Monthly Technical Outlook
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Monthly Technical Outlook
Tue, Sep 2 2008, 13:22 GMT
by Nicole Elliott
Monthly Outlook for EUR
Comment: We had allowed for a break below the neat trading band of the previous four months but had not expected anything quite on this scale. A lesson in complacency, with the speed and extent of the drop smacking of a major clear-out in thin summer markets. Nevertheless we are within normal Fibonacci retracemnet levels, above long term trendline support, and hopefully a very big Ichimoku ‘cloud’ will stem the decline. This month wait and watch for a reversal formation, probably with a big ‘spike low’ because of the tremendous bearish momentum built already. One-month at-the-money implied volatility is expected to move up towards 12.00%-13.00%.
A weekly close below 1.4300 would force us to review again.
Monthly Outlook for GBP
Comment: Dropping over US 24 cents so far this quarter (with another month to go until it’s over), almost as big a decline as the 29 cents in Q4 1992 following ejection from the ERM. Meanwhile the UK authorities add fuel to the fire with unhelpful comments about the gloom stretching ad nauseam and they have no solutions. Cable is more oversold since October 1984 and on a Trade Weighted basis it is not far from its weakest ever. The situation is unsustainable but with friends like these… Wait, watch, and try to remain calm and logical. A slow lumbering reversal is probably due this month.
A weekly close above 1.8200 suggests an important low is already in place.
Monthly Outlook for JPY
Comment: At last! Signs that the corrective bounce from March’s low has ended. We believe the move above pivotal resistance at 110.00 is some sort of ‘extension’ which ended with an ‘evening star’ monthly candle in August. The very thick Ichimoku ‘cloud’ did a good job stopping the rally and should now push the US dollar lower this month. A weekly close below the nine-week moving average at 107.22 might help to turn momentum bearish.
A weekly close above 110.50 would force us to review.
Monthly Outlook for EUR/GBP
Comment: We have been forced to move on to ‘Plan B’ as the pound weakens to its lowest ever level against the Euro, close to its equivalent against the Deutschemark after being thrown our of the ERM in 1992. It is trading two standard deviations from the mean of the last twenty years and the Euro is very overbought against sterling. The measured target from the ‘triangle’ of the last five months is between 0.8200 and 0.8333, therefore we shall be looking for the move to peter out ahead of 0.8400. Then expect an awful lot of backing and filling, trading in a broad band down to 0.7800, for several months.
A monthly close below 0.7745 suggests a long term top is already in place.
Monthly Outlook for EUR/JPY
Comment: At least Yen crosses are going according to plan, amidst the turmoil in which financial markets find themselves. Once again the Euro has dropped like a stone from the 169.00 area after forming a small ‘broadening top’. Bearish momentum should be strong enough to see it re-test the key 152.00-154.00 area this month. Below here and a long term bear market starts in earnest. Note that GBP/JPY and NZD/JPY are already at that equivalent point. At-the-money implied volatility is picking up and one-month should soar towards 17.00%.
A weekly close above 165.00 forces us to adjust.
Monthly Outlook for GBP/JPY
Comment: Like dollar/Yen, this currency pair stalled against retracement resistance and ahead of a very large Ichimoku ‘cloud’, below the ‘neckline’ of a massive ‘head-and-shoulders’ top. As is so often the case with Yen crosses, when they unravel they drop like a stone. We are currently re-testing March’s low at 192.50 and sterling is terribly oversold. It might hover above here for another week or three, allowing other Yen crosses to catch up a bit, but some time this quarter we favour another big lunge lower. Our long term target remains at 174.00.
A weekly close above 205.00 would force us to adjust.
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Published on Wed, Sep 3 2008, 07:02 GMT
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