Investor Agenda

Talking Technicals

It's time for Jordan Kotick, Global Head of Technical Strategy at Barclays Capital. Check out Closing Bell at 315p et for his appearance.

Q: In Q4, you suggested there would be a strong/stable US Dollar heading into 2010. What did you see and are you still seeing the same US Dollar positive signs?

A: Overall, the patterns, sentiment and positioning had reached bearish extremes against US Dollar in Q4. We believed that that position, like many others in Q1 was likely to be squeezed. Secondly, spreads were blowing out in Europe. First Greece, recently Spain, now Portugal. These charts suggested not only increased volatility but that the market was pricing in problems going forward. This is a US Dollar positive but also, a negative for the Euro. So while the Euro has been depreciating against other majors, it has also done so against currencies outside the Eurozone like the Polish Zloty.

Portugal vs. Germany

Q: You have been arguing that we are moving into a Rate-centric world so while this has made a difference to the Euro, are there any others we should be watching?

A: Yes, Australia needs to be on the radar. The 2-year spread in rates between Australia and the US is breaking down. As was the case back in 2008, this tends to lead the currency itself and suggest the potential for a lower AUD/USD. This very extended position from 2009 is now at risk of moving towards the US Dollar.

AUD/USD Differential

Q: So the strength in the US Dollar is not the flight to safety from last year, you think it has more to do with interest rates?

A: Yes. Rates are also suggesting the market is not in a deflationary spiral. 5 year, 5-year forward breakevens are at all time wides. This market, a common inflation gauge, is rallying impulsively, has overcome important peaks from 2007 and 2008 and continues to trend to the topside. While a story for the rates world, it suggests to us that the market is not pricing in deflation, it is pricing in inflation down the road and is part of the chart story why we think the current move in equities is ultimately a correction, not a collapse.

5 Year 5 Year Forward



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