Monthly Outlook for EUR

Diving through the bottom of the weekly Ichimoku ‘cloud’ chart so that the Euro retraces almost 61% of 2008/2009’s gains. Last week’s ‘hammer’ following the previous week’s ‘doji’ suggest instability at current levels and a market that is trying to put in an interim base. Note how the ‘cloud’ gets very much thicker this week and how the 9-week moving average is banging in to it. This might help push it higher, and the Lagging line might also get pushed higher by the 26-week average. Sentiment is so universally against the Euro, which is already more oversold than it has been since November 2008, that a contrarian view is very tempting. We continue to watch for signs of forming an interim base, ending the corrective move lower of the last three months, setting off a rally back up to the 1.4000/1.4175 area hopefully by month-end.

A weekly close below 1.3400 would force us to review.


Monthly Outlook for GBP

Comment: After trading roughly between 1.5800 and 1.6800 for eight consecutive months, February’s implosion has come as a big surprise to many. It has now corrected 61% of 2009’s rally, the very spot where the Euro has been trading for the last two weeks, in an A, B, C-type move where C is 1.6 times A. One-month at-the-money has leapt to 14.00%, two standard deviations above the very long term mean, a level which ought to cap and push volatility back down to 10.00%, and eventually the mean at 8.70%. It is more oversold than it has been since November 2008 though bearish momentum has strengthened. Watch for signs of forming another interim base this month, hopefully something dramatic involving a massive ‘spike low’ prior to a rally back up to 1.5800 hopefully within eight weeks.

A monthly below 1.5000 would force us to review.


Monthly Outlook for JPY

Comment: An area of interim support lies between the flat-bottomed daily Ichimoku ‘cloud’ and 88.50, a level that has held the downside many times except for a few dramatic days in November. Assuming the FX market does not go into meltdown, we feel this area might limit the downside for most if not all of this coming month. Rallies should hold below 91.00 and are seen as selling opportunities because the long term trend is to a lower dollar/yen. We remind that key support lies between 87.00 and 85.00 and that the authorities are likely to defend this area vigorously. We shall allow for repeated downside tests of this band later this year.

A weekly close above 92.00 would cause us to adjust.


Monthly Outlook for EUR/GBP

Comment: February 2010’s low at 0.8603 was correctly labelled as an ‘extension/false break’ and prices have burst above the very thin weekly ‘cloud’ to channel resistance. The Euro has retraced 50% of the decline from the all-time high at 0.9805 and from oversold the pair is now almost overbought; momentum is zero. We expect the rally to stall this week or next, thereby maintaining the series of slightly lower highs, assuming the whole of the FX market does not face meltdown, something we do not favour though we are allowing for extremely tough conditions this month.

A weekly close well above 0.9100 would force us to review.


Monthly Outlook for EUR/JPY

Comment: Very long term support can be seen between the psychological level at 120.00 and 119.50, one standard deviation below the (calculated via the Deutschemark) mean since 1986. Therefore, despite strong downside momentum, we feel prices will try and hold above here at least in the first part of this month. Further out we shall continue to allow for another slip down to 118.00/116.00; other yen crosses probably have a bit more downside than the Euro has against the yen.


A weekly close below 118.00 suggests yen crosses will start another dramatic downside test towards 2009’s record low at 112.08.


Monthly Outlook for GBP/JPY

Comment: Dropping even further and faster than we predicted last month as Sterling takes a beating for a host of political, economic and supply/demand reasons. Yen crosses last week formed ‘bearish engulfing’ candles but this one has been leading on the way down for some time. This pair is more oversold than it has been in a year and bearish momentum is poor, one-month at-the-money implied volatility should continue to hold in a small band around 16.00%. Expect the decline in this currency pair to come to a slow halt roughly between 132.00 and 130.00, our long term target, followed by many months of sideways work in a relatively small range, hopefully above 128.00.

A weekly close below 126.00 forces us to adjust.