Analysis for 2012


FOR ENGLISH READERS.  How markets will do in 2012? This is the worst question we can ask technical analyst!In contrary to common belief the last thing technical analyst can do is to foresee the future. Future can not be told as too many factors influence it’s shape and often the most important ones are those that appear suddenly and are unexpected(who really expected Lehman Brothers to collapse, Greece to go bankrupt, possibility of euro-zone collapse?).

(note: this analysis was made mostly for domestic use of polish traders, based on local news/commentaries. Technical side of analysis is fine regardless of those issues)

What technical analyst can do the best is to estimate range of moves and their possible scenarios assuming some conditions are met(that is the reason I use ‚yellow zones’ and geopolitical conditions in this analysis). Last word always belongs to the market which after periods of ‚decision taking’ or ‚re-thinking'(fight of buyers/sellers or optimists/pessimists) finds a way out of impasse just to settle ‚decision taking’ period on a new level.

Conditions to be met:

– there is no war on Iran
– euro zone does not collapse
– there is no ‚dead-body’ in polish government’s closet (that is for PLN analysis only):

I am not saying none of above will happen. I am trying to explain what conditions have to be met, so my analysis works the best

Description:

  • blue zone: target zone which should be met if market behaves according to analysis
  • yellow zone: neutral zone/consolidation indicating further move
  • pink zone: target zone that should be met if market goes against analysis
  • analysis has been made using weekly candles, VTT platform/charting.

 

Current sentiment – mood and expectations

While I write this analysis, one can feel the tension in the air as most of market commentators await the worst. Despite the fact that last days brought some relief(political tensions in euro-zone are not that severe anymore) it can be nothing more than ‚calm before the storm’as the year only begins. Some of market commentators are expecting worsening of economic conditions which can result in EUR/USD rate at 1.0, USD/PLN at 5 or EUR/PLN at 6). They also expect heavy price increase on gas stations and possible military conflicts.

My experience tells me that if everyone is expecting the same thing reality can be different than expectations. In result of that my analysis will not sound as ‚dangerous’ as some do and it may seem a bit conservative. This is how I expect things to evolve in 2012. To make things clear – I do not believe in fundamentals of euro-zone(nor US market) which are bad(economies that are based on „money printing” and debt rolling onto next generations have to end up some day in painful way…). Assumption is that politicians can find ‚creative’ way of avoiding drastic problems this year(2012)…nothing more than this.


Eurodollar –
losing ground (possible test of 1.15)

We start with the most important currency pair which at the same time is the toughest one to research. We are observing fight for survival of euro-zone and maybe even political union in the shape it exists now. On top of that dollar is not that much better as far as economic conditions are concerned.  This may result in nervous and chaotic moves of this market.

As we see on the chart euro did close above 1.30 level managing to break out of yellow zone. One can argue we have ‚head and shoulder’s’ formation there which in theory could result in move towards 1.1 level(vertical line shows range of that formation). Moreover Eurodollar moves down inside the downward price channel(actually we can see at least two such channels there) – bottom line of that channel runs at the same level ‚head and shoulders’ formation points to. Obstacle for that move will be one of the long term upward trend lines(pinkone). For a while market can swing around this and the also the middle line of  downward price channel.

After all, this year EUR/USD market should reach potential target zone(blue zone on the chart). This means I assume market will go below 1.20 level and maybe even 1.15(another trend line runs there). I do not expect euro to go as low as 1.0 as long as euro-zone keeps existing. RSI indicator is close to lover parts of it’s scale so if downward move is expected at some point it should rather be dynamic one as only such move does not require further space for RSI in lower scale. Return above the ‚yellow zone’ should cancel scenario of this analysis. For this moment I can not imagine what could happen so the uptrend on EUR/USD is triggered.

 

Polish zloty – still weak but no apocalypse expected

 


Polish zloty should get weaker in 2012 but I do not expect it on levels some commentators predict. Of course there is always a chance that some ‚dead-body’ can fall out from closet of polish government that could lead to dramatic reactions of the market participants – but assumption is it will not be that bad.

As we can see on USD/PLN chart market did break out of consolidation(yellow zone) and is above important resistance level. At any time it can move back into yellow zone but as for the moment no reason for that is found. Assumption of this analysis is that this year we will find market near 4.0 level but not higher. Even if for a moment this level is broken no longer existence at that level is expected. Such view is based on the theoretical range of ‚reversed head and shoulders’ formation(blue line) which points at the zone near that height. The same range of move can be calculated if we take big falling wedge formation(red, vertical line on the chart). RSI  indicator is really overbought so no higher than this(4.0) move of the market is expected. Return below yellow zone means return of the price towards 3.0 level,

 

It will be very similar on EUR/PLN chart but situation can become more complicated due to euro currency. Weak euro in the world could hold down upward move on this chart. On the other hand real risk of euro collapse could ignite hard to predict moves on polish zloty as polish economy and foreign trade is closely linked with it.

I assume EUR/PLN market will reach 4.8-5.0 zone. It is a long way before uptrend can be broken on this pair which can be seen by judging distance between RSI indicator and it’s trend line. Although RSI is somewhat overbought it is hard to see any signs of danger. Trend can evolve here with different tempo than on USD/PLN chart.

 

Oil,oil…don’t count for lower price

 

Future of oil markets leis in hands of Iran(or as one might say in hands of Washington…) It is hard to predict how tension and conflict escalation around Iran will end up. It is also hard to estimate what is really worse for oil price – military actions or further extension of this tension. If nothing bad happens oil should not rise in dramatic way although some upward movement has to be expected.

We find oil market now just below middle line upward channel. If it breaks above yellow zone gates for bulls will be open. Test of 140 should be expected in such case, which is a level at which target of ‚head and shoulders’ formation points at(blue, vertical line). At the same level upper line of uptrend runs which makes that zone even more important. RSI indicator is free to rise although it still has to break above it’s downward trend line. Lack of strength to rise above yellow zone on the price chart combined with RSI values below 50 could result in selling. In such case market should look for support near 80.

 

Metals – gold should shine more than silver

 


Charts of gold and silver do not look too promising to me. Recent highs seem hard to reach without strong demand. Only further worsening of trust to traditional currencies(dollar, euro) can create such demand. Both markets are expected  to rise but not in a such fashion as they used to do in recent years.

On our Gold chart one can spot importance of 1500 level. Lower shadows of candles from October’11 and January’12 are pointing at it directly. Such type of candles often mark the turning point for markets.  Gold should defend this level, break the line on RSI chart and as a result of it break above downward channel it currently moves in.

This year we should witness test of historical highs(levels around 1900) – however market should not be able to stay long so high – even if it somehow manages to touch for a while 2000 level. If our rising scenario is to collapse market should not fall lower than 1400.

 

Similar situation can be seen on chart of the silver although it is a bit more complicated for the bulls. First problems can be seen if we look at  RSI/MACD indicators which in comparison to Gold chart look much weaker. Rising above historical highs would be even harder here as their were made during extreme volatility. One has to also notice that expected economic slowdown in China will not help to increase demand for silver. As a different story we can remind that a lot of bull market on silver market was made by pure speculations of big players.

I expect silver to rise this year but with smaller momentum. It should not rise above 40. Key elements for  bulls to look out for should be break of trend line on RSI chart and it’s return above 50. Strong move below 25(in close price) can bring collapse of uptrend.

 

Sylwester Majewski

 

PS. As we move towards the end of the year some updates/comment on this analysis can be expected.

Be sure to remember to visit my blog few times during the year to see how this analysis works out.

 

 

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