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Monthly Technical Outlook

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Monthly Technical Outlook

Tue, Apr 7 2009, 08:02 GMT
by Nicole Elliott

Mizuho Corporate Bank

Monthly Outlook for EUR

Comment: Price action since last year’s low at 1.2329 is seen as a potential, irregular, very large ‘double bottom’. Since March’s low at 1.2457 we feel we have built a small ‘flag’ or ‘pennant’ and that over the next six weeks a strong rally is due. Despite very large ‘spike highs’ the Euro has not managed a weekly close above 1.4070, which coupled with the flat Ichimoku ‘cloud’ top at 1.4180 hints at levels where stop-loss orders might lie. Once above these levels momentum should turn decidedly bullish for a squeeze to 1.4600/1.4800.

A weekly close well below 1.3000 would force us to adjust.

Monthly Outlook for GBP

Comment: Having broken above the top of the downward-sloping ‘wedge’ formation and the Ichimoku ‘cloud’, Cable would benefit from a weekly close above the psychological 1.5000 area, though a weekly close above 1.5500 is still the minimum required to turn momentum decidedly bullish. Sterling should then rally quickly to the 1.6500 area.

A monthly close below 1.4000 forces us to adjust.

Monthly Outlook for JPY

Comment: Price action since October can be seen as an inverse ‘head-and-shoulders’ formation with a ‘double bottom’ at 87.10 as the ‘head’ and two rather small, irregular ‘shoulders’ around 96.00. Last week’s close above the ‘neckline’ has seen prices squeeze over the psychological 100.00 level, pushing momentum to its most bullish in four years. This should set off a brief but sharp short squeeze, probably beyond the 102.00 area that we had originally allowed for. Realistically we shall have to allow for a rally as high as 106.00/107.50 before a sudden top emerges.

A weekly close below 98.00 hints that an interim top is already in place.

Monthly Outlook for EUR/GBP

Comment: Moves in this currency pair have proved more erratic and bigger than we had originally pencilled in. Over the coming month we favour a slow drop back down to the 0.8750/0.8700 area. It should be noted that these moves have seen bearish momentum hit a record and implied volatility collapse from record highs.

A weekly close above 0.9400 forces us to adjust.

Monthly Outlook for EUR/JPY

Comment: Last week’s close clearly above the higher edge of the broad band established since October suggests we shall see a short squeeze towards 140.00 early in Q2 2009, and probably no higher than 142.00. This despite the Euro being as overbought as it was against the Yen in August last year because bullish momentum is very strong. While this move may have wrong-footed many we warn against over-optimistic higher forecasts as Yen crosses will continue to be hard work for the whole of this year. Later on we feel prices will drop back down again, establishing another new, narrower trading band.

A weekly close below 130.00 suggests another new interim high is already in place.

Monthly Outlook for GBP/JPY

Comment: The irregular inverted ‘head-and-shoulders’ base with an all-time low at 119.00 has taken the cross to our measured target at the psychological 150.00 area. Allow for a little hesitation around here for the next week or three, with a series of cautious upside probes, where a new interim high is likely to form closer to 165.00/170.00.

A weekly close below 135.00 forces us to review and adjust as an interim high is probably in place.

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Published on  Tue, Apr 7 2009, 08:16 GMT