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Daily Technical Analysis

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EUR: Possibly attempt tiny longs at 1.3895; stop below 1.3700

Fri, Oct 3 2008, 06:50 GMT
by Nicole Elliott

Mizuho Corporate Bank

EUR

Comment: The biggest weekly fall for the Euro, and something similar for most major currencies against the US dollar, has seen implied volatility soar to record or close to record highs. This smacks of capitulation and/or a desperate attempt to repatriate US dollars to shore up crippled balance sheets. Needless to say the USD is more overbought than it has been in a long time and we are looking for a dramatic reversal imminently. Wait and watch for something very dramatic.

Strategy: Possibly attempt tiny longs at 1.3895; stop below 1.3700. Short term target 1.4100, then 1.4400.

EUR/JPY

Comment: Classic Yen cross style, with a massive slump once the message gets through. Trading at the lowest level since June 2006 with close to record high at-the-money implied volatility. Bearish momentum is stronger than it has been since January 1999 and stopping this beat is nigh impossible. Note that the picture is mirrored in just about every other Yen cross with KRW/JPY currently leading the way down.

Strategy: Sell at 146.00 but only if prepared to add to 149.00; stop above 151.00. Short term target 144.00, then 142.65 and 140.00.

GBP

Comment: Holding up a lot better than most currencies as investors realise that banking problems are not limited to the UK and US. One-month at-the-money implied volatility is higher than it has been over the last thirteen years, yet we continue to hope that we will form a ‘double bottom’ on the chart against 1.7400. Cable is slightly oversold and bearish momentum has halved since mid-September.

Strategy: Possibly attempt small longs at 1.7715; stop below 1.7400. Short term target 1.7860, maybe 1.8125.

JPY

Comment: Slow work as we consolidate below 107.00, dragged fractionally lower by Yen crosses which have picked up a lot of bearish momentum. If we can hold below the 26-day moving average at 106.50 bearish pressure should increase for a drop to 105.00 and maybe a collapse to 103.50 as early as this afternoon.

Strategy: Sell at 105.35, adding to 106.20; stop well above 106.60. Short term target 105.00, then 103.50.

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• Download Full EUR/JPY Technical Analysis
• Download Full GBP Technical Analysis
• Download Full JPY Technical Analysis

Published on  Fri, Oct 3 2008, 06:55 GMT