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Monthly Technical Outlook

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Monthly Technical Outlook

Thu, Aug 6 2009, 13:13 GMT
by Nicole Elliott

Mizuho Corporate Bank

Monthly Outlook for EUR

Comment: Going according to plan as ‘pennant’ consolidation leads to two consecutive weekly closes above the top of the very large flat-topped Ichimoku ‘cloud’ and through long term trendline resistance. Moving averages support, momentum is strongly bullish, the Euro is not overbought and so hopefully thin summer markets will see it burst higher, a weekly close above 1.4400 setting off a squeeze to 1.4600/1.4800 and probably an extension to the psychological 1.5000. Maybe not this month but sooner than many might fear as consensus opinion remains firmly in favour of the US dollar.

A weekly close well below 1.3900 would force us to adjust.

Monthly Outlook for GBP

Comment: Doing a sterling job as consolidation in a right-angled ‘triangle’ force Cable higher, currently testing the top of a massive flat-topped Ichimoku ‘cloud’. The weekly close clearly above the 1.6500 area (38% retracement of the losses which started from the high of 2007 down to February’s low at 1.3500) has seen bullish momentum back at the best levels of 2004 and 2006. The nine-week moving average has done an excellent job limiting the downside and the lagging line has little to stop it clambering quickly to 1.7500 within weeks.

A weekly close clearly below 1.6500 forces us to adjust.

Monthly Outlook for JPY

Comment: Such a pity the break below the pivotal level at 94.00 was not maintained. So far this year prices had traded six yen either side of here – October to February below it, then above it since March; now we look set to swing in a small range either side of this sort of ‘neckline’ of a wide ‘head-and-shoulders’. Though moving averages are mixed, hopefully the large flat-topped weekly Ichimoku ‘cloud’ and descending ‘channel’ resistance will eventually push it down 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: While holding above the fairly pivotal level at 0.8400, which is two standard deviations from the mean since 1997, the bounce has been smaller than expected suggesting downside pressure might be greater than estimated. Nevertheless we shall expect more hesitation above here, then consolidation either side of this point, this month and maybe all of Q3 2009. Later this year another slow move down to 0.8200 is still pencilled in.

A weekly close well above 0.8800 forces us to adjust.

Monthly Outlook for EUR/JPY

Comment: Having moved broadly sideways since April it’s a shame that forecasting each intermediate twist and turn gets no easier. While above the 127.00 area we shall continue to allow for cautious upside probing keeping in mind that April’s high was 137.42 and June’s 139.26 though a squeeze might extend higher. It ought to be capped by the very large flat-topped weekly Ichimoku ‘cloud’ and Fibonacci 50% retracement at 141.75. Then down again, back inside the broad band.

A weekly close below 128.00 suggests an interim high is already in place, setting off a break below the 126.00 area.

Monthly Outlook for GBP/JPY

Comment: The initial drop below the psychological 150.00 has been followed by a steady rally over the last four weeks taking the cross all the way back up to where we started mid-June. Having re-drawn the ‘channel’ we shall be looking for a ‘double top’ to form this month. More problematic though is that we cannot rule out a ‘false break’ and ‘extension’ higher, something which ought to stall against the very large flat-topped weekly Ichimoku ‘cloud’ and retracement resistance at 170.00. Until evidence of topping is seen, we urge caution because the pound is overbought against the Yen and bullish momentum is not as strong as some might think. Note several other Yen crosses have similar dynamics, notably those that weakened the most last year.

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

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Published on  Thu, Aug 6 2009, 13:42 GMT