Looks like John Noyce's prediction, who among the Goldmanites, has long been bearish on the EUR, is about to be proven right. Below we present his latest technical observations not only on the key FX pair, but on the VIX, The S&P, and, perhaps most importantly, the Spanish 10 Year. In brief: if today's weakness is not contained, there could be a very signficant downside risk breakdown in numerous market indicators.
EURUSD – The underlying signals of a significant top in place look clear, but a few levels to watch.
- 1.4166 – Uptrend from the January ’10 low
- 1.3968 – Interim low from 23rd May
- 1.3810 – 200-dma
- 1.3571 – Uptrend from the June ’10 low
Since sending the bigger picture piece on EURUSD last Sunday/Monday a number of clients have asked about potential MT-LT (multi-week/-month) targets. The first real weekly chart support comes in 1.3558-1.3528 where the 55-wma and uptrend from the June ’10 lows are converged. Ultimately however if this is as big a topping structure as it appears to be, a move back towards 1.20 is something to consider.
VIX - For the first time since the drop in equities began from the 2nd May high the VIX is attempting to make a meaningful push through the highs of the range. This likely has important implications for risk appetite correlated FX pairs which are still in a “stretched state” in trend terms. USDMYR is the clearest example, it having spent a similar extreme period below its 200-dma to EURSEK prior to its recent sharp upside correction (further details below).
S&P – First good support below here 1,257-1,241. This is where the 200-dma, interim low from March and the primary uptrend from the March ’09 lows are converged. Although there are further meaningful supports down to the 55-wma at 1,217, a break of this support region on the daily chart would be the first warning of a more meaningful downtrend beginning, as opposed to the drop from the May highs being a correction within the broader uptrend. Again important for FX from a broad risk appetite perspective.
Spanish 10-year yields – Is the market about to break from the triangle that never seems to end? Since the November ’10 high at 5.58% Spanish 10-year yields have been forming a tight triangle consolidation, making repeated attempts to break both higher and lower. While it’s been incredibly frustrating, technically the greatest risk has continued to look to be for an eventual upside break, i.e. toward higher Spanish 10-year yields and also very likely (taking into account the setup on the spread chart) wider Spain/Germany spreads. The pivot to watch at this point is 5.53%, a break above there would give a triangle extension target in the region of 6%. As previously highlighted there’s still a relatively strong inverse correlation between the Spain/Germany 10-year spread and EUR/Crosses such as EURCHF. Overall, a break higher in Spanish 10-year yields would therefore quite likely have significant negative implications for the EUR.