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Monthly Technical Outlook

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Monthly Technical Outlook

Tue, May 5 2009, 12:47 GMT
by Nicole Elliott

Mizuho Corporate Bank

Monthly Outlook for EUR

Comment: Slow work last month as the Euro holds in a ‘flag’ formation. It is trying to break higher and should test trendline resistance and the 26-week moving average at 1.3553 this month. A sustained break above here should add to current bullish momentum while a break above March’s high at 1.3739 should set off another round of short-covering. Weekly closes above these levels should turn momentum decidedly bullish for a squeeze to 1.4500/1.4700, something which might be sooner than some imagine because of the inordinate amount of time wasted so far this year.

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

Monthly Outlook for GBP

Comment: Creeping slowly towards January’s high and 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). Cable should then rally to the 1.5600/1.5800 area where some consolidation is likely. Above here, probably late this quarter, targets 1.6500. Meanwhile one-month at-the-money implied volatility should base against 12.00% and rally back up to 18.00%.

A monthly close below 1.4000 forces us to adjust.

Monthly Outlook for JPY

Comment: The Yen’s barely budged over the last two months – a blessed relief, some might say. We expect more of the same this month, moving broadly sideways in a series of random if small moves. We shall allow for another cautious upside probe of the 102.00 area, where we favour slow topping activity. However, we cannot completely rule out a very brief squeeze towards 106.00 where a sharp reversal should occur. Further out we remind that throughout the whole of 2009 we favour a broadly sideways move for dollar/yen. Picking out the tops and bottoms of each separate swing will continue a difficult and thankless task.

A weekly close below 96.00 hints an interim top is already in place and we should re-test the key 87.00/85.00 area.

Monthly Outlook for EUR/GBP

Comment: Over the coming month we favour a very slow drop back down to the 0.8750/0.8700 area. This represents a mere 50% retracement of losses late last year rather than staggering strength. Late this year another slow move down to 0.8200 is still pencilled in.

A weekly close above 0.9400 forces us to adjust.

Monthly Outlook for EUR/JPY

Comment: Over the coming month, maybe longer, we continue to favour a cautious, slow upside probe towards 140.00 and probably no higher than 142.00. Yen crosses have reversed around 38% of last year’s carnage and while they may reverse 50% of these moves we warn against over-optimistic upside forecasts. Later on we feel prices will drop back down again, establishing another broadly sideways trading band.

A weekly close below 128.00 suggests another new interim high is already in place.

Monthly Outlook for GBP/JPY

Comment: Re-testing the psychological 150.00 area but because of sterling’s catastrophic losses in 2007 and 2008 we have yet to retrace even 38% of last year’s decline. Allow for a little hesitation around here for the next week or so, with a series of cautious upside probes, where a new interim high is likely to form closer to 165.00/170.00 area. Then back down to current level late this quarter.

A weekly close well below 140.00 forces us to adjust as an interim high is probably already in place.

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Published on  Wed, May 6 2009, 10:14 GMT