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Monthly Technical Outlook

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Monthly Technical Outlook

Mon, Jun 1 2009, 12:56 GMT
by Nicole Elliott

Mizuho Corporate Bank

Monthly Outlook for EUR

Comment: The Euro gathered speed over the last three weeks having broken above trendline resistance, posting one of it biggest ever monthly gains. It has now retraced half of last year’s losses taking it to where it started off in October’s debacle. Though overbought we favour another month of stellar gains because bullish momentum is at its strongest ever. A weekly close above 1.4400 should make moving averages cross to bullish setting off a squeeze to 1.4600/1.4800, adding weight to our view that last year’s decline was overdone because of de-leveraging. An extension to the psychological 1.5000 must be factored in.

A weekly close well below 1.3800 would force us to adjust.

Monthly Outlook for GBP

Comment: Cable stepped up the pace last month yet has only retraced 38% of the previous year’s massive slide, underlining just how badly it fared and how out of fashion it became. More of this move needs reversing so another big rally this month must be pencilled in -do not rule out another monthly move of fifteen cents or so. Moves on this scale are rare and are symptomatic of overkill and unwinding excess.

A weekly close clearly below 1.5500 forces us to adjust.

Monthly Outlook for JPY

Comment: Having retreated neatly from below the Ichimoku weekly ‘cloud’, expect the drift to gather a little pace on a weekly close below 94.00. This should then lead to a re-test of the lower edge of the broad band established since October, but not until late in Q3. The 94.00 level can be seen as pivotal, with prices trading six yen either side of here –October to February below it, then above it since March. Further out we remind that throughout the whole of 2009 we favour a broadly sideways move for dollar/yen. Picking the tops and bottoms of each separate swing will continue a difficult and thankless task.

A weekly close clearly above 100.00 would force us to review.

Monthly Outlook for EUR/GBP

Comment: Drifting slowly, as expected, and re-testing this year’s lowest level at 0.8637. Re-thinking the prospects for UK plc should continue to help the pound recover from some of last year’s terrible losses. Late this year another slow move down to 0.8200 is still pencilled in.

A weekly close above 0.9050 forces us to adjust.

Monthly Outlook for EUR/JPY

Comment: Because Yen crosses are expected to move broadly sideways this year, forecasting each intermediate twist and turn will be a difficult and thankless task. Over the last ten weeks Euro/Yen has held between 125.00 and 135.00 most of the time, but there is no reason why it should do the same this month. Therefore we continue to allow for a cautious, slow upside probe towards 140.00 and probably no higher than 142.00, where the pair should top. Later on we feel prices will drop back down again, establishing another broadly sideways band.

A weekly close below 125.00 suggests an interim high is already in place, setting off a re-test of the 115.00 area.

Monthly Outlook for GBP/JPY

Comment: The hardest-hit currencies in 2008 are the ones bouncing back most strongly over the last three months, so that BRL/JPY, CAD/JPY, GBP/JPY and NZD/JPY have nudged up to new highs for this year. This is seen as part of the complex and tedious process of establishing wide trading bands. This pair has now retraced 38% of last year’s decline (but note the bear market started in 2007). 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 165.00/167.00 area. Then back down below 150.00 later next quarter.

A weekly close well below 150.00 suggests an interim high is probably in place.

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Published on  Mon, Jun 1 2009, 13:07 GMT