Monthly Outlook for EUR
Comment: The vicious correction since late July came as a complete surprise and has dented our confidence badly. As in 1998, we have underestimated the impact that the selling of Yen crosses has on European currencies. October’s 18.5 big figure decline, hot on the heels of 17.5 big figures the previous two months, saw one-month at-the-money implied volatility hit a record 28.50% and the Euro reach its most oversold ever. We hope it regains a little composure this month allowing for consolidation in a series of complex yet sharp swings around 1.2750
A weekly close below 1.2300 would force us to review again.
Monthly Outlook for GBP
Comment: Bloodbath, as it was in Q3 and Q4 1992 when Britain was kicked out of the ERM, and once again starting from the psychological level of 2.0000. Despite last week’s bounce Cable is still as oversold as it was in 1985 and on a Trade Weighted basis it has barely recovered from close to its weakest ever. Hopefully it will hold above the other psychological level at 1.5000 this month, maybe the next three or four, trading in a broad range up to the 1.7500 area.
A monthly close below 1.5000 forces us to review.
Monthly Outlook for JPY
Comment: Having wasted so much time building an inverted ‘flag’ in the first half of the year, October’s collapse massively overdid what we had pencilled in and was the biggest monthly move in any direction in precisely ten years (Asian crisis). The ultra long term bear market resumed with a vengeance so that the latest drop was well over 61% of the declines from July 2007 to March 2008, taking prices below super-long channel support. Not surprisingly one-month at-the-money implied volatility hit a record 43.50%, dropping back down to a still expensive 23.50% today. This month we expect the corrective bounce to continue, probably slowly, and then top between 102.00 and 104.00. The down again to 95.00.
A weekly close above 103.00 would force us to review.
Monthly Outlook for EUR/GBP
Comment: Now that all economists agree that Britain is in the worst possible position vis à vis the financial tsunami, we appear to be forming a ‘broadening top’ pattern in this currency pair. A very large Ichimoku ‘cloud’ could drag it to new record highs though, so diametrically conflicting Technical signals here. Proceed extremely cautiously. We feel the Euro will hold below 0.8200 again this month, trading in a broad band down to 0.7700, for several months.
A weekly close above 0.8225 would force us to review, probably setting off a squeeze to 0.8480, equivalent to the weakest ever in December 1995.
Monthly Outlook for EUR/JPY
Comment: In one fell swoop this cross has plummeted even lower than our wildest dreams and one-month implied volatility set a record at 46.20%. Yet some still describe currencies as an ‘overlay’ to investment decisions! We feel that the rout has been so extreme that over the coming month we shall face correction and consolidation. In a move that might take an A, B, C-type pattern, we will probably hold between 120.00 and 140.00 so that vol subsides towards 20.00%. Very late this year or in Q1 2009 we favour further but much slower declines.
A weekly close above 140.00 forces us to adjust.
Monthly Outlook for GBP/JPY
Comment: The biggest monthly and quarterly decline ever has seen this cross drop below the 2000 low (148.20) but stall ahead of the all-time low of 128.20 set in April 1995. October’s low at 139.00 is just shy of two standard deviations from the mean since 1992 (138.00) and after fireworks like these it is time to consolidate and regain its composure. During November, and possibly for a lot longer than that, we expect a series of complex and halting moves broadly sideways; the difficult part will be establishing the range. At the moment we favour a broad range above 150.00 and probably below 180.00.
A monthly close below 140.00 sets of yet more downside moves.
