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Six month FX view

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Six month FX view

Tue, Nov 13 2007, 16:01 GMT
by Nicole Elliott

Mizuho Corporate Bank

Six Month Outlook for EUR

Comment: The Euro is retreating from an all-time high at 1.4753, which is higher than 1.4550 - equivalent to the Deutschemark’s strongest in March 1995. This is seen as much-needed correction and consolidation which should last for at least four weeks. An initial drop to 1.4300 will probably shake out those who have only recently jumped on the bandwagon. A second and deeper drop to 1.3700 will probably shake-out all but the most die hard US dollar bears. Then the Euro should trade steadily higher, back up to 1.4750 and through here to 1.5000 towards the end of Q2 2008. Drifting back to 1.4550 by the end of next year. As is the case with generalised US dollar selling, if this turns into a frenzied rout we shall have to adjust our target higher (say $1.6750), then topping sooner.

A monthly close below 1.3650 would force us to review.

Six Month Outlook for GBP

Comment: Consensus opinion is that Cable will peak within the next four weeks and then move down steadily towards 1.9700 over the coming year. We beg to differ and are factoring in persistent US dollar weakness in 2008. The question therefore is the speed of the move because the sooner and the faster the pound makes new highs, the sooner it will top. Over the next few weeks we shall allow for correction and consolidation under last week’s multi-year high at 2.1162. Expect dips to 2.0500, where it will probably try and stabilise, prior to another downside probe. Below 2.0000 is unlikely. A ten cent move might not sound like a ‘dip’ but that represents just a 4.7% decline from last week’s high. In Q1 2008 we favour a series of very large price swings, roughly seven cents either side of 2.1000. Late in Q2 we favour another new high around 2.2000 before drifting back to 2.1200 by year-end. We must warn that so few have been aware of US dollar weakness that started in 2001 that they could all jump in late taking the greenback quickly to catastrophic levels. This Plan B would see Cable reach 2.4500 within 6 months and is currently not our favoured view.

A weekly close well below 2.0000 seriously postpones all of the above and forces a review.

Six Month Outlook for JPY

Comment: Topping activity over the last two months in Yen crosses means we have had to downwardly adjust our forecasts for dollar/yen. Rallies to 112.00/114.00, and probably no higher than 116.00, are seen as selling opportunities for a retest of 109.00 support within the next three months. A break below here targets 105.50, probably by the end of Q2 2008. During H2 2008 there is a chance of a massive collapse through the psychological 100.00 area to test 93.00/95.00, ahead of the all-time low at 80.00.

A weekly close above 118.00 would force us to review review.

• Download full Six month FX view EUR
• Download full Six month FX view GBP
• Download full Six month FX view JPY

Published on  Tue, Nov 13 2007, 16:01 GMT

Three and six−month FX view

Fri, Nov 10 2006, 11:27 GMT
by Nicole Elliott

Mizuho Corporate Bank

Three and six-month outlook for JPY

Comment: Relatively quiet FX markets over the last six months have postponed but not altered our outlook for generalised US dollar weakness. The Yen is likely to continue to lag moves in other currencies, at least for Q1 2007. Dollar/Yen completed a ‘spike high’ in October (119.88) marking an interim top for this pair, and we now expect a fairly sharp decline to 114.00 within the next six weeks. Allow for consolidation here until the end of this year, but remember that thin market conditions at year-end may mean moves are faster or extend beyond what we have pencilled in. Then another drop to the 109.00 area followed by a little more consolidation in Q1 2007, then down again to 107.00/105.00 by the end of March 2007.

A weekly close above 121.50 would force us to review review.

Three and six-month outlook for EUR

Comment: Having spent the last six months in a relatively tight range, complacency has probably set in. We feel this is misplaced and that there is a good chance of a rally around year-end. A sustained break above increasingly important resistance at 1.3000 targets 1.3500 short term, just shy of the all-time high at 1.3670. Expect prices to hover nervously around here in Q1 2007 as markets prepare to move even higher. In Q2 2007 we expect the Euro to reach a high somewhere between 1.3700 and 1.4000, maybe but briefly quite a bit higher.

A monthly close well below 1.2500 would force us to review.

Three and six-month outlook for EUR/JPY

Comment: There is nothing in the chart pattern to suggest that the very long term trend to a stronger Euro versus the Yen is about to change. On the contrary, after wasting so much time going sideways in 2004 and 2005 there is a chance the rally will actually accelerate. The move should be mirrored in many other Yen crosses denoting Yen weakness rather than Euro strength. A weekly close above 150.50 should trigger a short squeeze to 154.00/155.00 very late in 2006. Some time in Q1 2007 we favour another sudden rally towards the October 1998 high at 164.00. The second quarter of 2007 will probably be dominated by a lot of sharp big swings roughly between 150.00 and probably no higher than 170.00.

A monthly close below 145.00 would force us to adjust.

• Three and six-month outlook for JPY
• Three and six-month outlook for EUR
• Three and six-month outlook for EUR/JPY

Published on  Fri, Nov 10 2006, 11:27 GMT

Six month FX view

Thu, Jun 29 2006, 13:35 GMT
by Nicole Elliott

Mizuho Corporate Bank

Six Month Outlook for GBP

Comment: Having wasted so much time over the last twelve months trading randomly around $1.7600, Cable played ‘catch-up’ putting in a stellar performance these last four weeks. The move looks slightly overdone so we feel it will now move into a period of consolidation around $1.9000. This should last at least a week, maybe up to three months. At the moment we favour a series of fairly big swings between $1.8400 and $1.9400, roughly similar to price action from January to May 2005. Very late this year or maybe in 2007 we expect it to squeeze to $2.0000.

A weekly close below 1.8200 seriously postpones all of the above.

Six Month Outlook for EUR

Comment: Having wasted so much time last year flip-flopping either side of 1.2100 the Euro has at last woken up to the fact that the very long term trend is still for generalised US dollar weakness. The Euro is rather overbought at the moment so we favour consolidation around 1.2900 for another month or so, say in a band roughly between 1.2600 and 1.3200. Then on up again to re-test the all-time high at 1.3670 and eventually to new all-time highs where 1.4000 is a realistic target. Then more consolidation below here followed by even higher highs in 2007.

A monthly close below 1.1700 would force us to review.

Six Month Outlook for EUR/JPY

Comment: For three consecutive years EUR/JPY has been struggling with resistance around 140.00. Some time this quarter we should rally to 145.00 and the psychological level at 150.00 later this year where some consolidation is likely. Very late in 2006 we shall allow for a squeeze up to the October 1998 high at 164.00.

A monthly close below 137.00 would force us to adjust.

• Six Month Outlook for GBP
• Six Month Outlook for EUR
• Six Month Outlook for EUR/JPY

Published on  Thu, Jun 29 2006, 08:35 GMT