Monthly Outlook for EUR
Comment: Another ‘spike low’ at 1.2500 underlines the fact that there are decent bids in that area. However, seeing as we are merely back in the middle of the small range of the last six months, it is hard to get too excited. Nevertheless we continue to view this as preparation for an eventual break above 1.3000 where the Euro is likely to lag high-yielders and some Asian currencies. Record low at-the-money implied volatility hints at unstable overly-aggressive positioning.
A weekly close below 1.2450 would force us to adjust.
Monthly Outlook for GBP
Comment: Holding above 1.8500 last month and forming a very small ‘bullish engulfing’ candle hints at an upside break in November. This should take Cable up through August’s high at 1.9145 to this year’s high at 1.9325 and maybe the December 2004 high at 1.9550. However, do not get too excited as it is unlikely to manage a sustained break above 1.9550 first time around. In order to see bullish momentum increase significantly this pair ought to hold above 1.8800.
A monthly close well below 1.8500 forces us to adjust.
Monthly Outlook for JPY
Comment: At last we have evidence of topping activity in the 120.00 area, the mean price of the last twenty years. A ‘spike high’ and ‘false break’ above trendline resistance, with a monthly close at the very lower end of the month’s range, add weight to our long-held view. This should add considerable downside pressure this month for a drop back down to 114.00 in what is expected to be generalised US dollar selling. Note that thin year-end markets, and many currencies trapped in tight ranges for at least six months, mean that the likelihood of overshooting any target is high as we make up for time wasted.
A sustained break above 120.00 forces us to review.
Monthly Outlook for EUR/GBP
Comment: The lowest monthly close since July 2004 may make some sit up and think. However we would proceed with caution as we are still above the pivotal 0.6660 area. As the Euro is oversold against Sterling, and because bearish momentum is not that great, we favour consolidation either side of 0.6700 this month. If prices hold below 0.6800, maintaining the series of successively lower highs since April, we shall continue to allow for a test of key support at 0.6550 (probably around year-end). A sustained break below here is considered highly unlikely, but frayed nerves as this pair edges outside the narrow band of the last two years might cause panic. We would also watch for comments from the Bank of England as on a Trade Weighted basis the pound is quite a way above their forecasts.
A weekly close above 0.6850 or a monthly close below 0.6595 force us to adjust.
Monthly Outlook for EUR/JPY
Comment: Still consolidating around the 150.00 area and may do so again this month because of last week’s ‘spike high’. In no way does this affect the very long term trend which is to higher prices, here and in many Yen crosses. So far dips have held above 147.50, but we shall not rule out a slightly deeper correction to 146.00/145.50. Generally while above 145.00 all dips are seen as trading opportunities and a buy for investors. Long term we see no reason why the cross cannot match the 1998 high of 164.00 later this year.
A monthly close below 145.00 suggests we have found an interim top at the psychological level of 150.00.
