Monthly Outlook for EUR
Comment: January’s retreat has been a lot deeper and has lasted longer than we expected: a generally disappointing performance with FX moves here and in many currencies very inconclusive. Dips, so long as we hold above last year’s low at 1.2329, are still seen as buying opportunities for an eventual move higher later this month and through much of this year.
A weekly close below 1.2400 would force us to re-think.
Monthly Outlook for GBP
Comment: Sterling’s collapse to a multi-year low at 1.3500, below the bottom of the a downward-sloping ‘wedge’ formation, is seen as an ‘extension’ caused by over-excited (probably novice) dealers. This is also part of a complex process of forming an interim low point after last year’s extraordinary collapse. A weekly close above 1.5500 is the minimum required to signal the process has reached a conclusion.
A monthly close below 1.4000 forces us to review.
Monthly Outlook for JPY
Comment: The re-test of last year’s low at 87.12 saw the level hold exactly (low 87.10), almost too perfectly conspiracy theorists might suggest. This forms a potential ‘double bottom’ but subsequent price action, especially in comparison to the powerful ‘hammer’ of the 21st January, is very disappointing. Nevertheless we shall allow for another fortnight of random messy moves roughly between 88.00 and 91.00, followed by a cautious downside test late in the month. We remind that the 85.00 area is pivotal and the chance of action from the authorities increases were the Yen to trade below here, especially as it is so very strong against all other currencies.
A weekly close above 94.00 would force us to adjust.
Monthly Outlook for EUR/GBP
Comment: Trading under the all-time high at 0.9805 again this month, as expected, with the drop extending just beyond what we had thought possible. This underlines the extreme Sterling had got to and adds weight to out view that over the next six months there is a lot more unwinding to be done. Over the next week or two allow for more work above 0.8800 prior to another leg down to 0.8600/0.8550.
A weekly close above 0.9600 forces us to review.
Monthly Outlook for EUR/JPY
Comment: Many are still in ‘de-leveraging’ mode, thinking Yen crosses are due another leg lower this year. We beg to differ and while we may see some more unwinding of ‘carry trades’ investors will be more careful as to the final destinations of the cash. We also feel Japanese authorities are acutely aware of dramatic Yen strengthening last year, up 47% against the New Zealand dollar and another 43% against the South Korean Won. Therefore we expect a series of random moves roughly between 113.00 and 130.00 again this month, potentially with a small short squeeze towards 135.00 and probably no higher than 140.00 at the end of Q1/early Q2 2009.
A weekly close below 110.00 forces us to review.
Monthly Outlook for GBP/JPY
Comment: Mid-January’s dip to a new all-time low at 119.00 is seen as an ‘extension’ below the downward-sloping ‘wedge’ formation. The move back inside the pattern should see the cross stabilise above this low though rallies will be hard work as there are many decent resistance levels all the way up. Therefore we favour another month or three of broadly sideways work, probably above 119.00 and below the psychological 150.00 point.
A weekly close above 160.00 hints that an important long term low might be already in place.
