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Monthly Technical Outlook

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Monthly Technical Outlook

Mon, Nov 2 2009, 14:41 GMT
by Nicole Elliott

Mizuho Corporate Bank

Monthly Outlook for EUR

Comment: The rally to a high at the psychological 1.5064 last month is seen as the tiny ‘extension’ we had warned of. We shall allow for consolidation in a fairly narrow range under here this month, roughly between Fibonacci retracement support at 1.4500 and 1.4900. More importantly, declines are seen as medium and long term buying opportunities for an even weaker US dollar towards year-end and into Q1 2010.

A weekly close below 1.4200 would force us to adjust.

Monthly Outlook for GBP

Comment: Cable has held up better than we forecast, probably as it is the only currency that US investors can afford to diversify into. On the weekly chart it is trapped between first Fibonacci support and the top of a massive Ichimoku ‘cloud’. This situation is likely to persist for another two or more weeks, where we continue to view dips as buying opportunities for an eventual break higher, most likely in thin markets around year-end.

A weekly close below 1.5200 forces us to review.

Monthly Outlook for JPY

Comment: During October dollar/yen held between 88.01 and 92.33 as expected, in what is seen a corrective bounce from critical support. This month could see a repeat of this type of move, but probably with a lower high and lower low, say roughly between 87.00 and the 91.00 area. Either late in November and throughout the year-end period we favour repeated testing of critical support between 87.00 and 85.00, as ever with a risk of verbal or actual intervention. Then lower still.

A weekly close above 92.55 would force us to review.

Monthly Outlook for EUR/GBP

Comment: The rally above 0.9305, to a high at 0.9413, is seen as an ‘extension’ and the ‘head’ of a ‘head-and-shoulders’ top on the daily chart. It also suggests we shall continue to trade in the broadly sideways (if sloping) band established early this year. Therefore we favour an initial drop to 0.8800/0.8750, then consolidation between here and 0.9000/0.9050. This does not mean the massive ‘flag’ can now be disregarded completely, something we shall continue to fret about while prices hold above the horizontal base of the weekly Ichimoku ‘cloud’ at 0.8750.

A weekly close above 0.9300 would force us to review.

Monthly Outlook for EUR/JPY

Comment: October produced a fourth (and hopefully final) re-test of increasingly important resistance around 138.00. With a quadruple ‘top’ here, and broadening tops in other Yen crosses, we feel that last week’s price action marks the start of a move lower. We might hold within the upper half of the broad band that has held since April (roughly 126.00 to 138.00) for another three weeks, but towards year-end expect a decisive break lower. A weekly close below 127.50 should trigger a sharp slide to 118.00.

A weekly close clearly above 135.00 forces us to review.

Monthly Outlook for GBP/JPY

Comment: This Yen cross has been better behaved than most with October’s bounce from Fibonacci support clearly corrective. The rally appears to have topped at 153.25 allowing the moving averages to cross to bearish. Expect a re-test of the 141.00- 139.00 area this month and we remind that further out we continue to favour a break to new recent lows so that the cross moves towards 130.00.

A weekly close above 150.00 forces us to review.

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Published on  Mon, Nov 2 2009, 14:41 GMT