicative of the uptrend  On a weekly close basis the February/March ‘09 highs were right against the having lost momentum. There is a still a large gap to the 200-wma which stands prior cyclical peak from January ’98. at 1,467, 14.57% below current levels. Over time it’s fair to expect this gap to be filled. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 17 This is not a product of GS Research and as such may differ from published views.
  19. 19. JPYKRW also remains an interesting chart from a LT perspective… The October ‘08 to March ‘09 highs were against channel resistance There is still a large gap to the 200-wma which stands at 10.13 Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  This chart shows JPYKRW from ‘95 onwards. As we highlighted quite a few  In the 2nd Quarter of ‘09 the market corrected sharply lower and has since times in early ‘09 the rally from the July ‘07 lows to the February ‘09 highs is very entered a broad horizontal consolidation. It has now moved below the 55-wma similar in size to that from the February ‘97 low to the December ‘97 high. for the first time since October ‘07. Although the market has consolidated in a relatively broad horizontal pattern over recent months the 200-wma still stands  Following both moves the market stabilised and turned lower. 23% below current levels as an eventual target. 55-/200-wma gaps such as this have acted as strong reversal signals in the past. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 18 This is not a product of GS Research and as such may differ from published views.
  20. 20. INRJPY is another interesting cross. In the process of basing as in ‘00?.. The 55-/200-wma gap implies significant upside potential over time  This chart shows INRJPY back to ‘92 calculated from USDJPY and USDINR.  The market appears to be in the process of basing.  The all time low set in January at 1.811 was very marginally above the trend across the last two cyclical lows set in October ‘00 and May ‘95.  From the October ‘00 low the market made an initial sharp bounce, but then entered a period of consolidation, forming a wedge like pattern against the base of the move for 44 weeks prior to beginning a significant uptrend. This time around the market has been consolidating for 46 weeks in a similar fashion.  The 55-wma has also turned flat as it did in December ‘00 prior to a sustained uptrend beginning which took the market very close to the 200-wma over the following 16 weeks. The 200-wma currently stands 29% above current levels.  Overall while it’s not possible to rule out further consolidation, it appears the market is in the process of basing for an eventual significant up move with potential for a return to the 200-wma. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 19 This is not a product of GS Research and as such may differ from published views.
  21. 21. IDR also looks like a MT out-performer relative to EUR and JPY… EURIDR looking back to the mid-’90s The market appears to be forming a bear flag continuation pattern ? Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  On a weekly close basis the March ‘09 high was very close to the prior extreme  Since falling sharply during March and April ‘09 the market has entered an from July 98. From here the market has begun to correct lower. extended period of broad consolidation.  The uptrend, in fact channel base, from the May ‘02 lows is converged with the  Given the weekly structure of the market, i.e. double top against the high from 200-wma 3.25 to 5% below current levels. A test of this region appears likely. May ‘02, an eventual downside break appears likely. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 20 This is not a product of GS Research and as such may differ from published views.
  22. 22. Finally JPYIDR, this also looks heavy from a big picture perspective… As a final G3/EM-Asia cross, JPYIDR looks structurally heavy.  The market formed a clear double top in November ‘08/February ’09 which targets 90.55, just over 15% below current levels.  Given that this structure stands above the market it seems fair to view the consolidation from the June lows as a bearish continuation pattern. To support this the market has been unable to break back above the neckline of the topping structure (interim low from January ‘09 at 111.93), with the 55-wma which is now marginally downward sloping also standing at 111.97.  Overall, while it’s not possible to precisely predict the timing for a move lower, there does appear to be a clear case to look for an eventual downside move. ? Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 21 This is not a product of GS Research and as such may differ from published views.
  23. 23. No signs of a sustainable turn towards a stronger GBP as yet… GBPUSD has repeatedly pivoted around 1.70 over the last 20 years For now EURGBP remains above all its trend defining supports ? Chart Source: Aspen Graphics Data: Reuters Chart Source: Aspen Graphics Data: Reuters  This chart highlights how GBPUSD has tended to pivot around 1.70 over the last  As yet there are no clear signs of a meaningful turn to the downside for 20-years. Peaking and troughing against this point a number of times. EURGBP. It has corrected down from the October peak at 0.9413 but has not moved below the 55-wma. In fact it hammered against the low of the move and  In August this the market peaked at 1.7042, one pip (0.0001) below the interim also based a little above the uptrend from the October ‘08 lows. low from November ‘05 at 1.7043.  Overall the underlying risks still look to the upside. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 22 This is not a product of GS Research and as such may differ from published views.
  24. 24. On a LT basis the UK yield curve remains very important for GBP… This implies that GBP is unlikely to recover meaningfully until short-end yields begin to rise or Gilts rally in response to a perceived improvement in the UK’s Fiscal Position  This chart shows in blue our GBP/Broad Index (GBP against an equally weighted basket of the other old world “G10” currencies) inversed, so the blue line moving higher indicates GBP-weakness. This is overlaid in green with the UK 10-year/2-year yield curve.  While the correlation doesn’t hold on a week to week basis, the broad trends are similar and implies that as long as the UK yield curve remains this steep it’s likely to be difficult for GBP to make a sustained recovery. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 23 This is not a product of GS Research and as such may differ from published views.
  25. 25. With 2-year yields stuck at the base of the range, 10-year yields are concerning… A Reverse Head and Shoulders could well be in the process of forming, with targets near 4.5%  Since peaking at 4.09% in June ‘09 10-year UK Gilt yields have consolidated within a gradually downward sloping pattern. The price action since the July high at 4.02% could also be viewed as a Reverse Head and Shoulders pattern (bullish). The neckline of the structure comes in at 3.86%. A move above here would warn of another significant trend higher in yields.  First interim resistance and confirmation point for the basing structure is the high from November ‘09 at 3.90%, then the June high at 4.09%, and above here the full target of the basing structure at 4.5%. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 24 This is not a product of GS Research and as such may differ from published views.
  26. 26. NZD looks exhausted… “When the leaders start to turn…” ..?.. The monthly chart of NZDUSD looks particularly concerning Chart Source: Bloomberg Chart Source: Aspen Graphics Data: Reuters  The chart above shows the performance of NZD versus a selection of the other  The monthly candle patterns which have developed on NZDUSD since October “major” currencies from 1st January ‘09 onwards. At this point it’s out-performed really make the market look extremely exhausted. It posting a pair of “Shooting all except the other commodity currencies; BRL, AUD and ZAR. Star” type candle patterns against the extreme of the trend. This is similar, albeit even more aggressive, to the setup at the cycle highs in February/March ’08.  With it being such a leader, signs of a turn developing should be taken seriously. Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 25 This is not a product of GS Research and as such may differ from published views.
  27. 27. The big picture structure still looks heavy on EURSEK… While the market is not showing signs of an immediate move lower, an eventual downside extension appears likely  The multi-month structure of EURSEK continues to look heavy. The price action from December ’08 to July ‘09 causing a large Head and Shoulders top to be formed against the all time highs for the currency pair.  Since the August low at 10.0320 the market has entered a period of gradual, overlapping, upside correction. The lack of momentum seen in this recovery argues that the next impulsive move is still likely to be on the downside (SEK-strength).  Therefore, while timing the move is difficult, eventually we would expect the market to move lower (towards a stronger-SEK).  The target of the H&S top is in the region of 9.00. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 26 This is not a product of GS Research and as such may differ from published views.
  28. 28. Charts that “bother” us: If 111 ever breaks on the Long-Bond we have a problem… The un-sustained spike into the December ‘08 highs at 143 looks like a “blow out” top and the market ..could.. be forming a large Head and Shoulders top  Over the course of this year there’s been much discussion about the risks of a bubble developing in Government Bond Markets. Although we’ve had a number of sharp spikes higher in yields across the various G10 markets non of these have, yet, been sustained.  With this in mind a chart to keep a close eye on is the Future for the U.S. 30-year Long Bond. The high the market hit in December ’08, following an explosive rally, was right on multi-decade channel resistance. In early ‘09 the market reversed lower almost as quickly as it rallied, warning of the risk that a “blow out” top is in place. This type of price action is often seen at significant turning points.  There is also the risk of the market forming a large Head and Shoulders top.  The neckline of the pattern stands at 113 and 15/32, the base of the multi-decade channel stands at 111.  Therefore, any break of the channel base at 111, would be a major cause for concern. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 27 This is not a product of GS Research and as such may differ from published views.
  29. 29. Charts that “bother” us: USDMYR has a potentially very bullish Elliott structure… For a heavily managed currency pair it is amasing how technically USDMYR trades  USDMYR was one of the lead indicators of the broad based USD/G10 and USD/EM rally which took place during the second half of ’08.  The key indicator at that time being that the market ? had spent the near perfect period of 3-years below its 55-wma on a close basis. Upon making a weekly close above in August ‘08 the market rallied to and beyond the 200-wma target very quickly.  While the classic technical setup is not that clear at this point there is a very clear Elliott count. The move from the April ‘08 low to the March ‘09 high dividing into a clear 5-wave sequence and the correction from there into the recent lows at 3.3425 breaking into an ABC pattern. This low being set between the ABC equality target from the March ‘09 highs and the 61.8% retrace of the H2-’08 rally.  Overall, viewed very independently, this chart looks VERY bullish from an Elliott standpoint. Given positive correlation between the USD/Asia currency pairs this doesn’t support our view of significant Asian currency out-performance relative to the G3 currencies. Chart Source: Aspen Graphics Data: Reuters Past performance is not an indicator of future results. Future returns are not guaranteed, and a loss of original investment may occur. 28 This is not a product of GS Research and as such may differ from published views.
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