weekly review
From the Greek political gridlock reigniting the fire of the EU debt crisis to the $2 billion trading losses fiasco at JPMorgan Chase & Co putting pressure on bank shares and raising questions about risk management at major financial institutions, the last week will not be remembered as one the best ones the markets have ever seen.
The week got underway with traders gauging political risk in reaction to the French and the Greek elections which delivered the anticipated shifts in the political landscape of these two EMU members. France, the second-largest economy in the Euro-zone, elected its first Socialist president since 1995, increasing the prospects for French policies to become a roadblock in the German-lead austerity and fiscal compact efforts. In Greece, the lack of a clear election winner left three parties scrambling to form a coalition government, raising uncertainty and anxiety levels that the debt-ridden country may be one step closer to exiting the monetary union.
Safe-haven flows kept the greenback supported and although the U.S. economy saw a widening trade deficit in the month of March, the weekly jobless claims managed to stay lower than the consensus forecasts, while the preliminary estimate of the U.S. consumer sentiment inched higher in May.
In line with our outlook, risk was the dominant driver for the markets and the euro stayed under pressure throughout the week. The single currency registered a three-month low and ended the trading week below the $1.30 mark.

weekly outlook
With Greece back in the epicenter of the EU debt crisis, the EU finance ministers due to meet next Tuesday, and a sequence of important economic data scheduled for release from the Euro-zone and the United States, the week ahead will keep the spotlight on the euro and the U.S. dollar, while the U.K. labor market data and the Bank of England’s inflation report next Wednesday will also draw attention to the British pound.
Risk-Off
As we suspected, last week the inverse relationship between the U.S. dollar and risk staged a big comeback and risk aversion lead to a broad U.S. dollar strengthening against a variety of majors, (with the exception of the yen). Heading into the new week, it would not be illogical to anticipate more of the same.
While optimism that the political parties in Greece will be able to reach an agreement on forming a new government that will commit to keep the country in the EMU could serve as a catalyst for a euro relief rally, we still see the potential for a series of weak economic data from the euro-area to keep the single currency under pressure.
On May 11, the European Commission reaffirmed its February forecast that the Euro-zone economy will contract by 0.3% in 2012. According to the European Commission estimates, Greece is expected to register the largest contraction among EMU member states with a 4.7% drop in GDP. The troubled countries of Spain and Italy are also forecast to see their economies shrinking by 1.8% for Spain and 1.4% for Italy.
Despite of the European Central Bank’s recent decision to “wait and see” before considering more easing, further deterioration in economic conditions in the euro-zone will be likely to present no other choice for the ECB but to do just that. Whether they like it or not, we expect that at their June meeting the ECB policy makers will be faced with three monetary policy options: buy more bonds, perform a third round of LTRO, or cut rates. While in the long run these options might be able to revive growth, it is hard to see either of them as positive for the single currency at this point.

weekly outlook
Do Not Count QE3 Out Just Yet
It is obvious that a number of issues weigh on the euro and although what we have witnessed last week does not come as a surprise, it would not be unwise to approach the new trading week with a bit of caution when it comes to the U.S. dollar.
As we have highlighted before, the series of weak U.S. economic data throughout the month of April, 2012 should not be taken lightly, especially if such economic weakness becomes a trend lasting for at least a couple of months. Even though risk is king in the last two weeks and the greenback has taken advantage of that, we should keep in mind that the month of May did get underway with another disappointing Non-Farm Payrolls report as the U.S. economy only added 115K new jobs in April on consensus forecasts of up to 160K jobs. We doubt that the small decline in the unemployment rate to 8.1% in April from 8.2% in March will be enough to alleviate renewed concerns that the U.S. economic recovery may be losing steam.
With the Fed Chairman Bernanke reminding the markets that the option of more easing is “still very much on the table”, we expect each new weak economic report from the U.S. to raise QE3 odds which, in turn, could elevate the pressure on the U.S. dollar. As the markets continue to gauge the potential for the Fed to “do more”, we would not be surprised if further gains of the greenback become limited in the weeks leading the next Federal Reserve meeting on June 19 & 20, 2012.

eur | weekly outlook
Our Perspective
In the aftermath of the French and Greek elections, we witnessed the transition of the EUR/USD exchange rate from the $1.30’s into the $1.20’s with the EUR/USD currency pair breaking below $1.30 and testing support at 1.2944. After fluctuating in the area between 1.2944 and 1.30, the pair extended its losses towards $1.29 and ended the trading week shortly above this level.
We consider the break below 1.2944 and the fact that the euro closed the week below $1.30 as a sign of weakness, which opens the door to a potential test of the December, 2011 support level at 1.2855 and even the 2012 low at 1.2622.
We see further deterioration in economic conditions in the Euro-zone, expectations of more easing by the European Central Bank, rising borrowing costs of debt-ridden nations in the EMU, and heightened political uncertainty in the Euro-zone as the catalysts that could push the EUR/USD exchange rate deeper into the $1.20’s.
On the other hand, we remain cautious of the potential for disappointments from the upcoming U.S. economic reports, especially if the data fails to demonstrate resilience of the U.S. economy in the weeks leading to the FOMC meeting on June 19-20, which will weigh on the greenback on heightened QE3 odds.
eur | key events
Euro-zone GDP-Gross Domestic Product- Tuesday, May 15, 5:00 am, ET
Many economists have predicted a double dip recession in the euro-area and the GDP report will be likely to confirm their forecasts with a 0.2% q/q to 0.3% q/q contraction in the first quarter of 2012 following the 0.3% q/q drop in Q4 2011. After two consecutive quarters of negative economic growth, we see the European Central Bank warming up to the idea of more easing as early as their June meeting. We do not exclude the possibility for the ECB to cut rates in an effort to stimulate the economy and we believe that the pressures on the euro could intensify if the markets begin to price such expectations more aggressively in the days and weeks to come.
Euro-zone ZEW Economic Sentiment Index- Tuesday, May 15, 5:00 am, ET Another risk event for the single currency, the ZEW institute survey is forecast to show economic
sentiment index heading lower with a reading of 11.7 in May from 13.1 in April.
U.S. Retail Sales and CPI- Consumer Price Index- Tuesday, May 15, 8:30 am, ET
The retail sales report has the potential to start next week’s U.S. economic data sequence on the wrong foot with a smaller 0.2% increase in consumer spending in April compared with the 0.8% m/m rise in March, while the consumer price index shows inflationary pressures easing with only a 0.1% m/m increase in April from 0.3% in the previous month.
U.S. Housing Starts and Building Permits- Wednesday, May 16, 8:30 am, ET Housing market conditions are expected to remain unimpressive with a mixed report showing a small
increase in housing starts to 673K from 654K, but a decline in building permits from 750K to 730K.
U.S. FOMC Meeting Minutes- Wednesday, May 16, 2:00 pm, ET
The minutes of the latest Fed meeting will confirm that although some policy makers are already calling for an exit, the majority, including Chairman Bernanke, is not in a hurry to start monetary policy tightening. The report will serve as a reminded of the Fed’s cautious outlook on the economy and its commitment to keep rates low until late 2014. The USD will suffer the consequences if the minutes reveal any hints that QE3 may be just around the corner.
U.S. Jobless Claims- Thursday, May 17, 8:30 am, ET
Although first-time claims for unemployment benefits are forecast to inch a bit higher to 370K from 367K, the overall trend of improvement should continue as long as they stay comfortably below 375K. On the other hand, warning signs would emerge once again if we were to witness another unexpected increase in jobless claims similar to the three spikes in April.

gbp | weekly outlook
Our Perspective
The GBP continued the price correction of its gains against the USD targeting the anticipated support at 1.6061. The GBP/USD pair kept testing this level and we would not be surprised if a break below 1.6061 extends the size of the correction to the $1.60 mark, which also served as a top of a previous range.
We still view this as a normal, healthy price correction, but if the GBP/USD pair is incapable of establishing support at or above $1.60, we will consider such development as a sign of weakness, with a decisive break below $1.60 jeopardizing the GBP bullish trend.
We know that the GBP will not be immune from risk aversion. Safe-haven flows can weaken the sterling and the pressure on the GBP could intensify as a result of a negative jobs report on Wednesday coupled with a less optimistic economic outlook from the Bank of England’s inflation report which could raise the odds of more quantitative easing by the central bank.
If risk aversion and the events from the U.K. next week do not hurt the GBP and if the GBP/USD pair establishes a strong base support in the 1.60-1.6050 area, we see a potential for the sterling to resume its bullish trend and to bounce higher to previous resistance at 1.6165 and possibly to revisit its high for the year at $1.63.

gbp | key events
U.K. Claimant Count Change and Unemployment- Wednesday, May 16, 4:30 am, ET The first of the two risk events for the GBP next week is forecast to show an increase in jobless claims of
up to 5,000 from 3,900 in the previous month, while the unemployment rate stays at 8.3%.
Bank of England Inflation Report- Wednesday, May 16, 5:30 am, ET
Last Thursday, the Bank of England decided not to expand the size of its Asset Purchase Program and to maintain the record low 0.5% benchmark rate. However, with the euro-area in recession and the EU debt crisis fears reemerging, the Bank of England’s outlook on the U.K. economy could become gloomier. If this is coupled with an inflation report containing a forecast for a steady decline in inflationary pressures, it would not be surprising to see more members of the Monetary Policy Committee calling for additional asset purchases at upcoming meetings. The GBP has benefited from the status quo at the Bank of England in the last couple of months, but the sterling could lose its appeal if the central bank leans towards more quantitative easing in the second half of 2012.

jpy| weekly outlook
Our Perspective
After testing support at the 79.52 post-intervention high but not breaking decisively below it, the USD/JPY pair spent the week fluctuating between 79.40 and 80 yen. The pair flirted with the 80 yen level and ended the trading week shortly below it.
We consider the USD/JPY pair as strategically positioned for a bullish or a bearish breakout next week that would send it outside of its narrow 79.40-80 yen range. The direction of such breakout might be dependent on which way the risk winds would blow in the week ahead.
We still see the pullback to the 79.40-80 yen area as a normal correction of the dollar’s gains following the rally from 76 to 84.17 yen, but we are aware of the possibility that a break below 79.40 could extend the USD losses and could open the door for a move to 78.27 (a previous top of the multi-month range between 76.50 and 78.27).

jpy| weekly outlook
An upbeat GDP report from Japan next Wednesday and safe-haven flows throughout the week could also lend support to the yen and could serve as catalysts for the yen to break higher.
On the other hand, if the USD/JPY pair establishes a strong baseline support in the 79.40-80 yen area and breaks decisively above 80 yen, the USD could begin to strengthen gradually and, although it would likely be a slow process, it could test recent resistance at 81.78, and even the 2012 high at 84.17 yen.
The smaller expansion of the Bank of Japan’s quantitative easing program did not help the case for USD strength and the yen continues to benefit from the risk averse market environment. In case the USD/JPY exchange rate falls deeper into the 70’s and begins to fluctuate within its previous range between 75 and 78.27 yen, we expect the Japanese Ministry of Finance and the Bank of Japan to become a lot more vocal and to remind the markets that they are watching carefully the moves in the yen.
We do not see the Japanese authorities as willing at this point to simply sit and observe the yen regaining its strength to new record highs. Therefore, we would not be surprised to see the Bank of Japan being forced into more aggressive easing and a potential increase in their 1% inflation target to 2%, which is the preferred target level for most other major central banks. We would consider such decisions as a start of another campaign to weaken the yen and as a catalyst for another leg higher in the USD/JPY exchange rate.
jpy| key event
Japan GDP- Gross Domestic Product – Wednesday, May 16, 7:50 pm, ET
The preliminary estimate of the Japanese GDP is forecast to show the economy returning to growth in the first quarter of 2012 with up to 0.9% q/q expansion, following the 0.2% q/q contraction in Q4 2011. The yen could get a boost from the report which is expected to signal that the Japanese economy is recovering from its third recession in the last decade.

Executive summary
With the year coming to an end in two weeks, traders took advantage of the negative market sentiment and traded in favor of safer assets. The U.S. dollar rallied to near the highs of the year, trading just above January opening levels of 1.2900 against the euro. While we don’t anticipate another such rally before the holidays, we wouldn’t be surprised as the Eurozone keeps coming under attack by the ratings agencies. Almost weekly, Fitch, S&P, or Moody’s threaten to or take action against the member states or their big banks, highlighting the risk that’s inherent in dealing within the region.
“A comprehensive solution to the eurozone crisis is technically and politically beyond reach. Of particular concern is the absence of a credible financial backstop. In Fitch’s opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises.” – Fitch Statement, December 16, 2011
Fitch is of course speaking about the role of the ECB as the lender of last resort, which isn’t allowed to act in such a way due to its mandate. The rest of the financial markets including commodities will play off these fears as uncertain economic conditions will lead to slower growth. While risks remain high and until market participants are convinced of some credible financial backstop, we are sure of only two things: volatility will remain high and the risk-off trade should prevail.

executive summary
Our 3 Major Market Concerns:
EuroZone Debt/Financial Crisis Sovereign Downgrades Excessive Volatility
Headlines
Dudley: Fed’s Dollar Lines Shield U.S. from Europe – December 16, Reuters Dollar Usurps Gold as Safe Haven – December 17, The Financial Times Eurozone Crisis and China Fears Weigh on Crude – December 17, The Financial Times Draghi Warns of EuroZone break-up – December 18, The Financial Times
Eurozone Bank Failures Could Cause US Credit Squeeze: Kaufman – December 18, Reuters

eur | weekly recap & outlook
Fundamentals:
- Risks from contagion remain very high; sovereign and bank downgrades a concern
- Peripheral borrowing remain at unsustainable levels
- ECB being politicized and pressured into being lender of last resort
- European Union without Great Britain creates more instability and further uncertainty
- Weak economic growth coupled with austerity measures will continue to negatively impact the economies
Technicals:
- MAIN TREND: BEARISH (cautious) - Expecting range trading between 1.2900-1.3150 - Immediate resistance at 1.3150, followed by 1.3400 - Immediate support at 1.2950 and 1.2880 - Weekly OUTLOOK: Range Trading

gbp | weekly recap & outlook
Fundamentals:
- *UK in danger of being isolated if leaves European Union* - Sovereign debt downgrade a concern - Weak economic growth may lead to further monetary action by BOE - IMF growth forecast from revision from 1.6% to 1.1% for 2012 - Problems within EU threaten UK’s political relationship with the 17 member nation - Risks of contagion from Europe
Technicals:
- MAIN TREND: BEARISH - Important low set at 1.5400, break is needed before confirming further depreciation - Important highs set between 1.5720 and 1.5780, as well as 1.5900 - Immediate resistance at 1.5580 - Immediate support at 1.5500 and 1.5480 - 1.5000 will be important psychological level before 1.40 is exposed - Weekly OUTLOOK: Expecting break below 1.5550 or above 1.5700

jpy| weekly recap & outlook
Fundamentals:
- Political problems as Prime Minister’s ratings continue to decline - INTERVENED IN THE MARKET – ~10 TRILLION YEN SPENT on October 31st - Bank of Japan is concerned that the overvalued yen will hurt the domestic economy
- Lack of consistency within global markets have made fundamental data less important, specifically for Japan as its currency is used as a safe haven during times of uncertainty
- Bank of Japan intervention is expected below the 76.50/76.00 level
Technicals:
- MAIN TREND: BULLISH (cautious) - Floor at 76.00 very important - Currently trading near post intervention closed price of 78.00 - Moves dependent on more intervention if market retests record lows - Resistance at 78.20 and 80.00 - Support at 77.30 and 76.80 - Weekly OUTLOOK: Expecting range trading below 78.00; break above opens room to 80.00

chf| weekly recap & outlook
Fundamentals:
- Swiss National Bank policy to sell unlimited amount of Swiss franc to support domestic companies supports a bullish dollar outlook; should remain in place during term of European crisis
- SNB to continue selling the Swiss franc indefinitely below the 1.20 EUR/CHF level continues to supports the dollar - USD/CHF will react to movement in EUR/CHF as SNB’s focus is on euro reserves - Rumors of further SNB policy changes – a call for negative interest rates to help depreciate the franc
Technicals:
- MAIN TREND: BULLISH - Break above .9300 pushed into mid .95s, now retracing. Expecting continuation during 2012 with high risk of
volatility and uncertainty - Expecting .9400 and .9950 as main resistance levels in coming months, which are 50% and 61.8% retracement
levels respectively of the yearlong descending trend that started at 1.1770 level in June 2010 to the lows of .7075 set in August 2011
- Any move in USD/CHF is dependent on that of EUR/USD and EUR/CHF, as the latter is supported by SNB policies - Push to parity may happen during the next euro sell-off - Weekly OUTLOOK: Cautiously bullish

cad|nzd|aud| weekly recap & outlook
USDCAD
Fundamental: - Fundamentals in the background due to concerns over lack of progress being made within the eurozone and potential
fallout that may occur if problems worsen - Canadian economy continues to weaken; closely tied to the U.S., which may be on the brink of slipping back into a
recession
- Sluggish economies will lead to lower oil prices, higher unemployment rate, and may cause the Bank of Canada to decrease interest rates, further weakening the Canadian dollar
- Must keep an eye on oil prices and employment levels; decreases in both will be of concern
Technical:
- MAIN TREND: BULLISH - Double Top at 1.0500 - Resistance at 1.0400 followed by 1.0500 - Immediate support at 1.0320, followed by 1.0220 and 1.0100 - Weekly OUTLOOK: Bullish only on break of 1.0500

NZDUSD
Fundamental: - Downside correction from all-time highs may now be complete - Problems in EuroZone now beginning to impact New Zealand; eyes on RBNZ and interest rate policy - Price action will most likely be dependent on Eurozone developments
Technical:
- MAIN TREND: BEARISH - Important resistance area is now .7800 and .7900, followed by .7980, and .8050 - Immediate resistance at .7600 and .7650 - Immediate support at .7500, followed by .7450 - Weekly OUTLOOK: Consolidation above .7500

AUDUSD
Fundamental: - Market continues to adjust to risk aversion - Interest Rate policy will be closely monitored as a decrease will hurt the Aussie dollar - Eyes on economic data as well as risks from eurozone contagion
Technical:
- MAIN TREND: BEARISH - Expecting consolidation near .9900, 61.8% retracement of Sept-Nov rally - Immediate Resistance at .9980, followed by 1.0030 - Immediate Support at .9900 and .9880 - Weekly OUTLOOK: Consolidation around 1.0000

outlook
With the year-end fast approaching and the market still uneasy with Eurozone progress, we could see a lot of volatility before the last day of the year. On the other hand, investors may decide to stay out until the first few weeks of January as protecting profits may be more important. Either way, caution should be exercised during the next two weeks as liquidity dries up during holidays. We are looking for officials from the Eurozone to make statements during this time to get the markets ready for 2012. They will most likely continue to outline positive meetings and any rallies based solely on hope will not last. A stronger dollar by way of risk aversion is most likely going to continue next year. Happy Holidays everyone!

Executive summary
Markets were calm last week as traders waited for the European Union to conclude a two day meeting at which EU leaders would discuss options such as an implementation of tougher fiscal rules on member states in order to restore market confidence. With uncertainty still high and the euro testing a pivotal support level against the dollar, traders decided it was best to wait and see what results the meeting would bring before making further bets. With the EU leaders’ summit concluding at the end of Friday’s business day, traders were wary to hold positions into the weekend, leading the market to consolidate.
There were many economic data releases as well as a notice from the Standard and Poor rating agency that now includes 16 eurozone member states’ long-term ratings on CreditWatch negative, including six AAA-rated members, which are Austria, Finland, France, Germany, Luxembourg, and the Netherlands. This will surely play a large role next year as Europe continues to manage the crisis.
“You’ve never seen Britain say ‘No’ to a European Treaty before. There was a treaty on the table; it didn’t adequately protect Britain’s interest. Instead of going along with it, I said no to it. I thought that’s my job. ” – David Cameron, Prime Minister of the United Kingdom
With the two day meeting coming to a close late Friday, David Cameron refused to agree to the changes that were being proposed as he was not able to secure concessions he wanted for the United Kingdom, straining relations with France and Germany and possibly setting itself up for an eventual exit from the European Union.
The effects from such a bold move are yet unknown and we’d like to see reaction from the market before coming to any conclusions. One thing is for certain, this years’ volatility may be easily matched by next year’s price action.
With only a week or two left before trading desks are manned by skeleton crews, volatility should follow European developments.

executive summary
Our 3 Major Market Concerns:
EFSF/EU Financial Crisis Sovereign Debt Downgrades Volatility in Global Markets
Headlines
Standard & Poor’s Puts Ratings on Eurozone Sovereigns on Credit Watch with Negative Implications – December 5
The Euro: That Procrustean Bed – December 9, Russia Today Clegg: Cameron’s EU Treaty Veto ‘Bad for Britain’ – December 11, The Olympian UK Industry Fears Isolation Amid EU Treaty Fallout – December 11,The Guardian
New European Treaty Won’t Solve Current Liquidity Crisis – December 12,Huffington Post

eur | weekly recap & outlook
Fundamentals:
- Risks from contagion remain very high; sovereign and bank downgrades a concern
- Peripheral borrowing remain at unsustainable levels
- ECB is being pressured to be lender of last resort; monetization of debt is a concern for eurozone
- European Union without Great Britain creates more instability and further uncertainty
- Weak economic growth coupled with austerity measures will continue to negatively impact the economies
Technicals:
- MAIN TREND: BEARISH (cautious) - Expecting range trading between 1.3200-1.3450 - Immediate resistance at 1.3400, 1.3450, followed by 1.3530 and 1.3600 - Immediate support at 1.3330 and 1.3300, followed by 1.3220 - Weekly OUTLOOK: Waiting for breakout (cautious)

gbp | weekly recap & outlook
Fundamentals:
- *UK in danger of being isolated if leaves European Union*
- Sovereign debt downgrade a concern
- Bank of England recently increased Asset Purchase facility from GBP200 billion to GBP275 billion in order to help with deteriorating economic conditions
- IMF growth forecast from revision from 1.6% to 1.1% for 2012 - Problems within EU threaten UK’s political relationship with the 17 member nation - Risks of contagion from Europe
Technicals:
- MAIN TREND: BEARISH - Important low set at 1.5415, break is needed before confirming further depreciation - Currently within a tight range, Fibonacci 50% may be complete. Prefer to see direction set by breakout above 1.5700 or
below 1.5550 - Important highs set at 1.5780 and 1.5900 - Immediate resistance at 1.5700, followed by 1.5780, 1.5850 and 1.5900 - Immediate support at 1.5600 and 1.5550, followed by 1.5415 and 1.5300 - 1.5000 will be important psychological level before 1.40 is exposed - Weekly OUTLOOK: Expecting break below 1.5550 or above 1.5700

jpy| weekly recap & outlook
Fundamentals:
- Political problems as Prime Minister’s ratings continue to decline - INTERVENED IN THE MARKET – ~10 TRILLION YEN SPENT on October 31st - Bank of Japan is concerned that the overvalued yen will hurt the domestic economy - Lack of consistency within global markets have made fundamental data less important, specifically for Japan as its
currency is used as a safe haven during times of uncertainty - Bank of Japan intervention is expected below the 76.50/76.00 level
Technicals:
- MAIN TREND: BULLISH (cautious) - Floor at 76.00 very important - Currently trading near post intervention closed price of 78.00 - Moves dependent on more intervention if market retests record lows - Resistance at 78.20 and 80.00 - Support at 77.30 and 77.00 - Weekly OUTLOOK: Expecting range trading below 78.00; break above opens room to 80.00

chf| weekly recap & outlook
Fundamentals:
- Swiss National Bank policy to sell unlimited amount of Swiss franc to support domestic companies supports a bullish dollar outlook; should remain in place during term of European crisis
- SNB to continue selling the Swiss franc indefinitely below the 1.20 EUR/CHF level continues to supports the dollar - USD/CHF will react to movement in EUR/CHF as SNB’s focus is on euro reserves - Rumors of further SNB policy changes – a call for negative interest rates to help depreciate the franc
Technicals:
- MAIN TREND: BULLISH
- Expecting .9400 and .9950 as main resistance levels in coming months, which are 50% and 61.8% retracement levels respectively of the yearlong descending trend that started at 1.1770 level in June 2010 to the lows of .7075 set in August 2011
- Consolidation above .8600 complete, break of .9315 (October high) may push to .9400+ - Any move in USD/CHF is dependent on that of EUR/USD and EUR/CHF, as the latter is supported by SNB policies - Push to parity may happen during the next euro sell-off - Weekly OUTLOOK: Cautiously bullish on break of .9315

cad| weekly recap & outlook
Fundamental: - Fundamentals in the background due to concerns over lack of progress being made within the eurozone and
potential fallout that may occur if problems worsen
- Canadian economy continues to weaken; closely tied to the U.S., which may be on the brink of slipping back into a recession
- Sluggish economies will lead to lower oil prices, higher unemployment rate, and may cause the Bank of Canada to decrease interest rates, further weakening the Canadian dollar
- Must keep an eye on employment levels, decreasing employment will be of concern
Technical:
- MAIN TREND: BULLISH - Double Top at 1.0500 - Resistance at 1.0250 and 1.0300 followed by 1.0500 - Immediate support at 1.0080, followed by 1.0000 and .9900 - Weekly OUTLOOK: Consolidation; bearish on close below 1.0080

nzd| weekly recap & outlook
Fundamentals:
- Downside correction from all-time highs may now be complete - Problems in EuroZone now beginning to impact New Zealand; eyes on RBNZ and interest rate policy
Technicals:
- MAIN TREND: BEARISH - Immediate resistance area is now .7800 and .7900, followed by .7980, and .8050 - Immediate support at .7700, followed by .7640 and .7500 - Weekly OUTLOOK: Consolidation near .7800

aud| weekly recap & outlook
Fundamentals:
- Market continues to adjust to risk aversion - Interest Rate policy will be closely monitored as a decrease will hurt the Aussie dollar - Eyes on economic data as well as risks from eurozone contagion
Technicals:
- MAIN TREND: BEARISH - Expecting consolidation near .9900, 61.8% retracement of Sept-Nov rally - Immediate Resistance at 1.0300, followed by 1.0400 and important 1.0750 top - Immediate Support at 1.0150, 1.0050, .9980 and .9660 - Weekly OUTLOOK: Target 1.0000

outlook
Another week, another European summit.
We’ve become accustomed to reading about plans that offer to save the euro and the eurozone while results remain absent. If this sounds familiar, it’s because it is word for word identical! This seems to be the trend as European officials continue to lack convincing action from previous summits. The number one priority of these summits is to wing back market confidence through policy adjustments. They have been unsuccessful thus far as sovereign yields remain near all-time highs, more importantly, at unsustainable levels that require the European Central Bank to step in and artificially depress yields through ongoing purchases.
We don’t suspect the ECB to become a lender of last resort, at least not right now. With the UK now in danger of being isolated from the EU, we may see more volatility next year than we did during the previous 12 months. Volatility is here and it’s here to stay.

Executive summary
Government intervention seems to be the only tool that is capable of lifting global markets. In recent months, risk aversion has been the main theme in the markets as the situation in Europe continues to escalate. With this uncertainty, volatility in the markets has continued to increase, caused not only by market factors, but made worse by government intervention. The latest round came courtesy of six different central banks, led by the printing master, the Federal Reserve Bank of the United States. This group of CB’s extended existing swap lines for banks to borrow U.S. dollars, lowering their cost to ease the strain in financial markets, mostly within the eurozone.
“They wanted to ensure that a dollar crunch did not brake economies in Asia, in the United States,” – Maria Fekter, Austrian Prime Minister talking on the coordinated intervention
While these efforts help restore investors’ confidence, they mean very little in the long term as structural problems remain. Most interventions fail in the short run and we believe this will be no different.
“Resolving the sovereign debt crisis is a process, and this process will take years,” – Angela Merkel, during a speech to parliament
While investors remain anxious to find out the future of the eurozone, France and Germany continue to push for a tighter fiscal union while turning down the possibility of a common eurobond market. A very important discussion about the feasibility of maintaining a common currency without a common bond market is about to happen. This will be very important as the future of the euro depends on an effective solution.
Across the pond, America’s “Occupy Wall Street” movement has remained in place and some argue that it has grown in size. Though it’s too early for us to see any effects from the movement, we feel it will play a role during the upcoming elections in 2012. This is something to keep an eye on as trying times test both citizens and governments.
Since the uncertainty within the eurozone has been the driving force behind most of the market price action, not much has changed. Risk aversion leads to a strengthening dollar, yen, and Swiss francs while risk appetite leads to a strengthening of higher yielding assets such as the Australian and New Zealand dollars. This trend hasn’t changed all year and is likely continue into the months ahead.

executive summary
Our 3 Major Market Concerns:
EFSF/EU Financial Crisis Sovereign Debt Downgrades Volatility in Global Markets
Headlines
Will EuroBonds Work? –November 23, Business Insider EuroBond Solution Picks Up Support – December 4, The Financial Times Ten Days of Secret Planning to Rescue Markets – December 2, Reuters Occupy Wall Street Begins Hunger Strike – December 3, ABC News
One Week to Save the Euro as EU Summit Ends on Friday – December 4,The Economic Times

eur | weekly recap & outlook
Fundamentals:
- Risks from contagion remain very high; sovereign and bank downgrades a concern
- Peripheral borrowing remain at unsustainable levels
- ECB is being pressured to be lender of last resort; monetization of debt is a concern for eurozone
- Coordinated Intervention creates directional uncertainty
- Weak economic growth coupled with austerity measures will continue to negatively impact the economies
Technicals:
- MAIN TREND: BEARISH (cautious) - Expecting range trading between 1.3200-1.36 - Strong resistance ahead of the 1.4000 level; EFSF and ECB to play major role in price action - Immediate resistance at 1.3550, 1.3620, followed by 1.3700 - Immediate support at 1.3380 and 1.3400, followed by 1.3220 - Weekly OUTLOOK: Target 1.3200-1.3500

gbp | weekly recap & outlook
Fundamentals:
- Sovereign debt downgrade a concern
- Bank of England recently increased Asset Purchase facility from GBP200 billion to GBP275 billion in order to help with deteriorating economic conditions
- IMF growth forecast from revision from 1.6% to 1.1% for 2012 - Problems within EU threaten UK’s political relationship with the 17 member nation - Risks of contagion from Europe
Technicals:
- MAIN TREND: BEARISH - Important low set at 1.5415, break is needed before confirming further depreciation - Important highs set at 1.5780 and 1.5900 - Immediate resistance at 1.5780, followed by 1.5850 and 1.5900 - Immediate support at 1.5580, followed by 1.5415 and 1.5300 - 1.5000 will be important psychological level before 1.40 is exposed - Weekly OUTLOOK: Target 1.5500-1.5700

jpy| weekly recap & outlook
Fundamentals:
- INTERVENED IN THE MARKET – ~10 TRILLION YEN SPENT on October 31st
- Bank of Japan is concerned that the overvalued yen will hurt the domestic economy
- Lack of consistency within global markets have made fundamental data less important, specifically for Japan as its currency is used as a safe haven during times of uncertainty
- Bank of Japan intervention is expected below the 76.50/76.00 level
Technicals:
- MAIN TREND: BULLISH (cautious) - Floor at 76.00 very important - Currently trading near post intervention closed price of 78.00 - Intervention occurred on Oct. 31st, ~10 trillion yen spent by Bank of Japan - Moves dependent on more intervention if market retests record lows - Resistance at 78.20 and 80.00 - Support at 76.00 and 76.50 - Weekly OUTLOOK: Expecting substantial adjustment to BOJ policy to further weaken the yen

chf| weekly recap & outlook
Fundamentals:
- Swiss National Bank policy to sell unlimited amount of Swiss franc to support domestic companies supports a bullish dollar outlook; should remain in place during term of European crisis
- SNB to continue selling the Swiss franc indefinitely below the 1.20 EUR/CHF level continues to supports the dollar - USD/CHF will react to movement in EUR/CHF as SNB’s focus is on euro reserves - Rumors of further SNB policy changes – a call for negative interest rates to help depreciate the franc
Technicals:
- MAIN TREND: BULLISH
- Expecting .9400 and .9950 as main resistance levels in coming months, which are 50% and 61.8% retracement levels respectively of the yearlong descending trend that started at 1.1770 level in June 2010 to the lows of .7075 set in August 2011
- Consolidation above .8600 complete, break of .9315 (October high) may push to .9400+ - Any move in USD/CHF is dependent on that of EUR/USD and EUR/CHF, as the latter is supported by SNB policies - Push to parity will happen during the next euro sell-off - Weekly OUTLOOK: Bullish on dips between .8600 – .8800

cad| weekly recap & outlook
Fundamental: - Fundamentals in the background due to concerns over lack of progress being made within the eurozone and
potential fallout that may occur if problems worsen
- Canadian economy continues to weaken; closely tied to the U.S., which may be on the brink of slipping back into a recession
- Sluggish economies will lead to lower oil prices, higher unemployment rate, and may cause the Bank of Canada to decrease interest rates, further weakening the Canadian dollar
- Must keep an eye on employment levels, decreasing employment will be of concern
Technical:
- MAIN TREND: BULLISH - Inverse Head-Shoulders being tested during current retracement - Upside limited above 1.0550 - Resistance at 1.0300 followed by 1.0380 - Immediate support at 1.0080, followed by 1.0000 and .9900 - Weekly OUTLOOK: Consolidation, Target 1.0300 unless break of Friday’s low of 1.0080

nzd| weekly recap & outlook
Fundamentals:
- Volatility remains elevated, the downtrend remains in place - Only support for higher yielders is coming by way of Central Bank intervention - Problems in EuroZone now beginning to impact New Zealand; eyes on RBNZ and interest rate policy
Technicals:
- MAIN TREND: BEARISH - Immediate resistance area is now .7850, followed by .7980, and .8050 - Immediate support at .7700, followed by .7640 and .7500 - Weekly OUTLOOK: Consolidation near .7700 with limited upside
aud| weekly recap & outlook
Fundamentals:
- Market continues to adjust to risk aversion - Eyes on economic data as well as risks from eurozone contagion
Technicals:
- MAIN TREND: BEARISH - Expecting consolidation near .9900, 61.8% retracement of Sept-Nov rally - Immediate Resistance at 1.0300, followed by 1.0400 and important 1.0750 top - Immediate Support at 1.0150, 1.0050, .9660 and .9980 - Weekly OUTLOOK: Consolidation between 1.0000 and 1.0350, Target 1.0000

outlook
Another week, another European summit.
We’ve become accustomed to reading about plans that offer to save the euro and the eurozone while results remain absent. We believed long ago that austerity measures would not help the economies deal with large unsustainable deficit levels in a sluggish global economy; we are now shifting our focus to the upcoming discussions of a common bond market. We see this as the only feasible solution, which may still take a long time to play out with many difficulties. Eurozone’s unity will be tested. At this time, we suspect the euro will survive. The question many will be asking in the months ahead (possibly sooner) is what member states the euro will serve. We look forward to contributing an answer in the weeks ahead.

executive summary
The dollar continued to appreciate against the majors this past week as funding costs continued to rise within the eurozone. With the U.S. on holiday for the latter part of the week, a slew of reports out of the eurozone along with lower levels of liquidity helped drive investors towards dollar denominated assets.
Political disagreements between officials in the eurozone continue to add pressure to the economic union with Angela Merkel once again ruling out any chance of jointly issued eurobonds and denouncing the use of the ECB as the lender of last resort. Eurobonds would, in essence, level the difference between German yields and those of the more risky European states such as Greece and Italy.
“It would be a completely wrong signal to ignore those diverging interest rates because they’re an indicator of where work still needs to be done.” – German Chancellor, Angela Merkel
With just a day after Fitch Ratings downgraded Portugal to junk status, S&P capped off the weak with a downgrade of Belgium sovereign credit, citing a weak eurozone recovery and risk of contagion. While problems continue to persist in Europe, the risk may soon shift across the Atlantic to the United States.
The failure of the super-committee to meet a deadline last week and agree on spending cuts worth $1.2 trillion may soon trigger another wave of downgrades. While S&P and Moody’s stated that their respective ratings on U.S. sovereign debt are unaffected by this delay, Fitch, however, stated that it may change the outlook to negative and left the possibility of a downgrade.
With a short U.S. trading week and holiday liquidity to blame for much of the volatility, traders are looking forward to the last three good weeks of trading before feeling pressure to wind down positions ahead of the New Year.
executive summary

Our 3 Major Market Concerns:
EFSF/EU Financial Crisis Sovereign Debt Downgrades Volatility in Global Markets
Headlines
U.S. Rating Survives but Risks Heightened as Debt Committee Fails – November 22, The Wall Street Journal
Stocks Fall as Merkel Rejects Eurobonds, ECB’s Role – November 25, Business Week S&P Downgrades Belgium Rating – November 26, The Wall Street Journal IMF May Offer Italy Up To EUR600 Bln to Shore Up Euro – November 27, Dow Jones
Mounting Euro Breakup Risk Seen by Banks as Debt Crisis Festers – November 27, Business Week

eur | weekly recap & outlook
Fundamentals:
- Risks from contagion remain very high - Italian borrowing costs are increasing to unsustainable levels - ECB is eurozone’s lender of last resort – monetization of debt is a concern for euro - Until economics improve, money spent in support of EZ members will only buy time - Weak economic growth and austerity measures will continue to increase jobless rates
Technicals:
- MAIN TREND: BEARISH (cautious) - Expecting range trading between 1.3200-1.3680 - Strong resistance ahead of the 1.4000 level; EFSF and ECB to play major role in price action - Immediate resistance at 1.3430, 1.3520, followed by 1.3600 - Immediate support at 1.3200 and 1.3180, followed by 1.3000 - Weekly OUTLOOK: Target 1.3200-1.3500

gbp | weekly recap & outlook
Fundamentals:
- Sovereign debt downgrade a concern
- Bank of England recently increased Asset Purchase facility from GBP200 billion to GBP275 billion in order to help with deteriorating economic conditions
- IMF growth forecast from revision from 1.6% to 1.1% for 2012 - Problems within EU threaten UK’s political relationship with the 17 member nation - Risks contagion from Europe
Technicals:
- MAIN TREND: BEARISH - Retracement of August-September dollar rally complete with 1.6150 as top - Expecting retracement back to 1.57-1.59 levels before break of 1.5300 - Immediate resistance at 1.5680, followed by 1.5800 and 1.5900 - Immediate support at 1.5420, followed by 1.5350 and 1.5300 - 1.5000 will be important psychological level before 1.40 is exposed - Weekly OUTLOOK: Target 1.55

jpy| weekly recap & outlook
Fundamentals:
- INTERVENED IN THE MARKET – ~10 TRILLION YEN SPENT on October 31st
- Bank of Japan is concerned that the overvalued yen will hurt the domestic economy
- Lack of consistency within global markets have made fundamental data less important, specifically for Japan as its currency is used as a safe haven during times of uncertainty
- Bank of Japan intervention is expected below the 76.50/76.00 level
Technicals:
- MAIN TREND: BULLISH (cautious) - Floor at 76.00 very important - Intervention occurred on Oct. 31st, ~10 trillion yen spent by Bank of Japan - Moves dependent on more intervention if market retests record lows - Resistance at 78.20 and 80.00, Support at 76.00 and 76.50 - Weekly OUTLOOK: Expecting substantial adjustment to BOJ policy to further strengthen the yen

chf| weekly recap & outlook
Fundamentals:
- Swiss National Bank policy to sell unlimited amount of Swiss franc to support domestic companies supports a bullish dollar outlook; should remain in place during term of European crisis
- SNB to continue selling the Swiss franc indefinitely below the 1.20 EUR/CHF level continues to supports the dollar - USD/CHF will react to movement in EUR/CHF as SNB’s focus is on euro reserves
Technicals:
- MAIN TREND: BULLISH
- Expecting .9400 and .9950 as main resistance levels in coming months, which are 50% and 61.8% retracement levels respectively of the yearlong descending trend that started at 1.1770 level in June 2010 to the lows of .7075 set in August 2011
- Consolidation above .8600 complete, break of .9315 (October high) may push to .9400+ - Any move in USD/CHF is dependent on that of EUR/USD and EUR/CHF, as the latter is supported by SNB policies - Push to parity will happen during the next euro sell-off - Weekly OUTLOOK: Bullish on corrections to the downside as SNB continues to support selling CHF

cad| weekly recap & outlook
Fundamental: – Fundamentals in the background due to concerns over lack of progress being made within the
eurozone and potential fallout that may occur if problems worsen
- Canadian economy has recently weakened and is closely tied to the U.S., which may be on the brink of slipping back into a recession
- Sluggish economies will lead to lower oil prices, higher unemployment rate, and may cause the Bank of Canada to decrease interest rates, further weakening the Canadian dollar
- Must keep an eye on employment levels, decreasing employment will be of concern
Technical:
- MAIN TREND: BULLISH - Break above 1.0250 ran into resistance at the 1.0300 level - Resistance at 1.0300 followed by 1.0380 - Immediate support at 1.0250, followed by 1.0200 and 1.0150 - Weekly OUTLOOK: Neutral, Range Trading expected between 1.0150-1.0450

nzd| weekly recap & outlook
Fundamentals:
- Volatility remains elevated, the downtrend remains in place
- Unwinding of long positions has pressured the kiwi to the downside during risk-averse trading conditions
- Problems in EZ now impacting New Zealand; eyes on RBNZ and interest rate policy
Technicals:
- MAIN TREND: BEARISH - Immediate resistance area is now .7650, followed by .7750 and 7900 - Immediate support at .7500, followed by .7400 and .7200 - Weekly OUTLOOK: Consolidation between .7500 and .7750 with upside

aud| weekly recap & outlook
Fundamentals:
- Australian dollar rally seen during the year was a result of positive fundamentals; supported by Central - Bank diversification from the USD as well as record high gold prices and investment from China - Market continues to adjust to risk aversion - Eyes on economic data as well as risks from eurozone contagion
Technicals:
- MAIN TREND: BEARISH - Expecting consolidation near .9900, 61.8% retracement of Sept-Nov rally - Immediate Resistance at .9900, followed by 1.0050 and 1.0200 - Immediate Support at .9650 and .9500 - Weekly OUTLOOK: Consolidation between .9800-1.0000

outlook
Financial markets don’t work on political timelines, which are already behind the curve. Eurozone officials will have to move quickly in order to restore any leftover confidence. With recent rumors that Italy will get financial assistance from the IMF upwards of 600 billion euros will only buy time in the short run. The real problems are rooted deep within the European framework, which may go through some changes in the future. In the meantime, the euro is left vulnerable to a liquidity squeeze. Should banks find trouble borrowing from one another, the ECB and the euro could quickly come under attack.

executive summary
The dollar continued to appreciate against the majors despite the increase in confidence within the eurozone following the departures of both the Greek and Italian Prime Ministers. Prices weren’t as volatile but risk aversion prevailed at the end of the week. The majors were mixed this week as some traded within a range while others gravitated lower. Traders are becoming indifferent to political changes within the eurozone and have become increasingly focused on the finances as Italian peripheral yields hovered just under 7 percent, a level that is unsustainable in the long run. If the rising trend continues, it will threaten their solvency and by extension the European and global economies. Traders will be eyeing the European Central Bank and its new President Mario Draghi in the days ahead.

“Gaining credibility is a long and laborious process, but losing credibility can happen quickly – and history shows that regaining it has huge economic and social costs.” – ECB President, Mario Draghi
Draghi criticized leaders for taking too long to act on decisions that were made during the previous summit meetings. He also stated that the bank would not deviate from its mandate of price stability.
Many see the ECB as the lender of last resort, which will mean the monetization of debt as the bank will have to leverage its balance sheet to buy large amounts of bonds in order to keep financing costs down for countries such as Italy.
While most of our summary has been attributed to problems within the eurozone, there are still pressures on the U.S. to cut its deficit. The special deficit-reduction committee that was formed during the summer crisis over raising the government’s debt limit is most likely going to admit failure after two months of negotiations. While this will be negative for the dollar, it will most likely remain on the back burner as the eurozone problems remain in the limelight.
With the U.S. holiday weekend fast approaching, price action will depend heavily on liquidity conditions.

executive summary
Our 3 Major Market Concerns:
EFSF/EU Financial Crisis Sovereign Debt Downgrades Volatility in Global Markets
Headlines
Euro Reaches 5-Week Low on Bets ECB to Buy More European Debt – November 17, Bloomberg
Euro Loses Most Since September as Debt Yields Surge in Crisis – November 20, Business Week
Pound Gains as Investors Seek Haven from Europe’s Debt Crisis – November 20, Business Week
Debt Super-committee Members Brace for Failure – November 20, The Washington Post
ECB Chief Rejects Calls to Rescue EuroZone – November 20, The New York Times

eur | weekly recap & outlook
Fundamentals:
- Italian borrowing costs are increasing to unsustainable levels - ECB is eurozone’s lender of last resort – monetization of debt is a concern for euro - Until economics improve, money spent in support of EZ members will only buy time - Weak economic growth and austerity measures will continue to increase jobless rates
Technicals:
- MAIN TREND: BEARISH - Expecting further range trading within descending channel - Strong resistance ahead of the 1.4000 level. EFSF and ECB to play major role in price action - Immediate support at 1.3500 and 1.3450, followed by 1.3200 and 1.3180 - Immediate resistance at 1.3600, 1.3680, followed by 1.3800 - OUTLOOK: Target 1.3200-1.3500

gbp | weekly recap & outlook
Fundamentals:
- Sovereign debt downgrade a concern
- Bank of England recently increased Asset Purchase facility from GBP200 billion to GBP275 billion in order to help with deteriorating economic conditions
- IMF growth forecast from revision from 1.6% to 1.1% for 2012 - Problems within EU threaten UK’s political relationship with the 17 member nation
Technicals:
- MAIN TREND: BEARISH - Retracement of August-September dollar rally complete with 1.6150 as top - Breakout lower confirmed by broken range and close below 1.5900 - Immediate resistance at 1.5900, followed by 1.5950 and 1.6150 - Immediate support at 1.5690, followed by 1.5600 and 1.5350 - 1.5000 will be important psychological level before 1.40 is exposed - OUTLOOK: Target 1.5550 -1.5350

jpy| weekly recap & outlook
Fundamentals:
- INTERVENED IN THE MARKET – ~10 TRILLION YEN SPENT on October 31st
- Bank of Japan is concerned that the overvalued yen will hurt the domestic economy
- Lack of consistency within global markets have made fundamental data less important, specifically for Japan as its currency is used as a safe haven during times of uncertainty
- Bank of Japan intervention is expected below the 76.50/76.00 level
Technicals:
- MAIN TREND: BULLISH (cautious) - Floor at 76.00 very important - Intervention occurred on Oct. 31st, ~10 trillion yen spent by Bank of Japan - Moves dependent on more intervention if market retests record lows - May continue to consolidate above 76.00 - Resistance at 80.00, Support at 76.00 - OUTLOOK: Expecting substantial adjustment to BOJ policy to further strengthen the yen

chf| weekly recap & outlook
Fundamentals:
- Swiss National Bank policy to sell unlimited amount of Swiss franc to support domestic companies supports a bullish dollar outlook; should remain in place during term of European crisis
- SNB to continue selling the Swiss franc indefinitely below the 1.20 EUR/CHF level continues to supports the dollar - USD/CHF will react to movement in EUR/CHF as SNB’s focus is on euro reserves
Technicals:
- MAIN TREND: BULLISH
- Expecting .9400 and .9950 as main resistance levels in coming months, which are 50% and 61.8% retracement levels respectively of the yearlong descending trend that started at 1.1770 level in June 2010 to the lows of .7075 set in August 2011
- Consolidation above .8600 complete, break of .9315 (October high) may push to .9400+ - Any move in USD/CHF is dependent on that of EUR/USD and EUR/CHF, as the latter is supported by SNB policies - Push to parity will happen during the next euro sell-off - OUTLOOK: Bullish on corrections to the downside as SNB continues to support selling CHF

cad| weekly recap & outlook
Fundamental: - Fundamentals in the background due to concerns over lack of progress being made within the eurozone and
potential fallout that may occur if problems worsen
- Canadian economy has recently weakened and is closely tied to the U.S., which may be on the brink of slipping back into a recession
- Sluggish economies will lead to lower oil prices, higher unemployment rate, and may cause the Bank of Canada to decrease interest rates, further weakening the Canadian dollar
- Must keep an eye on employment levels, decreasing employment will be of concern
Technical:
- MAIN TREND: BULLISH - Break above 1.0250 ran into resistance at the 1.0300 level - Resistance at 1.0300 followed by 1.0380 - Immediate support at 1.0250, followed by 1.0200 and 1.0150 - OUTLOOK: Bullish, targeting 1.0350+

nzd| weekly recap & outlook
Fundamentals:
- Volatility remains elevated, the downtrend remains in place
- Unwinding of long positions has pressured the kiwi to the downside during risk-averse trading conditions
- Problems in EZ now impacting New Zealand; eyes on RBNZ and interest rate policy
Technicals:
- MAIN TREND: BEARISH - Immediate resistance area is now .7650, followed by .7720 and 7900 - Immediate support at .7500, followed by .7380 and .7200 - OUTLOOK: Consolidation between .7500 and .7750 with upside
aud| weekly recap & outlook
Fundamentals:
- Australian dollar rally seen during the year was a result of positive fundamentals; supported by Central Bank diversification from the USD as well as record high gold prices and investment from China
- Market continues to adjust to risk aversion - Eyes on RBA and interest rate policy as well as contagion from eurozone
Technicals:
- MAIN TREND: BEARISH - Expecting consolidation near .9900, 61.8% retracement of Sept-Nov rally - Immediate Resistance at 1.0000, followed by 1.0050 and 1.0200 - Important Support at .9900 - OUTLOOK: Consolidation between .9900-1.0000

outlook
Increase in confidence within the eurozone following the resignation of the Italian and Greek PMs shouldn’t last long. Investors are beginning to put more emphasis on real economic change such as the increase in revenue or decrease in deficits. Politicians may not be able to buy more time for the euro as ECB remains the last option. Monetization of debt has already penetrated the rumor mill and it’s only a matter of time before we hear of another emergency meeting taking place in Brussels or Luxembourg. Perhaps the next such meeting will be about changing the ECB mandate from price stability to survivability.

Executive summary
Things are beginning to move quickly in Europe as both the Greek and Italian government leaders were forced to step down last week. Mounting political pressure from eurozone officials to increase efforts in bringing stability to the markets by winning back investor confidence gave rise to a political reshuffling. With Italian and Greek Prime Ministers Berlusconi and Papandreou stepping down, the door opens for the new majority to come together and pass and implement critical structural reform measures.
These resignations, however, only change the political landscape and bring fresh hope into the markets. The economic challenges remain and both Italy and Greece will be dealing with funding issues in the near future. The EFSF alone will not be enough and in order for the eurozone to survive the onslaught on peripheral debt markets, the ECB will have to find a way to intervene. Russian Prime Minister Putin expressed this view last week.
“Our leading experts believe that without direct intervention from the ECB, this problem cannot be solved. The EFSF, alone or cooperating with the IMF, does not have the necessary resources,” – Russian Prime Minister, Vladimir Putin
Risk appetite prevailed toward the end of last week on hopes of a brighter future with the political changes taking place in Europe. Volatility remains elevated as the market remains news driven, news that change as quickly as the wind. The market in general has been dependent on what happens within the eurozone and will remain that way until the sovereign debt issues within the PIIGS is resolved.

executive summary
Our 3 Major Market Concerns:
EFSF/EU Financial Crisis Volatility in Global Markets Sovereign Debt Downgrades
Headlines
Euro-Zone Ministers Discuss Ways to Rapidly Implement EFSF Changes – November 7, The Wall Street Journal
EFSF Says Subdued Bond Sale No Sign of Funding Risk – November 8, Reuters
Greeks Welcome Papademos as New Prime Minister – November 11, The Wall Street Journal
Berlusconi Steps Down as Italy’s Prime Minister – November 12, Washington Post
Euro Gains as New Governments in Italy, Greece Boost Confidence – November 14, Business Week

eur | weekly recap & outlook
Fundamentals:
- Greece to move on with new Prime Minister, increases chances of receiving next tranche aid payment - Italian borrowing costs are increasing, ECB may reconsider helping with bond purchases - Greece and Italy now the main problems within eurozone, Italy growing concern - Until economics improve, money spent in support of EZ members will only buy time
- Weak economic growth and austerity measures will continue to increase jobless rates
Technicals:
- MAIN TREND: BEARISH - Expecting further range trading within descending channel - Strong resistance ahead of the 1.4000 level. EFSF and ECB to play major role in price action - Immediate support at 1.3700, followed by 1.3650, and 1.3500 - Immediate resistance at 1.3800, 1.3850, followed by 1.3950 and 1.4200 - OUTLOOK: Target 1.3500-1.3000

gbp | weekly recap & outlook
Fundamentals:
- Potential downgrade of sovereign debt expected
- Bank of England recently increased Asset Purchase facility from GBP200 billion to GBP275 billion in order to help with deteriorating economic conditions, expecting downside revisions to growth
- IMF growth forecast from revision from 1.6% to 1.1% for 2012 - Problems within EU threaten UK’s political relationship with the 17 member nation
Technicals:
- MAIN TREND: BEARISH - Retracement of August-September dollar rally possibly now complete with 1.6150 (~61.8% retracement) - Consolidation is almost complete, next breakout may be next trend - Break below 1.5900 will confirm bearish momentum - Immediate resistance at 1.6150, followed by 1.6450 and 1.6520 - Immediate support at 1.5950, followed by 1.5900, 1.5780, and 1.5500 - 1.5000 will be important psychological level before 1.40 is exposed - OUTLOOK: Targets 1.5750-1.5500

jpy| weekly recap & outlook
Fundamentals:
- INTERVENED IN THE MARKET – ~10 TRILLION YEN SPENT on October 31st
- Bank of Japan is concerned that the overvalued yen will hurt the domestic economy
- Lack of consistency within global markets have made fundamental data less important, specifically for Japan as its currency is used as a safe haven during times of uncertainty
- Bank of Japan intervention is expected below the 76.50/76.00 level
Technicals:
- MAIN TREND: BULLISH (cautious) - Floor at 76.00 very important - Intervention occurred on Oct. 31st, ~10 trillion yen spent by Bank of Japan - Moves dependent on more intervention if market retests record lows - May continue to consolidate above 76.00 - Resistance at 80.00, Support at 76.00 - OUTLOOK: Expecting consolidation after record amount of yen spent on intervention

chf| weekly recap & outlook
Fundamentals:
- Swiss National Bank policy to sell unlimited amount of Swiss franc to support domestic companies supports a bullish dollar outlook; should remain in place during term of European crisis
- SNB to continue selling the Swiss franc indefinitely below the 1.20 EUR/CHF level continues to supports the dollar - USD/CHF will react to movement in EUR/CHF as SNB’s focus is on euro reserves
Technicals:
- MAIN TREND: BULLISH
- Expecting .9400 and .9950 as main resistance levels in coming months, which are 50% and 61.8% retracement levels respectively of the yearlong descending trend that started at 1.1770 level in June 2010 to the lows of .7075 set in August 2011
- Consolidation above .8600 expected in the near term (near completion) - Any move in USD/CHF is dependent on that of EUR/USD and EUR/CHF, as the latter is supported by SNB policies - Push to parity will happen during the next euro sell-off - OUTLOOK: Bullish on corrections to the downside as SNB continues to support selling CHF

cad| weekly recap & outlook
Fundamental: – Fundamentals in the background due to concerns over lack of progress being made within the
eurozone and potential fallout that may occur if problems worsen
- Canadian economy has recently weakened and is closely tied to the U.S., which may be on the brink of slipping back into a recession
- Sluggish economies will lead to lower oil prices, higher unemployment rate, and may cause the Bank of Canada to decrease interest rates, further weakening the Canadian dollar
- Must keep an eye on employment levels, decreasing employment will be of concern
Technical:
- MAIN TREND: BULLISH - Head and Shoulders formation creates breakout opportunity above 1.0250 - Resistance at 1.0200 and 1.0250, followed by 1.0380 and 1.0550 - Immediate support at 1.0000, followed by .9900 - OUTLOOK: Bullish, targeting 1.0350+

nzd| weekly recap & outlook
Fundamentals:
- Although volatility remains elevated, the downtrend remains in place
- Unwinding of long positions has pressured the kiwi to the downside during risk-averse trading conditions
- Strong economics will keep kiwi bid, eyes on RBNZ and interest rate policy
Technicals:
- MAIN TREND: BEARISH - Immediate resistance area is now .8000, followed by .8100, critical resistance level at .8235 - Immediate support at .7800, followed by .7730 and .7500 - OUTLOOK: Consolidation between .7700 and .8100 with downside bias

aud| weekly recap & outlook
Fundamentals:
- Australian dollar rally seen during the year was a result of positive fundamentals; supported by Central Bank diversification from the USD as well as record high gold prices and investment from China
- Market adjusting between risk aversion from eurozone concerns and good economics within Australia - Eyes on RBA and interest rate policy
Technicals:
- MAIN TREND: BEARISH - Expecting further USD gains on break below 1.0200 to test parity - Immediate Resistance at 1.0380 and 1.0450, followed by 1.0500 and 1.0765 - Immediate Support at 1.0200, followed by 1.0000 and .9900 - OUTLOOK: Target 1.0000

outlook
The market has reacted positively since hearing of changes within the Greek and Italian governments. We think this momentum will wane as it is driven on hope rather than results. Until the EFSF is leveraged to an amount we can analyze, until the ECB and the EU framework are amended to incorporate today’s economic challenges and provide sustainable solutions, and only when the PIIGS can afford to borrow money from the public markets will the problems within the eurozone be officially over. Until then, expect more of the same and potentially worse as the outlook remains uncertain.

eur | weekly recap & outlook
Fundamentals:
- Greek Referendum shakes things up, new government to be set up w/out Papandreou
- Italian borrowing costs are increasing, ECB may reconsider helping with bond purchases
- Greece continues to be the number one problem surrounding the euro with Italy quickly gaining unwanted attention
- Until economics improve, money spent in support of EZ members will only buy time - Weak economic growth and austerity measures will continue to increase jobless rates
Technicals:
- MAIN TREND: BEARISH - Expecting either a break above 1.3850 or below 1.3730 to test 1.3650 and below - Head and Shoulders formation in the works, may confirm this week on break lower - Immediate support at 1.3730, followed by 1.3650 - Immediate resistance at 1.3850, followed by 1.3950 and 1.4200 - OUTLOOK: Target 1.3500-1.3000

gbp | weekly recap & outlook
Fundamentals:
- Potential downgrade of sovereign debt expected
- Bank of England recently increased Asset Purchase facility from GBP200 billion to GBP275 billion in order to help with deteriorating economic conditions
- IMF lowered growth forecast from 1.6% to 1.1% for 2012 - Problems within EU threaten UK’s political relationship with the 17 member nation
Technicals:
- MAIN TREND: BEARISH - Retracement of August-September dollar rally possibly now complete with 1.6150 (~61.8% retracement) - 1.5000 will be important psychological level before 1.40 is exposed - Break below 1.5900 will confirm bearish momentum - Immediate resistance at 1.6150, followed by 1.6450 - Immediate support at 1.5950, followed by 1.5900, 1.5780, and 1.5500 - OUTLOOK: Targets 1.5750-1.5500

jpy| weekly recap & outlook
Fundamentals:
- INTERVENED IN THE MARKET – ~10 TRILLION YEN SPENT on October 31st
- Bank of Japan is concerned that the overvalued yen will hurt the domestic economy
- Lack of consistency within global markets have made fundamental data less important, specifically for Japan as its currency is used as a safe haven during times of uncertainty
- Bank of Japan intervention is expected below the 76.50/76.00 level
Technicals:
- MAIN TREND: BULLISH (cautious) - Floor at 76.00 very important - Intervention occurred on Oct. 31st, ~10 trillion yen spent by Bank of Japan - OUTLOOK: Expecting consolidation after record amount of yen spent on intervention

chf| weekly recap & outlook
Fundamentals:
- Swiss National Bank policy to sell unlimited amount of Swiss franc to support domestic companies supports a bullish dollar outlook; should remain in place during term of European crisis
- SNB to continue selling the Swiss franc indefinitely below the 1.20 EUR/CHF level continues to supports the dollar - USD/CHF will react to movement in EUR/CHF as SNB’s focus is on euro reserves
Technicals:
- MAIN TREND: BULLISH
- Expecting .9400 and .9950 as main resistance levels in coming months, which are 50% and 61.8% retracement levels respectively of the yearlong descending trend that started at 1.1770 level in June 2010 to the lows of .7075 set in August 2011
- Consolidation above .8600 expected in the near term (near completion) - Any move in USD/CHF is dependent on that of EUR/USD and EUR/CHF, as the latter is supported by SNB policies - Push to parity will happen during the next euro sell-off - OUTLOOK: Bullish on corrections to the downside as SNB continues to support selling CHF

cad| weekly recap & outlook
Fundamental: - Fundamentals in the background due to concerns over lack of progress being made within the eurozone and
potential fallout that may occur if problems spread
- Canadian economy closely tied to the U.S., which may be on the brink of slipping back into a recession
- Sluggish economies will lead to lower oil prices and may cause the Bank of Canada to decrease interest rates, further weakening the Canadian dollar
- Must keep an eye on employment levels, decreasing employment will be of concern
Technical:
- MAIN TREND: BULLISH - Retracement towards parity, (expected to be complete) - Resistance at 1.0200, followed by 1.0380 and 1.0550 - Immediate support at 1.0000, followed by .9900 - OUTLOOK: Cautiously Bullish, targeting 1.0350+

nzd| weekly recap & outlook
Fundamentals:
- Overzealous market pushed the pair to excessive levels that were not reflecting accurate fundamentals and risk aversion sparked a sell-off that is in the process of consolidating
- Unwinding of long positions has pressured the kiwi to the downside - Last push up now completed, expecting consolidation before next move
Technicals:
- MAIN TREND: BEARISH - Immediate resistance area is now .8000, followed by .8100, critical resistance level at .8235 - Immediate support at .7900, followed by .7800 - OUTLOOK: Consolidation between .7800 and .8100

aud| weekly recap & outlook
Fundamentals:
- Australian dollar rally seen during the year was a result of positive fundamentals; supported by Central Bank diversification from the USD as well as record high gold prices and investment from China
- Overzealous market pushed prices to extreme levels, not supported by short/medium term fundamentals - Retracement now in the works following impressive rally from .9400 to 1.0765 during October
Technicals:
- MAIN TREND: BEARISH - Expecting further USD gains on break below 1.0200 to test parity and eventually .9900 - Immediate Resistance at 1.0450, followed by 1.0500 - Immediate Support at 1.0200, followed by 1.0000 and .9900 - OUTLOOK: Target 1.0150

outlook
With Greece on the verge of default and Italy in the crosshairs, we expect problems to continue into the year end as well as deep into next year. Volatility remains high as investors react nervously to official statements. We’ve been surprised by the sustained rally in equities, but don’t expect that to last. We’ve seen record amounts of money spent by central banks trying to curb their currencies from appreciating as investors seek safe haven during times of uncertainty. This trend will most likely continue until the global economies begin to improve on their own, within a real free market economy, one that isn’t dominated by government stimulus. In this respect, volatility will surely continue to impact trading as uncertainty dominates market conditions.

Executive summary
With an increase in risk appetite following last week’s eurozone meetings as the catalyst for a surge in global equities as well as other higher yielding assets, we are still questioning the validity of the move. Many important details still need to be worked out and questions surrounding the unpopularity of further integrating the eurozone members remain. European leaders are trying to leave no stone unturned as the crisis will most likely remain in the forefront during the next 12-24 months.
“Ongoing crises could turn people against the EU, but closer integration is going to be unpopular, too,” – Simon Tilford, Chief Economist at the Center for European Reform in London
Will the governments in respective EU members states be able to hold on to power long enough to make sure the necessary steps are taken to complete the integration? This is the major risk going forward; however, investors have reacted jubilantly and perhaps, once again, are pushing prices into unsustainable territory. The economics haven’t changed. So, why the big push?
“It would have devastating effects on banks and growth prospects,” speaking about a possible collapse of the eurozone, Adriaan Schout added, “strangely enough, the crisis gives support to the European integration project, probably more than it ignites euroskepticism.” – Adriaan Schout, Head of Clingendael European Studies Programme
So if this current push for risk appetite is based on the increased odds that the leveraged EFSF will be able to sustain Greek, Italian, Spanish, Portuguese, and possibly other bailouts, during the course of this crisis, what will happen if expectations change? We believe the market is not pricing in any negative news or delays that will surely occur in the meantime. We don’t doubt the survivability of the euro, just the current price as it relates to the overall market and eurozone fundamentals within the financial, as well as the political spectrum. Volatility will surely remain high in the months ahead and we won’t be surprised to see another sell-off if things don’t go as planned.
Trick or Treat?
executive summary
Our 3 Major Market Concerns:
EFSF/EU Financial Crisis Volatility in Global Markets Sovereign Debt Downgrades
Headlines
Economists: EFSF Not Enough to Relieve Italy Fears – October 27, The Wall Street Journal
Super EFSF Gets AAA Rating Affirmed, With Some Catches – October 28, The Wall Street Journal
Gold Begins to Spurt on Euro Relief Rally; Silver to Follow – October 30, Hindu Business Line
For Europe Bailout Fund, Next Stop is Japan – October 31, The Wall Street Journal Japan Intervened to Stem Yen’s Climb – October 31, Reuters

eur | weekly recap & outlook
Fundamentals:
- Eurozone bank recapitalization and Greek debt restructuring plan still incomplete
- Greece continues to be the number one problem surrounding the euro with Italy quickly gaining unwanted attention
- Until economics improve, money spent in support of EZ members will only buy time - Weak economic growth and austerity measures will continue to increase jobless rates
Technicals:
- MAIN TREND: BEARISH
- Immediate support at 1.4000, followed by 1.3850
- Immediate resistance at 1.4250, followed by 1.45
- Support at 1.3000 = approximately 61.8% retracement of June 2010 – May 2011 rally
- 1.4250 level is 61.8% retracement level from recent April-Sep rally providing good resistance
- Retracement nearing completion; 1.45 critical resistance level for bearish trend continuation. Expecting dollar strength to resume
- OUTLOOK: Target 1.3500-1.3000

gbp | weekly recap & outlook
Fundamentals:
- Potential downgrade of sovereign debt expected
- Bank of England recently increased Asset Purchase facility from GBP200 billion to GBP275 billion in order to help with deteriorating economic conditions
- IMF lowered growth forecast from 1.6% to 1.1% for 2012
Technicals:
- MAIN TREND: BEARISH – Retracement of August-September dollar rally nearing completion with 1.6150 as possible top (~61.8%
retracement) - Immediate resistance at 1.6150, followed by 1.6450 - Immediate support at 1.5950, followed by 1.5800, 1.5600, and 1.5400 - 1.5000 will be important psychological level before 1.40 is exposed - Retracement nearing completion, expecting dollar strength to resume - OUTLOOK: Targets 1.5750 and 1.5400

jpy| weekly recap & outlook
Fundamentals:
- Bank of Japan is concerned that the overvalued yen will hurt the domestic economy
- Lack of consistency within global markets have made fundamental data less important, specifically for Japan as its currency is used as a safe haven during times of uncertainty
- Bank of Japan intervention is expected below the 76.50/76.00 level
Technicals:
- MAIN TREND: BULLISH (cautious) - Floor at 76.00 very important, failure above 77.00 raises concerns - Intervention occurred on Oct. 31st, ~3 trillion yen spent by Bank of Japan
- OUTLOOK: Today’s intervention pushed price higher by 300 pips, standing aside to see if price holds or once again pressured by the market

chf| weekly recap & outlook
Fundamentals:
- Swiss National Bank policy to sell unlimited amount of Swiss franc to support domestic companies supports a bullish dollar outlook; should remain in place during term of European crisis
- SNB to continue selling the Swiss franc indefinitely below the 1.20 EUR/CHF level continues to supports the dollar - USD/CHF will react to movement in EUR/CHF as SNB’s focus is on euro reserves
Technicals:
- MAIN TREND: BULLISH
- Expecting .9400 and .9950 as main resistance levels in coming months, which are 50% and 61.8% retracement levels respectively of the yearlong descending trend that started at 1.1770 level in June 2010 to the lows of .7075 set in August 2011
- Consolidation above .8600 expected in the near term (near completion) - Any move in USD/CHF is dependent on that of EUR/USD and EUR/CHF, as the latter is supported by SNB policies - Push to parity will happen during the next sell-off - OUTLOOK: Bullish on corrections to the downside as SNB continues to support selling CHF

cad| weekly recap & outlook
Fundamental: - Fundamentals in the background due to concerns over lack of progress being made within the eurozone and
potential fallout that may occur if problems spread
- Canadian economy closely tied to the U.S., which may be on the brink of slipping back into a recession
- Sluggish economies will lead to lower oil prices and may cause the Bank of Canada to decrease interest rates, further weakening the Canadian dollar
- Must keep an eye on employment levels, decreasing employment will be of concern
Technical:
- MAIN TREND: BULLISH - Retracement towards parity, (expected to be complete) - Immediate support at .9900, followed by .9750 - Resistance at 1.0000, followed by 1.0200 and 1.0380 - Next major resistance is at 2010 highs of 1.07-1.0850 - OUTLOOK: Bullish, targeting 1.0350+

nzd| weekly recap & outlook
Fundamentals:
- Overzealous market pushed the pair to excessive levels that were not reflecting accurate fundamentals and risk aversion sparked a sell-off that is in the process of consolidating
- Unwinding of long positions has pressured the kiwi to the downside - Consolidation may be complete, but another push would see .8200/.8400 before reversal
Technicals:
- MAIN TREND: BEARISH
- Immediate support at .8000, followed by .7880 and .7750, with .7500 as critical for support
- Immediate resistance area is now .8250, followed by .8320 (61.8% retracement of August 1 – October 4 USD rally)
- OUTLOOK: With correction now near completion, expecting a move back in favor of the USD. Target .7880 – .7750

aud| weekly recap & outlook
Fundamentals:
- Australian dollar rally seen during the year was a result of positive fundamentals; supported by Central Bank diversification from the USD as well as record high gold prices and investment from China
- Overzealous market pushed prices to extreme levels, not supported by short/medium term fundamentals
- Recent correction is more impressive than expected, however, still expecting price to navigate towards parity
Technicals:
- MAIN TREND: BEARISH - Immediate Support at 1.0400, followed by 1.0300 and 1.0150 - Immediate Resistance at 1.0780, followed by 1.1000 - Expecting correction to cease and revert back in favor of USD - OUTLOOK: Target 1.0150

outlook
Last week’s push higher was not expected, however, investors seem desperate for risk appetite as a plan full of hope was enough to spur a fresh buying spree of euros and other major currencies, moving away from the dollars that were accrued during the last two months of risk aversion. The eurozone plan that will leverage the EFSF fund to support further bailouts of Greece, Italy, and any other country that may require funding in order to survive the current crisis is inherently a gamble, one that only buys time. Yes, it is possible that this plan will be substantial enough; however, based on our analysis, the market isn’t factoring in any negative announcements that may happen between now and, well, let’s be real, we don’t know how long it will be before the global economies recover. Austerity measures have only worsened the situation as unemployment in struggling member states has increased and as we stated in the summary, the political party’s ability to survive in order to implement austerity measures and support the eurozone’s plans of further integration is a major key to the final solution. We think the market has not priced in the potential bad news and this will further support increased volatility as investors quickly change direction on the whim.