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Monthly Technical Outlook

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Monthly Technical Outlook

Thu, Jul 2 2009, 07:16 GMT
by Nicole Elliott

Mizuho Corporate Bank

Monthly Outlook for EUR

Comment: Following May’s strong rally the Euro has consolidated in a very small range in what might be a ‘pennant’ formation. Having retraced half of last year’s losses, holding roughly where it started off in October, and below a very large flat-topped Ichimoku ‘cloud’. Moving averages have crossed to bullish and hopefully thin summer markets will let it break above here, a weekly close above 1.4400 setting off a squeeze to 1.4600/1.4800 and 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 took a breather last month, slightly disappointing after the strong gains earlier this year. The 1.6500 area represents a 38% retracement of the losses which started from the high of 2007 down to February’s low at 1.3500. It has however given up almost no ground what so ever, underlining the massive bullish momentum built up so far, holding in a potential ‘pennant’ formation. We expect a squeeze to 1.7500 within the next six weeks.

A weekly close clearly below 1.6000 forces us to adjust.

Monthly Outlook for JPY

Comment: Little to add as we consolidate above 94.00 for another month. The 94.00 area can be seen as pivotal, with prices trading six yen either side of here –October to February below it, then above it since March. Price action since then can be seen as a wide ‘head-and-shoulders’ under the Ichimoku weekly cloud and the ‘neckline’ coinciding with the 26-week moving average at 94.28. Hopefully thin summer markets will allow prices to slide below here with a measured target at 90.00, ahead of the critical the 87.00/85.00 watershed.

A weekly close clearly above 99.00 would force us to review.

Monthly Outlook for EUR/GBP

Comment: The Euro has dropped to and is holding just above 0.8400, which is two standard deviations from the mean since 1997. Expect more hesitation above here, then consolidation either side of here, this month and maybe all of Q3 2009. Late this year another slow move down to 0.8200 is still pencilled in.

A weekly close above 0.9000 forces us to adjust.

Monthly Outlook for EUR/JPY

Comment: Because Yen crosses are moving broadly sideways as expected, forecasting each intermediate twist and turn continues a difficult and thankless task. These can be seen as a market of two halves, where EUR/JPY traded below 128.00 before March and above its since then. We continue to feel that the rally this year should top imminently and probably no higher than 142.00. Later on this year we feel prices will drop back down again, establishing another broadly sideways band.

A weekly close below 132.00 suggests an interim high is already in place, setting off a re-test of the 126.00 area.

Monthly Outlook for GBP/JPY

Comment: Having rallied all year small signs of instability have emerged over the last three weeks ahead of our target at 165.00/167.00. Averages and the ‘cloud’ do not as yet confirm this, but the pattern looks like a tiny potential ‘head-and-shoulders’ top. At the very least it should see a test of channel support early this month, more likely a test of the ‘cloud’. With many commentators suggesting that the psychological 150.00 Yen is fair value, a drop below here this month looks unlikely.

A weekly close above 162.50 suggests we shall have to allow for yet another cautious upside probe.

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Published on  Thu, Jul 2 2009, 07:32 GMT