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Monthly Technical Outlook

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Monthly Technical Outlook

Thu, Oct 2 2008, 07:15 GMT
by Nicole Elliott

Mizuho Corporate Bank

Monthly Outlook for EUR

Comment: The sudden collapse of the last two months, while an awful lot bigger than we had allowed for, is still within normal retracement parameters and similar in size to the 20 cent decline of 2005. A small bounce from Fibonacci retracemnet levels, above long term trendline support and the December 2004 high at 1.3670, suggest we will consolidate around 1.4400 this month. Allow for sharp intra-day and weekly price swings between 1.4000 and 1.5000, exacerbated by thin market conditions. Also allow for a brief if scary drop to 1.3600 and probably no lower than 1.3400 some time in the next two months, a final clear-out of the vicious correction since late July.

A weekly close below 1.3800 would force us to review again.

Monthly Outlook for GBP

Comment: The biggest quarterly decline since 1992 when Britain was kicked out of the ERM. Cable is almost as oversold as it was in 1985 and on a Trade Weighted basis it is not that far from its weakest ever. The situation is unsustainable and a slow lumbering attempt at forming an interim base is due this month. Expect sharp moves roughly between 1.7500 and 1.8800 for another month or two. The back up through 1.9000, where some bullish pressure might kick in, and a squeeze to 1.9500 possibly by year-end.

A weekly close above 1.8400 suggests an important low is already in place.

Monthly Outlook for JPY

Comment: September formed a ‘bearish engulfing’ monthly candle following August’s ‘evening star’. This adds weight to our view that the corrective bounce since April’s low, which takes the shape of an inverted ‘flag’, is over and that the very long term bear market has resumed. Current poor bearish pressure is maintained if prices hold below 109.00 this month and should increase significantly on a sustained break below 103.50. This is probably unlikely until late this month or in November. Then expect a cautious drop to 102.50 followed by a rush to 100.00.

A weekly close above 110.50 would force us to review.

Monthly Outlook for EUR/GBP

Comment: Still difficult and confusing, even while trading in a relatively narrow band. The break above 0.8100 looks increasingly like a ‘false break’ or ‘spike high’. We feel the Euro will hold below here again this month, trading in a broad band down to 0.7800, for several months.

A monthly close below 0.7745 suggests a long term top is in place.

Monthly Outlook for EUR/JPY

Comment: September’s monthly close below 150.00, the lowest since October 2006, completes a very large long term ‘triple top’ pattern. Allow for some nervous hesitation between 148.00 and 152.00 for some of this month, with one-month at-the-money implied volatility swinging wildly between 12.00% and 18.00%. Late this month or some time in Q3 2008 we favour a very steep decline in prices, the Euro weakening to 140.00, maybe 130.00 Yen by year-end if enough bearish momentum builds.

A weekly close above 155.00 forces us to adjust.

Monthly Outlook for GBP/JPY

Comment: September’s monthly close below support in the 190.00 area should add to bearish pressure in a currency pair that has been trading steadily lower since July last year. Our long term target remains at 174.00, and then some more. The move should continue over the next many months and the question is now to what extent other currencies will catch up. Next stop: last month’s low at 184.45, then 180.00 and probably 174.00 before some consolidation sets in.

A weekly close above 198.00 would force us to adjust.

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Published on  Thu, Oct 2 2008, 07:25 GMT