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Daily Technical Analysis

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EUR: Do nothing and watch for a dramatic reversal this week

Mon, Oct 6 2008, 07:22 GMT
by Nicole Elliott

Mizuho Corporate Bank

EUR

Comment: The US dollar gained against nearly all currencies in what must be a desperate move to repatriate all and anything in a desperate bid to shore up crumbling edifices at home. Needless to say the USD is more overbought than it has been in a long time and that bearish momentum on the Euro is at a record. One-month at-the-money implied volatility at 16.80% is at a new record high. Stand aside if possible.

Strategy: Do nothing and watch for a dramatic reversal this week, possibly between 1.3550 and 1.3360.

EUR/JPY

Comment: Yen crosses gap lower today as the difference between Japan plc and the rest dawns on more investors. As in October 1998 moves are dramatic and it is pointless looking for levels where one hopes it will stop. One-month at-the-money implied volatility at 20.45% has yet to reach the 1998 peak at 23.00%.

Strategy: Sell at 140.00 but only if prepared to add to 143.00; stop above 145.00. Short term target 144.00, then 137.60/137.00 then 135.00.

GBP

Comment: Holding up a lot better than most currencies as investors realise that banking problems are not limited to the UK and US. Never-the-less one-month at-the-money implied volatility is close to a record high 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 tiny longs at 1.7570; stop below 1.7400. Short term target 1.7800, maybe 1.8000.

JPY

Comment: The Yen and Swiss franc, and to a lesser extent Sterling, are benefiting from market turmoil as the unwinding of ‘leverage’ continues. JPY is currently testing 102.85/102.57, the lowest level since April this year. One-month at-the-money implied volatility at 18.90% is moving towards last year’s high at 19.60%. Current chaotic conditions suggest we could break above here and hit the 1998 high of 34.75%. The USD is not oversold and momentum has only just turned bearish. If not very late today then possibly tomorrow or Wednesday we favour a sustained break below 102.50 for a sudden slide to 100.00.

Strategy: Sell at 103.35, but only if prepared to add to 104.50; stop above 105.50. Short term target 103.00, then 102.60, then 100.00.

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

Published on  Mon, Oct 6 2008, 07:27 GMT