Quarterly Outlook for EUR

Comment: September a great disappointment as the Euro collapses from a high at 1.4550 calling into doubt the large potential ‘flag’ formation and retracing half of the steady rally of 2010 and 2011. Because we are still well within normal retracement parameters we shall be watching to see whether the large rising weekly Ichimoku ‘cloud’ will stem the decline, probably slowly, over the next two months. Until it can start holding comfortably above 1.3600 there is no room for complacency.

A weekly close below 1.3500 forces a review.


Quarterly Outlook for GBP

Comment: Once again Cable was slapped down from pivotal very long term resistance that lies between 1.6500 and 1.7000. It has retraced over half of the rally that started in 2010 and has bounced from the bottom of the large, rising weekly Ichimoku ‘cloud’. We shall be watching for another interim base to form keeping the pair roughly in a 1.5000 to 1.6500 band for another three months (as happened from 1995 to 2000). Note that the very long term is 1.6350, not that far off current levels, while on the Bank of England’s Trade Weighted basis it is still almost at its weakest ever.

A weekly close below 1.5200 forces a review.


Quarterly Outlook for JPY

Comment: Tiny moves over the last two months as the Japanese authorities try to stem the inevitable and the yen trades at a record low at 75.94. Expect more relatively small moves this quarter because the smaller the number of yen needed to buy a dollar the bigger the percentage appreciation over the greenback. Since July 2007 when the interbank market started showing serious signs of snarling up, this currency pair has traded down in neat channels; there is no reason to suppose either of these trends is over. We shall continue to allow for a drop to the psychological 75.00 and probably through here to 72.00 but whether prices this low are sustainable is questionable, so then expect a bounce back and more work under 82.50. One-month at-the-money implied volatility should remain around its long term mean at 11.00%.

A monthly close above 80.00 would probably lead to a broadly sideways move roughly 4 yen either side of here.


Quarterly Outlook for EUR/GBP

Comment: Slow work but there is further evidence of topping activity against the 0.8900 area. Moving averages have crossed to a sell and we have tested the thinnest part of the weekly Ichimoku ‘cloud’. A break below the bottom of it at 0.8500 by the end of this month would lead to the drop to 0.8300 that we have been looking for. There is a strong likelihood of an overshoot to 0.8000.

Another monthly close above 0.8900 would force us to review.


Quarterly Outlook for EUR/JPY

Comment: All yen crosses have traded down in the last two quarters as the yen’s safe-have status reasserts itself, though not nearly as dramatically as it did in 2008, so the drop here cannot be blamed on the beleaguered Eurozone. The reason the latest downside probe has been cautious is that we are a) close to record lows, b) at these levels percentage moves are large and c) the ‘carry trade’ does not need unwinding. We favour more of the same, sudden rallies making life difficult as the Japanese authorities try to stem the flow. A break below the record low at 88.93 of October 2000 is considered unlikely.

A weekly close above 110.00 hints that an interim low might just be in place.


Quarterly Outlook for GBP/JPY

Comment: Another yen cross that has traded down steadily in a neat ‘channel’ over the last six months and the only major yen cross to hit a new record low - 116.80, sterling losing half its value against the yen since June 2007’s peak. It is very oversold and bearish momentum is not that good so expect it to try and stabilise roughly around here this month. Then in November there might be another cautious downside probe to the psychological 115.00 and 110.00. Then expect a lengthy attempt at forming a new interim base.

A weekly close above 125.00 would suggest an interim low is in place.