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Monthly Technical Outlook

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Monthly Technical Outlook

Tue, Mar 3 2009, 06:07 GMT
by Nicole Elliott

Mizuho Corporate Bank

Monthly Outlook for EUR

Comment: February was a difficult, tiring month for this currency pair which, despite nasty intra-day moves, ended up going pretty much nowhere. We still view the process as an attempt at forming an interim low and so long as we hold above last year’s low at 1.2329, still seen as a buying opportunity for an eventual move higher later this month and through much of this year.

A weekly close below 1.2400 would force us to re-think.

Monthly Outlook for GBP

Comment: Holding up better than many currencies as the world faces the possibility of a series of competitive devaluations, Asian ones furthest down that slippery road. Nevertheless it continues to hold within this difficult downward-sloping ‘wedge’ formation (with an ‘extension’ down to 1.3500). A weekly close above 1.5500 is still the minimum required to signal the process has reached a conclusion, though a weekly one above 1.5000 might turn sentiment sooner, hopefully allowing Sterling to rally quickly to the 1.6500 area at the beginning of Q2 2009.

A monthly close below 1.4000 forces us to adjust.

Monthly Outlook for JPY

Comment: The ‘double bottom’ at 87.10 has done a miraculous job stemming the catastrophic losses that started in August last year, resulting in one of the biggest monthly rallies ever. We feel this has put a ‘full stop’ to the decline and that the Yen will hold above here this month and possibly for the whole of Q2 2009. However, we feel that follow-through to this rally is likely to be minimal because so much ground has been covered already. Having retraced 50% of the prior major decline, expect some hesitation under here this week, and around here for much of March. Cautious upside probes are likely, with some long term investors probably fretting should we trade above the psychological level at 100.00. Moves above here will probably be brief and sharp, and later this year we expect the Yen to drift back down inside a broad sideways band that we are in the process of establishing.

A weekly close above 102.00 would force us to adjust.

Monthly Outlook for EUR/GBP

Comment: Consolidating in a ‘triangle’ or inverted ‘pennant’ formation for the last four weeks, holding above the 26-week moving average most of the time. This continuation pattern should lead to another step down some time this month. A weekly close below 0.8750 should turn momentum bearish setting off a slide through 0.8600 to 0.8550/0.8500 where more consolidation is likely. However, a case could be made for a faster move down to 0.8250/0.8225 at the very end of this month or early in Q2 2009.

A weekly close above 0.9200 forces us to adjust.

Monthly Outlook for EUR/JPY

Comment: Last year’s declines in Yen crosses came to an abrupt halt much to the surprise of many, especially those whose ‘analysis’ consists of extrapolating current trends out ad nauseam (while suggesting they had correctly predicted prior moves). We continue to expect a series of random moves roughly between 113.00 and 130.00 again this month, potentially with a small short squeeze towards 135.00 and probably no higher than 140.00 at the end of Q1/early Q2 2009.

A weekly close below 110.00 forces us to review.

Monthly Outlook for GBP/JPY

Comment: The rally from the new all-time low at 119.00 can be seen as part of an irregular inverted ‘head-and-shoulders’ base, with a break and close above the ‘neckline’ last week. The fact it also managed to break above a thin Ichimoku ‘cloud’ is positive and should add a little upside pressure. Nevertheless rallies are likely to be hard won because there are many decent resistance levels all the way up. Therefore we favour another squeeze higher followed by a month or two of broadly sideways work, probably above 130.00 and below the psychological 150.00 area.

A weekly close above 160.00 hints that an important very long term low might be already in place.

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Published on  Tue, Mar 3 2009, 06:16 GMT