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Monthly Technical Outlook

Monthly Technical Outlook

Sat, Nov 3 2007, 06:13 GMT

Mizuho Corporate Bank  |  View company's profile

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Monthly Outlook for EUR

Comment: Stalling at 1.4508 today, just ahead of the strongest the Deutschemark got to the greenback – DEM 1.3455 in March 1995, equivalent to EUR/USD 1.4535. October’s monthly close at the strongest level ever and almost at the high of the candle suggests we shall have a stab at 1.4535/1.4550 some time early this month. However, we warn against over-optimism as year-end worries loom large. Therefore we then favour some consolidation between here and 1.4000. The problem is that so many have missed this FX move that they may jump on the bandwagon late and push exchange rates too far too soon creating mayhem in thin markets as we saw in December 2004. Later next year we continue to favour prolonged and possibly chronic generalised US dollar weakness.

A weekly close below 1.3800 would force us to adjust.

Monthly Outlook for GBP

Comment: The older members of the FX trading community might be feeling queasy at these nose-bleed inducing heighs but one mustn’t forget that the young and the unwary have no such qualms. October saw the strongest monthly close since May 1981, which might help to overcome the slightly overbought situation. The rapidly shrinking US dollar is becoming more apparent, and more of a problem to a very many this quarter. A concerted attack, and frantic repositioning, could mean that US dollar weakness spirals out of control. Later this year we continue to look for higher highs, possibly stalling around 2.1000, and a rally to 2.1200 next year.

A weekly close below 1.9600 forces us to review.

Monthly Outlook for JPY

Comment: With the US Thanksgiving holiday just three weeks away, marking the start of the holiday season, minds will be focused on damage limitation/cautious strategies. We are also approaching the financial year-end for many US and European institutions, so balancing books and not taking on new business is the order of the day. Last month’s corrective rally topped at 118.00, just above what we had allowed for. This month it should hold below 117.00, making its way back down to 114.00, maybe 113.50. As is so often the case with the Yen and Yen crosses, rallies are halting and can unravel at a spectacular pace. This is seen as part of the topping process that started at 124.00 and whose very long term target is 105.00.

A sustained break above 118.00 would force us to adjust.

Monthly Outlook for EUR/GBP

Comment: Stalling around the 0.7000 area, one standard deviation from the mean of the last four years. At the moment the cross has managed to hold above 0.6900 for five consecutive weeks. While it might to so again this month we still favour a slow drift back to 0.6850 by year-end.
A weekly close above 0.7100 would force us to adjust our view.

Monthly Outlook for EUR/JPY

Comment: We continue with an ultra cautious stance with all Yen crosses and the fact that some have squeezed up to new highs for this year does not alter our view. We warn that the September/October rally might still turn out as part of the ‘right shoulder’ of a ‘head-and-shoulders’ top and/or the final leg of a ‘broadening top’. The sooner we drop back down to the 157.00 area, the more top-heavy the chart pattern. A weekly close below 154.00 completes this major pattern ending a long term rally that started in 2000.

A weekly close above 170.00 forces us to review.

Monthly Outlook for GBP/JPY

Comment: This cross appears to be stalling in the 240.00/242.00 area forcing us to adjust our long term view. While below 244.00 this scary and neat chart pattern looks increasingly top-heavy and like a massive ‘head-and-shoulders’ top. This month we shall allow for more topping activity against the 240.00 area followed by what might be a very fast collapse towards 228.00 either this month or in late December, the speed of the move exacerbated by thin markets.

A weekly close well above 242.00 would force us to review.

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Published on  Sat, Nov 3 2007, 06:30 GMT

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