FXstreet.com

This report has been deactivated

15

0

Weekly Technical Commentary

Tue, Oct 20 2009, 06:06 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 90.20..89.50..88.80..88.00.

Resistance 91.33..91.75..92.55..93.00

Rallying from 88.00 towards the 9-week moving average and first Fibonacci resistance, taking a few Yen crosses to new highs for this year (AUD/JPY, NOK/JPY and NZD/JPY). We still feel this latest bounce will probably be capped around 91.50, and while below 92.55 we continue to favour a series of cautious downside tests of key support between 87.00 and 1995’s 85.00 (below which it spiked to a low 79.75 over a three month period). This in the context of generalised US dollar weakness which we expect through to year-end and probably a lot longer. The slower the move, the longer it should last. Note that from almost oversold against the Yen, the US dollar is now almost overbought.


EUR/USD

Chart Levels:

Support 1.4820..1.4700..1.4580..1.4480.

Resistance 1.4968..1.5085..1.5240..1.5300.

Rallying to a new high for this year at 1.4968, a level that capped for many weeks from November 2007. It is possible that the Euro might struggle under here for a few weeks still, but we feel that the weekly close above 1.4800 will counter this allowing it to trade higher through to the end of this month. This marks another bout of generalised US dollar weakness, a feature that is likely to be repeated again and again over many months. The Euro is slightly overbought but then bullish momentum has increased significantly, and now even US stockbrokers are talking of the currency effect on share prices and economic conditions. Futures volume remains at the 2-year average.


EUR/JPY

Chart Levels:

Support 134.00..132.55..131.50..129.55.

Resistance 136.11..137.00..137.50..138.70

Rallying once again from trendline support, the fifth time it has done so since late March. Though this latest rally went higher than we had thought, having the patience of Job we shall continue to watch for signs of topping in what could turn out to be a massive ‘quadruple top’. The Euro is now very overbought against the Yen, but we have to admit that bullish momentum is strong. Other currencies are even more overstretched against the Yen. We favour a new interim top forming between 136.00 and 137.50 either this week or next. Towards the end of November we expect a break below the pivotal 127.00 support area. The very long term view is still for more broadly sideways moves.


GBP/JPY

Chart Levels:

Support 147.00..145.70..144.50..142.00.

Resistance 147.00..145.70..144.50..142.00.

Reversing positions as Sterling, the previous week’s ‘dog’, overtook a weaker Yen. Despite sharp moves, surprisingly one-month at-the-money implied volatility has barely budged. Nevertheless the bounce is clearly corrective and has, for the time being anyway, stalled at the first Fibonacci retracement. Daily moving averages and the Ichimoku ‘cloud’ still point to a short position so we shall watch for a new interim high to form over the next week or two, though it might take even longer. A weekly close below 147.00 should also turn 50 and 200-day moving averages bearish. Sterling is overbought and we shall look for a new interim top to form between 149.00 and 151.50.


GBP/USD

Chart Levels:

Support 1.6200..1.6000..1.5800..1.5700.

Resistance 1.6400..1.6500..1.6625..1.6745.

Just as we had feared: the irregular ‘head-and-shoulders’ top failed to meet even it’s first downside target, stopped dead in its tracks by first long term Fibonacci support and the 26-week moving average. It formed a ‘bullish engulfing’ candle on the weekly chart hinting that it ought to hold above 1.5700 through to year-end (and then more). However, because the weekly Ichimoku ‘cloud’ is so very large we could easily hold inside here until year-end, trading randomly in zigzags regularly re-testing the 1.5700 area. One-month at-the-money implied volatility rallied from 10.65% and should rally to 14.50%. Futures volume remains high suggesting this is the only ‘cheap’ currency for Americans to diversify into.


EUR/GBP

Chart Levels:

Support 0.9100..0.9000..0.8900..0.8750.

Resistance 0.9225..0.9300..0.9413..0.9500.

Apparently we are not alone in getting this pair wrong; since June Reuters Polling have median forecasts dropping for this pair, down to £0.8700 in 12 months’ time the latest stab at forecasting. Last week’s ‘bearish engulfing’ candle has at least bought a breathing space for the pound, and the top of the Ichimoku ‘cloud’ dips after the first week of November, a combination which just might allow for broadly sideways trading for several months yet. However, weekly moving averages are bullish, upside momentum strong, the Euro no longer overbought and on the Trade Weighted basis it is still perilously close to the all-time low. Be very careful indeed and prepared to shift view.

Published on  Tue, Oct 20 2009, 06:06 GMT

1

0

Weekly Technical Commentary

Mon, Oct 12 2009, 11:01 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 89.30..88.50..88.00..87.00.

Resistance 90.50..91.65..92.55..93.00

Taking fright at 88.00, ahead of January’s low at 87.10, a level that held miraculously some might say. This latest bounce will probably be capped around 91.50 and while below 92.55 we continue to favour a series of cautious downside tests of key support between 87.00 and 1995’s 85.00 (below which it spiked to a low 79.75 over a three month period). This in the context of generalised US dollar weakness which we expect through to year-end and probably a lot longer. The slower the move, the longer it should last. Note that at the moment the US dollar is not oversold against the Yen but bearish momentum has eased very considerably. A weekly close below 88.75 should see it increase significantly.


EUR/USD

Chart Levels:

Support 1.4650..1.4570..1.4500..1.4400.

Resistance 1.4768..1.4818..1.4845..1.4900.

A small potential ‘double top’ at this year’s high of 1.4845 suggests another week or two of gentle correction and consolidation. Expect a re-test of the area between the 9 and 26-day moving averages, which is also first short term Fibonacci support, and maybe all the way down to 1.4400. This should correct the slightly overbought situation and allow the Ichimoku ‘cloud’ to move up a couple of notches by month-end. This coupled with trendline support should then allow to Euro (and other currencies) to gain against the greenback. A weekly close clearly above 1.4700 is needed to increase upside pressure resulting in another round of generalised US dollar weakness.


EUR/JPY

Chart Levels:

Support 131.95..130.70..130.00..129.00.

Resistance 133.35..134.40..135.50..136.00

Having spent the best part of a fortnight dithering around trendline support, prices formed a tiny inverted ‘head-and-shoulders’ which has already almost met its minimum measured upside objective. The Euro is no longer oversold against the yen and momentum is neutral. This has obviously postponed the break lower we had expected but while below the daily and weekly Ichimoku ‘clouds’ there is no reason to change our view: the yen should strengthen against many currencies between now and year-end. Towards the end of November we expect a break below the pivotal 127.00 support area. The very long term view is still for more broadly sideways moves in a very wide band.


GBP/JPY

Chart Levels:

Support 141.00..139.65..139.00..138.00.

Resistance 144.00..146.60..148.65..151.40.

Sterling weakening across the board, a whopping 4.3% against the Canadian dollar month to date, has kept this yen cross at last week’s level hovering on the first long term Fibonacci support. Weekly moving averages have turned bearish and it is just a matter of time before we break decisively below the massive Ichimoku ‘cloud’. Our measured target remains at 130.00, 61% Fibonacci retracement. Below 129.00 on a first attempt is considered highly unlikely, though note that moves below here are likely to be complex and very sharp. We cannot rule out a re-test of the all-time low at 118.80 of January this year as sterling looks set for a horrible year-end.


GBP/USD

Chart Levels:

Support 1.5725..1.5685..1.5500..1.5260.

Resistance 1.5885..1.5925..1.6130..1.6235.

Consolidating under the ‘neckline’ of an irregular ‘head-and-shoulders’ top and now testing the 26-week moving average and 38% Fibonacci support. We shall continue to allow for a sharp drop, to the 1.5575 area and probably no lower than 1.5275. This drop should end suddenly, more than likely with a ‘spike low’. Note that this corrective move lower might be difficult to trade and will eventually see a resumption of what we feel is the long term trend to higher Cable. Because the weekly Ichimoku ‘cloud’ is so very large we could easily hold inside here until year-end. One-month at-the-money implied volatility rallied from 10.65% and should move on up to 14.50%. Futures volume, though not open interest, remains high.


EUR/GBP

Chart Levels:

Support 0.9270..0.9200..0.9140..0.9075.

Resistance 0.9350..0.9430..0.9500..0.9600.

Last week’s one small chance of sterling regaining its balance and a toehold was squandered. This bodes badly for the pound, here and against all other currencies – just a question of degree. It is currently weaker than it was in 1995/1996, against the Euro and on the Bank of England’s Trade-weighted basis. It now looks almost inevitable that it will re-test the record high at £0.9805 set in January, despite decent resistance around £0.9600. Weekly moving averages are bullish, momentum as strong as it was in December, and the measured targets from the enormous ‘flag’ are 1.0300 and possibly 1.1000. Remember the Chinese proverb: ‘be careful what you wish for’.

Published on  Mon, Oct 12 2009, 11:01 GMT

1

0

Weekly Technical Commentary

Mon, Sep 28 2009, 12:48 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 88.60..88.00..87.00..86.65.

Resistance 89.75..90.00..91.35..92.55

One of the lowest weekly closes this year sent the dollar tumbling against the Yen in Asia this morning. This month we expect a test of the 87.00 area, a level that held miraculously in December and again in January. The bounce from today’s low at 88.23 is impressive, but unlikely to stem the flow for more than a week (and maybe not even for the rest of the day). Over the coming month we continue to favour a series of cautious downside tests of key support between 87.00 and 1995’s 85.00 (below which it spiked to a low 79.75 over a three month period). A baptism by fire for the incoming regime and an unwelcome headache to add to a long list of woes. Note this is a Yen move as crosses also look set for a drop.


EUR/USD

Chart Levels:

Support 1.4550..1.4500..1.4400..1.4290.

Resistance 1.4700..1.4768..1.4845..1.4900.

Last week’s ‘doji’ suggests some instability at current levels and the need for consolidation. Therefore allow for corrective work under 1.4845, possibly down to the nine-week moving average at 1.4443, this week and maybe the following one also. One-month at-the-money implied volatility is still trying to base against the 10.00% level, and should eventually pick up towards 16.00% over the coming month or two. A weekly close clearly above 1.4700 is needed to increase upside pressure resulting in another round of generalised US dollar weakness. Note that the weekly Ichimoku ‘cloud’ has a flat top until the end of this year so will not help the Euro higher. However, the nine-week moving average has nudged it up since May.


EUR/JPY

Chart Levels:

Support 129.84..129.00..128.00..127.00.

Resistance 131.85..133.00..134.40..135.50

Over the last month all currencies have lost ground against the Yen. After trying the upside three times since April, failing in the 138.00 area, the EUR/JPY chart now has a potential ‘triple top’ or poor ‘head-and-shoulders’ pattern. Testing trendline/neckline support this morning, ahead of the pivotal 128.00 area. A weekly close below here targets the bottom of the very large flat-topped Ichimoku ‘cloud’ and then more. Investors should allow for a move back down to 115.00 and possibly the all-time low at 112.08 January this year. Note that very long term prices are expected to trade broadly sideways for another six months, so that a dip below 112.00 (if at all) should be brief; picking interim highs and lows still a difficult task.


GBP/JPY

Chart Levels:

Support 141.00..139.75..139.00..138.00.

Resistance 143.00..146.60..148.65..151.40.

Sterling lost 6.7% against the Yen this month weakening across the board. Here, the ‘double top’ at 162.50 led to a break below the huge weekly Ichimoku ‘cloud’. Moving averages have yet to turn bearish but should do so on a close below 140.00. Our measured target remains at 130.00. Below 129.00 on a first attempt is considered highly unlikely, though note that moves below here are likely to be complex and very sharp. We cannot rule out a re-test of the all-time low at 118.80 of January this year because we expect protracted and complex downside testing over many months. One-month at-the-money implied volatility has rallied strongly from a low at 12.85% suggesting short-covering by overly aggressive market makers.


GBP/USD

Chart Levels:

Support 1.5770..1.5685..1.5500..1.5260.

Resistance 1.6000..1.6235..1.6400..1.6500.

Breaking below the ‘neckline’ of an irregular ‘head-and-shoulders’ top, dropping towards the 26-week moving average and 38% Fibonacci support. We shall continue to allow for a sudden sharp drop to the 1.5575 area, and no lower than 1.5275. The drop should end suddenly, probably with a ‘spike low’. Note that this corrective move lower should will be difficult to trade and will eventually see a resumption of what we feel is the long term trend to a higher Cable. Because the weekly Ichimoku ‘cloud’ is so very large we could easily hold inside here until year-end. One-month at-the-money implied volatility rallied from 10.65% and should move on up to 14.50%. Good futures volume Thursday and Friday suggest much speculating.


EUR/GBP

Chart Levels:

Support 0.9190..0.9040..0.8955..0.8880.

Resistance 0.9304..0.9340..0.9430..0.9500.

Higher again, trading above the top of a good-sized weekly Ichimoku ‘cloud’ as moving averages cross to bullish. The highest close since March 2009 and above a potential enormous ‘flag’ – which is usually a continuation pattern. The implications are too awful to contemplate as conservative measured targets from this pattern would be 1.0300 and a squeeze to 1.1000 a possibility. Hard to swallow, yes, but when the central bank governor starts talking down his currency who knows what might happen next. The only ray of hope for those holding pounds is that the weekly Ichimoku ‘cloud’ drops from mid-November and becomes nothing early February 2010. Cold comfort, indeed.

Published on  Mon, Sep 28 2009, 12:48 GMT

10

0

Weekly Technical Commentary

Mon, Sep 21 2009, 12:48 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 91.00..90.12..88.00..87.10.

Resistance 92.30..93.00..93.55..94.65

Bouncing from 78.6% Fibonacci retracement support, quickly correcting the oversold situation. Hopefully the rally will run out of steam here, first resistance around 92.00. However, holiday-thin conditions this week mean we cannot rule out a fairly large ‘extension’ higher. Worryingly, at-the-money implied volatility has not increased, holding around the average since April at 14.00%, this despite the US dollar trading close to the lowest levels against the Yen in post-war history. Some time over the coming month we continue to favour a series of cautious downside tests of key support between 87.00 and 1995’s 85.00 (below which it spiked to a low 79.75 over a three month period).


EUR/USD

Chart Levels:

Support 1.4600..1.4500..1.4400..1.4290.

Resistance 1.4700..1.4768..1.4815..1.4900.

A weekly close above Fibonacci retracement of 61.8% of last year’s losses should add a little more bullish momentum. On the ECB’s Effective Exchange Rate it has retreated slightly from an all-time high and looks set to consolidate at current levels. One-month at-the-money implied volatility is still trying to base against the 10.00% level, and should eventually pick up towards 16.00% over the coming month or two. December 2008’s high was 1.4720, last week’s 1.4768 and November 2007’s 1.4700 so a weekly close clearly above these is the next step in the series of generalised US dollar weakness. With G20 leaders busy blaming bankers they have yet to wake to the implications of recent currency moves.


EUR/JPY

Chart Levels:

Support 132.00..131.00..129.00..128.00.

Resistance 135.25..136.00..137.40..138.75

Yen crosses did not see the downside follow-through we had predicted for last week and instead bounced fairly strongly from recent lows. Hopefully the rallies will fizzle out imminently and late this month and in October we will resume the cautious downside testing we still favour, with the 128.00 area pivotal. Surprisingly one-month at-the-money implied volatility has dropped to 12.75% (considerably lower than September 2008) suggesting option sellers are at their most aggressive in a while. The low for volatility was 9.00% in August 2008 and 5.00% in November 2006. Note that longer term prices are expected to trade broadly sideways for another six months, picking interim highs and lows a thankless task.


GBP/JPY

Chart Levels:

Support 148.00..146.70..143.00..139.00.

Resistance 151.75..153.25..156.00..157.50.

Dropping a little lower, unlike most Yen crosses, as the UK authorities giving sterling a pounding. Though weekly moving averages have been suggesting a long position since May, we view price action since June as a ‘double top’ which will be completed by a weekly close below July’s low at 146.70. A break below the bottom of the very large Ichimoku ‘cloud’ (144.65) would add bearish momentum leading to a drop to our measured target at 130.00. Below 129.00 on a first attempt is considered highly unlikely, though note that moves below here are expected to be complex and very sharp. One-month at-the-money implied volatility is at its lowest in just over a year (14.25%), suggesting aggressive selling by market makers.


GBP/USD

Chart Levels:

Support 1.6100..1.6000..1.5800..1.5700.

Resistance 1.6400..1.6600..1.6745..1.7045.

Dreary, messy and increasingly top-heavy as the pound lost ground against all major currencies last week. While below the flat top of a massive weekly Ichimoku ‘cloud’ we shall have to allow for a lot more consolidation inside it. While trendline support has limited declines for many weeks, the formation since June looks increasingly like an irregular ‘head-and-shoulders’ top. Therefore there is a strong chance first support will yield in thin markets this week setting off a sudden sharp drop to the 1.5575 area, and no lower than 1.5275. The drop should end suddenly, probably with a ‘spike low’. One-month at-the-money implied volatility should hold above 10.65% for quite some time to come.


EUR/GBP

Chart Levels:

Support 0.8900..0.8750..0.8635..0.8400.

Resistance 0.9085..0.9130..0.9340..0.9500.

Losing over three pence last week courtesy of bankers’ comments. Bursting above the top of a good-sized Ichimoku weekly ‘cloud’ and moving averages in the biggest weekly rally since March 2009. Not what we had expected, forcing us to review Sterling generally. There is a small chance that the top of the downward-sloping ‘channel’ will now limit this most recent rally. More worryingly the whole of the formation since October 2008 might be seen as a huge ‘flag’ –which is usually a continuation pattern. The implications are too awful to contemplate as a conservative measured target would be 1.0300 and a squeeze to 1.1000 a possibility. The authorities had better be very careful indeed for what they wish for.

Published on  Mon, Sep 21 2009, 12:48 GMT

10

0

Weekly Technical Commentary

Mon, Sep 14 2009, 12:10 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 90.00..89.70..88.00..87.10.

Resistance 91.00..92.50..93.55..94.65

Almost the lowest weekly close of 2009, and well below the mid-point of the very broad sideways band that has held all year, suggests a series of repeated downside tests for the rest of this month and maybe the rest of this year. A baptism by fire for the new DJP government that has had to wait 50 years to be elected into power. Verbal intervention has started already, the MOF’s Tango saying today he is watching currency moves closely. Key support between 87.00 and 1995’s 85.00 may not be defended quite as rigorously by new politicians whose focus is more on the individual and less on corporations. The US dollar is not as oversold against the Yen as we had thought and most Yen crosses are looking top-heavy.


EUR/USD

Chart Levels:

Support 1.4500..1.4400..1.4290..1.4177.

Resistance 1.4636..1.4720..1.4815..1.4900.

Mocking the consensus view, the Euro has retraced 61.8% of last year’s losses. Using a flat-topped Ichimoku ‘cloud’ as a springboard it has moved above the consolidation area that we have been trapped in for weeks. Best volume so far this year in the futures contracts suggests many are rushing to catch up, reviewing their FX outlook as necessary. One-month at-the-money implied volatility based against the 10.00% level, and should pick up towards 16.00% over the coming month or two. Note that on the ECB’s effective exchange rate the Euro is at a record high, yet what we are seeing is generalised US dollar weakness with the best performers so far this year the ZAR, BRL, AUD and NZD.


EUR/JPY

Chart Levels:

Support 131.00..129.00..128.00..127.00.

Resistance 132.50..134.50..136.00..137.40

The lowest weekly close since mid-July might add a little more bearish pressure for a re-test of fairly pivotal support around 128.00. This marks the mid-point of the very broad band that has dominated trading so far this year. Though weekly moving averages still suggest a long, they have narrowed considerably and will probably turn to a sell on a break below 128.00. Surprisingly one-month at-the-money implied volatility is still trying to base against 14.00% and should eventually manage a sustained move through 18.00%. Note that longer term prices are expected to trade broadly sideways for another six months, picking interim highs and lows a tough, thankless task. All Yen crosses look similar, suggesting a Yen move the cause.


GBP/JPY

Chart Levels:

Support 149.00..146.70..143.00..139.00.

Resistance 153.25..155.85..156.00..157.50.

The ‘double top’ against the 162.50 should lead to a re-test of June’s low at 146.70, with a sustained break below here setting off a (probably sharp) drop to a measured target at 130.00. This would of course involve a break below the bottom of the very large Ichimoku ‘cloud’ (144.65) which should then turn moving averages bearish. One-month at-the-money implied volatility is still trying to base against 16.40%, one standard deviation from the mean since January 1995, and should eventually increase towards 21.00%. Note that so far this month the Yen has gained against all major currencies, a move which we feel will gather momentum over the next six weeks or so, Asian ones the weakest.


GBP/USD

Chart Levels:

Support 1.6500..1.6275..1.6100..1.6000.

Resistance 1.6745..1.6800..1.7045..1.7250.

Cable continues to consolidate above the Fibonacci 38% retracement of the drop since 2007’s high and below the flat top of a massive Ichimoku ‘cloud’. A pity it didn’t manage a weekly close above 1.6750 as this might have added some much-needed bullish momentum. Cable is not overbought and moving averages have been suggesting a long position since May, the 26-week one starting at last to move higher. Measured targets from current consolidation lie at 1.7000 and then 1.7500. Futures volume remains excellent and possibly, like the Canadian and Eurodollar futures, have been embraced by US speculators. One-month at-the-money implied volatility should hold above 10.65% for quite some time to come.


EUR/GBP

Chart Levels:

Support 0.8645..0.8500..0.8400..0.8200.

Resistance 0.8840..0.8870..0.8915..0.8945.

We continue to favour very slow topping activity around the 0.8800 area, and probably no higher than the 26-week moving average which currently lies at 0.8925, also the area of the top of a good-sized Ichimoku weekly ‘cloud’. This should eventually push the Euro lower, through trendline and Fibonacci support, but this is several weeks off, at best, and possibly unlikely until year-end. Only on a monthly close below 0.8400 can we say that the massive rally to an all-time high at 0.9805 as some sort of one-off ‘spike high’ and that the pound will gradually recover to pre-banking crisis levels. Note that Plan B, which could last a very long time, rather than a clean break lower involves a series of swings either side of 0.8400.

Published on  Mon, Sep 14 2009, 12:10 GMT

8

0

Weekly Technical Commentary

Tue, Sep 8 2009, 09:08 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:
Support 92.00..91.70..90.70..89.70.
Resistance 93.55..95.10..96.00..97.79

Price action in August appears to have formed a new interim high at 97.79, with a decent reversal candle (shooting star?) on the monthly chart. Last week’s bounce ahead of July’s low at 91.73 suggests we shall hold above this increasingly important chart area (down to 91.50) for another week or two. Rallies towards 96.00 are seen as selling opportunities for another downside test, hopefully sooner rather than later. One-month at-the-money implied volatility should base against the 12.00% area again, then rally by month-end. If markets decide to test the new government’s resolve, as we fear, things might turn ugly. Open interest has picked up since mid-August but remains less than one third of the 2007 peak.


EUR/USD

Chart Levels:
Support 1.4300..1.4200..1.4100..1.4000.
Resistance 1.4400..1.4448..1.4545..1.4635.

Little to add as we consolidate in the same range for five consecutive weeks. We continue to hold above a flat-topped Ichimoku ‘cloud’ and 38% retracement of last year’s losses, moving averages confirming a bullish outlook and the nine-week one trying to limit the lows. Last week’s ‘doji’ candle suggests instability and a market that looks set for an imminent break above recent highs. Several other currencies are doing something similar, with AUD and NZD already trading at new recent highs. One-month at-the-money implied volatility should base this week against the 10.00% level, and pick up towards 16.00% over the coming month or two. Note that on the ECB’s effective exchange rate the Euro is at a record high.


EUR/JPY

Chart Levels:
Support 132.00..131.00..128.00..127.00.
Resistance 134.15..135.30..136.00..137.40

During August this cross formed another interim high at 138.72, the third in a series of highs very roughly in this area that started early April. We continue to favour a re-test of fairly pivotal support around 128.00. This marks the mid-point of the very broad band that has dominated trading so far this year. Though weekly moving averages still suggest a long, they have narrowed considerably and will probably turn to a sell on a break below 128.00. One-month at-the-money implied volatility is still trying to base against 14.00% and should eventually manage a sustained move through 18.00%. Note that longer term prices are expected to trade broadly sideways for another six months, picking interim highs and lows a tough, thankless task.


GBP/JPY

Chart Levels:
Support 151.00..150.00..149.00..146.70.
Resistance 153.65..155.85..156.00..157.50.

A ‘double top’ against the 162.50 area formed last month and we now favour a re-test of June’s low at 146.70 some time within the next month or two. Downside pressure should increase if we hold below 155.85 (Fibonacci retracement resistance), with a break below the bottom of the very large Ichimoku ‘cloud’ (144.65) completing the double top formation and turning moving averages bearish. Note that the bounce from last week’s low at 149.00 has eased the oversold condition very considerably while postponing the break lower we continue to favour. One-month at-the-money implied volatility is still trying to base against 16.40%, one standard deviation from the mean at 11.50% (since January 1995) and should eventually increase towards 21.00%.


GBP/USD

Chart Levels:
Support 1.6275..1.6100..1.6000..1.5800.
Resistance 1.6550..1.6625..1.6665..1.6745.

Cable remains trapped between a rock and a hard place, trendline support and the flat top of a massive Ichimoku ‘cloud’, but mercifully giving up very little on the downside despite zero momentum. Cable is not overbought any more and moving averages have been suggesting a long position since May. Futures volume remains good and possibly, like the Canadian dollar future, have been embraced by US speculators. One-month at-the-money implied volatility should hold above 10.65% for quite some time to come. A weekly close above 1.6500 might add some much-needed bullish momentum but a close above the top of the weekly ‘cloud’ is needed to get things really kicking in.


EUR/GBP

Chart Levels:
Support 0.8645..0.8500..0.8400..0.8200.
Resistance 0.8840..0.8870..0.8915..0.8945.

Bouncing from what we see as a key level at 0.8400 and likely to hold above here this month and maybe all this quarter. We shall be looking for slow topping activity around the 0.8800 area, and probably no higher than the 26-week moving average which currently lies at 0.8945. Further out the big Ichimoku ‘cloud’ should push the Euro lower, through trendline and Fibonacci support. Only on a monthly close below 0.8400 can we say that the massive rally to an all-time high at 0.9805 as some sort of one-off ‘spike high’ and that the pound will gradually recover to pre-banking crisis levels. Note that Plan B, which could last until year-end, rather than a clean break lower involves a series of swings either side of 0.8400.

Published on  Tue, Sep 8 2009, 09:08 GMT

7

0

Weekly Technical Commentary

Mon, Aug 10 2009, 10:34 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY 

Chart Levels: 

Support 96.60..95.60..94.00..93.55.

Resistance 97.80..99.00..99.80..100.00

Not going according to plan as the Yen bursts higher on buy stops in thin market conditions, keeping to the upper half of this year’s broad trading band. Hopefully the good-sized flat-topped weekly Ichimoku ‘cloud’ (99.00) and retracement resistance at 97.80 will exert downward pressure and will eventually grind prices lower, here and in a series of Yen crosses. We shall allow for plenty more work between 93.50 and 99.00 over the next month or two. One-month at-the-money implied volatility has based against the 12.00% area and should rally by month-end. Open interest has dropped significantly over the last three weeks and is roughly a quarter of 2007’s peak - ‘carry trades’ out of fashion.


EUR/USD 

Chart Levels: 

Support 1.4150..1.4100..1.4000..1.3900.

Resistance 1.4339..1.4448..1.4545..1.4635.

Stalling at this year’s new high of 1.4448 above a large, flat-topped Ichimoku ‘cloud’ and 50% retracement of last year’s losses, much to the delight of the majority where consensus opinion is very much that the Euro should drop against the US dollar over the coming 12 months. Last week’s ‘evening star’ candle suggests we will consolidate under here for another week or two. Several other currencies are doing something similar so the rally we still expect for the Euro is caused by generalised US dollar weakness rather than anything Euro-specific. One-month at-the-money implied volatility should base this week against the 11.00% level, and pick up significantly in thin markets, towards 16.00%.


EUR/JPY

Chart Levels: 

Support 136.50..135.75..134.00..132.80.

Resistance 138.75..139.26..140.00..141.00

Hovering quite calmly at the upper edge of this year’s very broad trading band, though some other Yen crosses have squeezed to new highs for the year. However, the Euro is as overbought as it was in March 2009. Hopefully the massive weekly Ichimoku ‘cloud’ and Fibonacci resistance, here and in all other Yen crosses, will eventually exert downward pressure leading to a re-test of increasingly pivotal support around 128.00. One-month at-the-money implied volatility is still trying to base against 14.00% and should eventually manage a sustained move through 18.00%. Note that longer term prices are expected to trade broadly sideways for another six months, picking interim highs and lows a tough, thankless task.


GBP/JPY

Chart Levels: 

Support 159.00..156.40..154.50..152.25.

Resistance 163.05..167.30..170.00..173.00.

Sneaking just above June’s peak to a new high for the year at 163.05. However, we remain well below first Fibonacci resistance at 170.00 and below the top of a very large flat-topped Ichimoku ‘cloud’ at 167.30. While we expect the latest rally to stall this might be a slow process that continues through until the end of August, involving several cautious upside probes because the cross is currently not as overbought as some might imagine. During this time prices will probably hold between 154.00 and 162.00 most but not all of the time. One-month at-the-money implied volatility is still trying to base against 16.40%, one standard deviation from the mean at 11.50% since January 1995, and should eventually increase towards 21.00%.


GBP/USD 

Chart Levels: 

Support 1.6600..1.6500..1.6300..1.6000.

Resistance 1.6760..1.6855..1.7044..1.7500.

Glee in the bear camp as Cable retreats from a new high for the year at 1.7044 forming an ‘evening star’ weekly candle. We feel that the combination of the psychological level at 1.7000, the top of a massive Ichimoku ‘cloud’, and Fibonacci retracement resistance means that prices will have to consolidate under here for another week at least. Futures volume has been good and open interest is picking up (though still well below last year’s peak). Note that on the Bank of England’s Trade Weighted basis sterling has recovered less than 38% of the terrible losses of the last two years. One-month at-the-money implied volatility has snapped back up from a low at 10.65% and should hold above here for quite some time to come.


EUR/GBP 

Chart Levels: 

Support 0.8450..0.8400..0.8200..0.8100.

Resistance 0.8540..0.8600..0.8700..0.8750.

A slightly mixed picture but realistically we should probably allow for another week’s worth of consolidation above this year’s low at 0.8400. A monthly close below here completes a massive long term top, so that sterling would be unlikely to move above this area for many years to come. Further out the big Ichimoku ‘cloud’ should push the Euro lower, through trendline and Fibonacci support to 0.8100. Until then rallies, which will probably struggle to move significantly above 0.8600, are therefore selling opportunities. Note that Plan B, rather than a clean break lower, involves a series of swings either side of 0.8400, something which is currently seen as a very real possibility.

Published on  Mon, Aug 10 2009, 10:34 GMT

9

0

Weekly Technical Commentary

Mon, Aug 3 2009, 10:19 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY 

Chart Levels: 

Support 94.00..93.00..92.35..91.73

Resistance 95.88..96.25..97.00..99.00

Little to add as prices continue to thrash around the ‘neckline’ of a potential ‘head-and-shoulders’ interim top where the ‘head’ marks the upper edge of this year’s broad trading band. Last week’s ‘doji’ candle denotes indecision and a market looking for direction. Hopefully the good-sized flat-topped weekly Ichimoku ‘cloud’ will grind prices lower for another weekly close below the pivotal 94.00 area, Fibonacci retracement support and this year’s mid-point. Downside pressure should increase for a rush towards critical support between 87.00 and 85.00. One-month at-the-money implied volatility has based and will rally strongly then. Open interest is roughly one quarter of 2007’s peak, ‘carry trades’ out of fashion.


EUR/USD 

Chart Levels: 

Support 1.4200..1.4040..1.4000..1.3900.

Resistance 1.4339..1.4363..1.4430..1.4545.

Another weekly close above important resistance in the 1.4200 area, a 50% retracement of last year’s losses which coincides with a large, flat-topped Ichimoku ‘cloud’. It also managed a close just above trendline resistance, admittedly because of the line’s downward slope. Several other currencies are doing something similar so that the rally we expect for the Euro is caused by generalised US dollar weakness rather than anything Euro-specific; (much to our surprise the Swedish krona is currently leading the pack). One-month at-the-money implied volatility should base this week against the 11.00% level, and pick up significantly in thin markets, towards 18.00%.


EUR/JPY

Chart Levels: 

Support 132.00..131.40..130.00..128.00.

Resistance 136.90..137.50..138.35..139.26

Yen crosses are trading at the upper edge of this year’s very broad trading band. Hopefully the massive weekly Ichimoku ‘clouds’, here and in all other Yen crosses, will eventually exert downward pressure leading to a re-test of increasingly pivotal support around 128.00. However, moving averages do not support this view and have been suggesting a long position since mid-April. One-month at-the-money implied volatility is trying to base against 14.00% and should eventually manage a sustained move through 18.00%. Note that longer term prices are expected to hold within this year’s ranges, trading in broad bands for another six months; picking interim highs and lows is unlikely to get any easier.


GBP/JPY

Chart Levels: 

Support 155.35..153.85..152.25..150.75.

Resistance 160.50..161.75..162.60..163.35.

Recent Cable strength appears to have taken many by surprise, pushing Sterling/Yen towards this year’s high at 162.60. While we expect the latest rally to stall this might be a slow process that continues through until the end of August. During this time prices will probably hold between 154.00 and 162.00 most but not all of the time. Later expect a drop to 150.75/150.00 where some consolidation is likely, followed by a slower leg down to 143.00. At the moment moving averages do not support this view. One-month at-the-money implied volatility is still trying to base against 16.40%, one standard deviation from the mean at 11.50% since January 1995, and should eventually increase towards 21.00%.


GBP/USD 

Chart Levels: 

Support 1.6700..1.6500..1.6300..1.6000.

Resistance 1.6850..1.7000..1.7100..1.7500.

After ten weeks of ‘triangle’ consolidation, at last! A weekly close higher than anything since October so that we have now retraced 50% of the losses since last summer. The measured targets from this breakout are 1.7100 and then 1.7500, part of the ultra-long term trend to generalised US dollar weakness. This may have come as a surprise to some but other currencies are also gaining against the US dollar so it’s a dollar problem rather than sterling in vogue. Futures volume has been good and though running about half of the 2007/2008 peak open interest is picking up. Note record volume in Canadian dollar futures suggest the US investor has grasped the threat of devaluation, at least against its northern neighbour.


EUR/GBP 

Chart Levels: 

Support 0.8400..0.8250..0.8200..0.8000.

Resistance 0.8535..0.8600..0.8700..0.8750.

After consolidating in a neat tiny range under 0.8700 for six weeks the large weekly Ichimoku ‘cloud’ looks set to push the cross lower. A re-test of this year’s low at 0.8400 looks imminent and a weekly close below here should add to current strong bearish momentum. A monthly close below it completes a massive long term top, so that sterling would be unlikely to move above this area for many years to come. This pivotal area for the currency pair, two standard deviations from the very long term mean is so important that we may hover around here for a whole month or more before we see a decisive downside break. Until then rallies, which will probably struggle to move significantly above 0.8600, are therefore selling opportunities.

Published on  Mon, Aug 3 2009, 10:19 GMT

10

0

Weekly Technical Commentary

Mon, Jul 27 2009, 10:32 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY 

Chart Levels: 

Support 94.00..93.00..92.35..91.73.

Resistance 95.35..96.25..97.00..99.00

Prices are still thrashing around the ‘neckline’ of a potential ‘head-and-shoulders’ interim top where the ‘head’ marks the upper edge of this year’s broad trading band. A good-sized flat-topped weekly Ichimoku ‘cloud’ should grind prices lower again to manage a second weekly close below the pivotal 94.00 area (also Fibonacci retracement support). This is the rough mid-point of this year’s broad trading range where prices have held pretty much between 87.00 and 100.00. Downside pressure should increase for a rush towards critical support between 87.00 and 85.00. One-month at-the-money implied volatility has based and will rally strongly then. Open interest is roughly one quarter of 2007’s peak.


EUR/USD 

Chart Levels: 

Support 1.4100..1.4040..1.3900..1.3800.

Resistance 1.4292..1.4339..1.4363..1.4430.

The Euro managed a weekly close above important resistance in the 1.4200 area, a 50% retracement of last year’s losses which coincides with a large, flat-topped Ichimoku ‘cloud’; pity it did not manage a close above trendline resistance as well. Several other currencies are doing something similar so that the rally we expect for the Euro is caused by generalised US dollar weakness rather than anything Euro-specific. At the moment Pacific rim currencies are leading and Scandinavian ones are recouping much of last year’s extreme losses. One-month at-the-money implied volatility should base this week against the 11.00% level and pick up significantly in thin markets.


EUR/JPY

Chart Levels: 

Support 132.00..131.40..130.00..128.00.

Resistance 136.90..137.50..138.35..139.26

Rallying by more than expected and many Yen crosses are now trading at the upper edge of this year’s very broad trading band. Hopefully the massive weekly Ichimoku ‘cloud’ will exert downward pressure, eventually, leading to a re-test of increasingly pivotal support around 128.00. One-month at-the-money implied volatility has picked up from 14.00% and should eventually manage a sustained move through 18.00%. Note that longer term prices are expected to hold within this year’s ranges, trading in broad bands for another six months; picking interim highs and lows is unlikely to get any easier. Other Yen crosses look similar with the Yen looking a little ‘heavier’ against the Asian currencies than other majors.


GBP/JPY

Chart Levels: 

Support 155.00..153.50..152.25..150.75.

Resistance 157.60..158.00..158.55..160.25.

Hovering at the upper edge of a rising Ichimoku ‘cloud’ and struggling with trendline resistance. Interestingly the pound is not overbought against the Yen and momentum is only slightly bullish. While we expect the latest rally to stall this might be a slow process that continues through until the end of August when the ‘cloud’ thins dramatically. We still feel an initial drop ought to be limited to the horizontal lower edge of the ‘cloud at 150.75, followed by a slower leg down to 143.00. One-month at-the-money implied volatility has bounced from 16.40%, one standard deviation from the mean at 11.50% since January 1995, and should increase towards 21.00%.


GBP/USD 

Chart Levels: 

Support 1.6300..1.6200..1.6000..1.5980. 

Resistance 1.6600..1.6664..1.6745..1.6835.

Pity Cable didn’t manage a strong weekly close after nine weeks of ‘triangle’ consolidation. Maybe other currencies gaining against the US dollar will drag it up too. Moving averages are clearly pointing to a bullish trend, but note that there are a series of resistance levels up to 1.7000 that will need to be surpassed on the way up. A weekly close above 1.6600 will probably kick-start the next round of short-covering. Futures volume has been good and despite running about half of the 2007/2008 peak, open interest is picking up. Note that volume and open interest in Canadian dollar futures are running at records suggesting the US investor has grasped the threat of devaluation, at least against their northern neighbour.


EUR/GBP 

Chart Levels: 

Support 0.8600..0.8535..0.8400..0.8250.

Resistance 0.8700..0.8750..0.8800..0.8935.

Little to add as we continue to see tiny ranges at the same sort of levels that have held for the last six weeks. The contrast in price action between these compared to that of January and February is huge, underlining just how unusual Q1 2009 was. The weekly Ichimoku ‘cloud’ has become a lot wider than it was mid-June so perhaps sideways consolidation is in order this month. Rallies, which could easily touch 0.8800, are seen as selling opportunities for an eventual break below 0.8400. A monthly close below here completes a massive long term top, so that sterling would be unlikely to move above this area for many years to come. Smaller trading bands should force one-month implied-volatility back down to 7.50%, the mean since 1999.

Published on  Mon, Jul 27 2009, 10:32 GMT

10

0

Weekly Technical Commentary

Mon, Jul 20 2009, 10:20 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY 

Chart Levels: 

Support 93.55..93.00..92.35..91.73.

Resistance 94.80..95.35..96.25..97.00

Prices are thrashing around the ‘neckline’ of a potential ‘head-and-shoulders’ interim top where the ‘head’ marks the upper edge of this year’s broad trading band. A good-sized flat-topped Ichimoku ‘cloud’ should grind prices lower again to manage a second weekly close below the pivotal 94.00 area (also Fibonacci retracement support). This is the rough mid-point of this year’s broad trading range where prices have held pretty much between 87.00 and 100.00. Downside pressure should increase for a rush towards critical support between 87.00 and 85.00. volatility has based and will rally strongly then. Open interest is roughly one quarter of 2007’s peak.


EUR/USD 

Chart Levels: 

Support 1.4100..1.4040..1.3900..1.3800.

Resistance 1.4235..1.4300..1.4339..1.4363.

Testing important resistance in the 1.4200 area, a 50% retracement of last year’s losses which coincides with a large, flat-topped Ichimoku ‘cloud’. Having consolidated in a small ‘triangle’ for the last two months, underlying just how little the Euro has given up, and with many other currencies doing something similar it is time for another bout of generalised US dollar weakness. Moving averages confirm this stance and momentum is bullish – and should increase significantly on a weekly close above 1.4200. One-month at-the-money implied volatility should base this week against the 11.75% level and pick up significantly, short-covering likely above 1.4200 and again above 1.4650.


EUR/JPY

Chart Levels: 

Support 133.00..131.40..130.00..128.00.

Resistance 134.75..135.50..136.90..137.50

Bouncing strongly from trendline support despite a massive Ichimoku ‘cloud’, keeping prices within the 126.00 to 138.00 range that has held since late March. We expect the latest corrective rally to stall between the 61% Fibonacci retracement resistance at 134.50 and the 135.50 area. One-month at-the-money implied volatility has picked up from 14.00% and should eventually manage a sustained move through 18.00%. Note that longer term prices are expected to hold within this year’s ranges, trading in broad bands for another six months; picking interim highs and lows is unlikely to get any easier. Other Yen crosses look similar with the Yen looking a little ‘heavier’ against the Asian currencies than other majors.


GBP/JPY

Chart Levels: 

Support 153.75..152.00..150.75..146.70.

Resistance 155.75..156.50..158.00..160.25.

Having easily met the measured target from the ‘head-and-shoulders’ pattern at 148.00 (sooner than we had hoped) the Ichimoku ‘cloud’ has forced a corrective bounce back up to the ‘neckline’. We expect it to stall slowly this week, so that the cross drops to the bottom edge of the cloud next week. Then we favour a slower leg down to 143.00 as many review the rationale behind market moves. One-month at-the-money implied volatility has bounced from 16.40%, one standard deviation from the mean at 11.50% since January 1995, and should increase towards 21.00%. Note that Yen crosses all look similar, dominated by USD/JPY moves rather than those of the other currencies.


GBP/USD 

Chart Levels: 

Support 1.6325..1.6200..1.6000..1.5980.  

Resistance 1.6520..1.6600..1.6664..1.6750.

Like AUD and NZD, Cable is pushing into this year’s highest prices after ‘triangle’ consolidation. Moving averages are clearly pointing to a bullish trend, but note that there are a series of resistance levels up to 1.7000 that will need to be surpassed on the way up. Trendline support at the lower edge of the weekly Ichimoku ‘cloud’ held surprisingly well over the last three weeks and should now mark an interim low point. A weekly close above 1.6600 will probably kick-start the next round of short-covering. The Canadian and Singapore dollars are looking very similar, as is the Swiss franc, though these are lagging a little. Futures volume has been good, despite open interest running about half of the 2007/2008 peak.


EUR/GBP 

Chart Levels: 

Support 0.8600..0.8535..0.8400..0.8250.

Resistance 0.8700..0.8750..0.8800..0.8935.

Painfully slow steps in the corrective bounce from the 0.8400/0.8475 area, which is two standard deviations above the equivalent mean since 1986. The contrast in price action between the last five weeks compared to January and February is huge, underlining just how unusual it was in Q1 2009. The weekly Ichimoku ‘cloud’ has become a lot wider than it was mid-June so perhaps sideways consolidation is in order this month. Rallies, which could easily touch 0.8800, are seen as selling opportunities for an eventual break below 0.8400. A monthly close below here completes a massive long term top, so that sterling would be unlikely to move above this area for many years to come.

Published on  Mon, Jul 20 2009, 10:20 GMT

2

1

Weekly Technical Commentary

Mon, Jul 6 2009, 10:02 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY 

Chart Levels: 

Support 95.00..94.00..93.55..92.75. 

Resistance 96.58..97.00..98.58..98.88

The very long term trend to lower prices is intact, the corrective bounce of Q1 2009 followed by a potential ‘head-and-shoulders’ interim top in Q2. The weekly Ichimoku ‘cloud’ has limited recent ranges on the upside and should now set up a test of the ‘neckline’ in the increasingly pivotal 94.00 area (also Fibonacci retracement support). This also represents the rough mid-point of trading this year where prices have held pretty much between 87.00 and 100.00. A weekly close below 94.70, in turn the lowest since March, should increase downside pressure for a rush towards critical support between 87.00 and 85.00. One-month at-the-money implied volatility should base and rally strongly then.


EUR/USD 

Chart Levels: 

Support 1.3870..1.3800..1.3750..1.3600.

Resistance 1.4200..1.4300..1.4339..1.4363.

Little to add as it is still struggling below the 1.4200 area, a 50% retracement of last year’s losses which coincides with a large, flat-topped Ichimoku ‘cloud’. Interestingly, it is also holding above the 38% retracement level and clearly above the 9-week average which has now inched up to 1.3879. This underlines just how little the Euro has given up despite testing such important resistance, keeping momentum bullish though less so than during the first week of June. Futures volume remains good hinting at a genuine worry as to the US dollar strength – where market consensus is that it should gain. We feel it is just a matter of time before more short-covering pushes the Euro higher.


EUR/JPY

Chart Levels: 

Support 132.00..131.40..130.00..126.00. 

Resistance 135.30..136.90..137.50..139.26

The tussle of the last six weeks or so in Yen crosses looks set to resolve itself to the downside. EUR/JPY prices are currently testing trendline support at the bottom of a massive Ichimoku ‘cloud’. We continue to favour a drop to 125.00/126.00 this month, a fairly pivotal support point as a break lower will probably trigger another collapse to 112.00. One-month at-the-money implied volatility should pick up as many repeat last year’s knee-jerk reactions (sell equities, buy Treasuries, Yen and US dollars) initially, before thinking more carefully. Note that longer term prices are expected to hold within this year’s ranges, trading in broad bands for another six months; picking interim highs and lows is unlikely to get any easier.


GBP/JPY

Chart Levels: 

Support 152.80..150.80..148.00..146.00. 

Resistance 156.60..159.00..160.50..162.60.

Breaking below the ‘neckline’ of a small ‘head-and-shoulders top’ today, adding weight to our view that all Yen crosses are in the process of topping prior to dropping over the summer. A small but perfectly formed formation which therefore has a better than even chance of ‘working’. Moving averages have crossed to bearish and the measured target for the pattern is 148.00 with some hesitation likely at the psychological 150.00 area - a level many feel is ‘fair’ for this cross. Later we shall allow for a slower leg down to 143.00 as many review the rationale behind stock market rallies in Q2 2009. Minor currencies are if anything slightly ahead in the topping process and therefore likely to lead majors lower.


GBP/USD 

Chart Levels: 

Support 1.6100..1.6000..1.5800..1.5750. 

Resistance 1.6325..1.6600..1.6664..1.6750.

Having been capped between 1.6664 and 1.6750 for a whole month, below a 50% Fibonacci, the pound is looking a little ‘tired’. Other currencies have not supplied any ‘lift’ to Cable so allow for a tactical retreat this week and maybe next. Moving averages are clearly pointing to a bullish trend and the Lagging Span has little overhead resistance. The point now is where will we form an interim base. Trendline support at the lower edge of the Ichimoku ‘cloud’ is a perhaps too obvious starting point. Only a weekly close above 1.6600 might kick-start the next step higher, but because of the very large weekly Ichimoku ‘cloud’ perhaps only a decisive break above 1.7000 will really force many into hitting the panic button. 


EUR/GBP 

Chart Levels: 

Support 0.8575..0.8475..0.8400..0.8250. 

Resistance 0.8650..0.8750..0.8800..0.8935.

Holding above the 0.8400/0.8475 area which is two standard deviations above the equivalent mean since 1986. This is seen as necessary consolidation in the longer term trend to a lower Euro against the pound. The Euro is no longer oversold and downside momentum weak. The weekly Ichimoku ‘cloud’ is a lot wider than it was mid-June so perhaps sideways consolidation is in order this month. Rallies, which could easily touch 0.8800, are seen as selling opportunities for an eventual break below 0.8400. A monthly close below here completes a massive long term top, so that sterling would be unlikely to move above this area for many years to come. Long term investment decisions should take this into account.

Published on  Mon, Jul 6 2009, 10:02 GMT

0

0

Weekly Technical Commentary

Tue, Jun 30 2009, 05:34 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 95.00..94.00..93.55..92.75.

Resistance 96.58..97.25..98.58..98.90

Somewhat to our surprise the potential ‘head-and-shoulders’ in which this pair has been trading since March is still valid. During June the top of the weekly Ichimoku ‘cloud’ limited the upside neatly and should now set up a test of the ‘neckline’ in the increasingly pivotal 94.00 area. This also represents the rough mid-point of trading this year where prices have held pretty much between 87.00 and 100.00. Momentum has just turned clearly bearish and the US dollar is not oversold so if not this week then hopefully in thin markets in early July we shall get a downside test and decisive break lower. Futures volume and open interest remain very subdued, lower than they have been since 2000, hinting many have given up.


EUR/USD

Chart Levels:

Support 1.3800..1.3750..1.3600..1.3425.

Resistance 1.4139..1.4200..1.4339..1.4363.

The Euro continues to consolidate neatly under the 1.4200 area, a 50% retracement of last year’s losses which coincides with a large, flat-topped Ichimoku ‘cloud’. Interestingly, it is also holding above the 38% retracement level and clearly above the 9-week average which has now inched up to 1.3773. This underlines just how little the Euro has given up despite testing such important resistance, keeping momentum bullish though less so than during the first week of June. Futures volume remains good hinting at a genuine worry as to the US dollar strength –where market consensus is that it should gain. We feel it is just a matter of time before more short-covering pushes the Euro higher.


EUR/JPY

Chart Levels:

Support 133.00..132.00..131.40..130.00.

Resistance 135.00..135.50..137.50..139.26

Tricky as Yen crosses consolidate under this year’s highs but above trendline and retracement support. For this particular pair, if the range since March has been roughly 126.00 to 138.00, then its mid-point is 132.00 and prices should hold above here for another week. Then we shall probably favour a dip lower but we must point out that our level of confidence in an across the board move of this type is low. Therefore some time in July we favour a drop to 125.50/126.00. Note that bullish momentum has all but evaporated and the Euro is not oversold against the Yen. One-month at-the-money implied volatility has not picked up as we had predicted but we have not given up hope.


GBP/JPY

Chart Levels:

Support 155.000..154.00..152.80..150.00.

Resistance 158.55..159.65..160.50..162.60.

As we had warned earlier this month, further gains for this currency pair may prove difficult as it struggles with resistance from the weekly Ichimoku ‘cloud’. It has stalled ahead of 163.00, at the upper edge of the ‘channel’ that has held this year, forming a tiny potential ‘head-and-shoulders top’ over the last four weeks. Moving averages look set to cross to bearish, and should do so on a daily close below the ‘neckline’ at 155.00. This should lead to a sudden drop to 150.00, a level many feel is ‘fair’ for this cross. Later we shall allow for a slower leg down to 146.00. Note that Yen crosses with minor currencies look more top-heavy than the majors, hinting these may lead.


GBP/USD

Chart Levels:

Support 1.6185..1.6000..1.5800..1.5750.

Resistance 1.6664..1.6825..1.6950..1.7000.

Little to add as for a fourth consecutive week we consolidate just under June’s high at 1.6664, below a 50% Fibonacci retracement, in a ‘right-angled triangle’ or ‘pennant’ formation. The pound is no longer overbought and a lot more are coming round to the idea that it is ‘cheap’, especially against other European currencies. Moving averages are clearly pointing to a bullish trend and the Lagging Span has very little overhead resistance. A weekly close above 1.6600 might kick-start the next step higher, but because of the very large weekly Ichimoku ‘cloud’ perhaps only a decisive break above 1.7000 will really force many into hitting the panic button. One-month at-the-money implied volatility is expected to base against 14.00%.


EUR/GBP

Chart Levels:

Support 0.8475..0.8400..0.8250..0.8200.

Resistance 0.8600..0.8650..0.8800..0.8935.

Hovering above the 0.8400/0.8475 area which is two standard deviations above the equivalent mean since 1986. This is seen as necessary consolidation in the longer term trend to a lower Euro against the pound. The Euro is still oversold but downside momentum in this currency pair is stronger than anything seen in the last two decades. The Ichimoku ‘cloud’ is very thin and the Lagging Span has candle resistance. We continue to target a drop towards 0.8250, a move currently suggested by the moving averages. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. One-month at-the-money implied volatility is expected to base in the 10.00% area again.

Published on  Tue, Jun 30 2009, 05:34 GMT

11

0

Weekly Technical Commentary

Mon, Jun 15 2009, 10:24 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 97.00..95.50..94.30..93.55.

Resistance 99.00..99.80..100.75..101.45

Despite trading both up and down, admittedly in a very narrow trading range, implied volatility hasnot picked up as much as we had hoped. Prices have held roughly between 94.00 and 100.00 for the last three months and we can probably ‘look forward’ to more of the same at least until month-end. Picking intermediate tops and bottoms will not get any easier as the risk of ‘extensions’ increases the longer we hold in the broad band established in March. Early this week we favour a cautious initial upside test, followed by a slow drift back down again. Then down first, up later, next week. Futures volume and open interest remain very subdued indeed, the latter less than half 2007’s peak, a sign the ‘carry trade’ is dead.


EUR/USD

Chart Levels:

Support 1.3800..1.3750..1.3600..1.3425.

Resistance 1.4000..1.4200..1.4339..1.4363.

The Euro is consolidating under this month’s high at 1.4339, in turn its best level since January’s high. We see this as an A, B, C-type correction but bears will be pointing to a potential ‘head-and-shoulders’ on the daily chart. The 1.4200 area is a 50% retracement of last year’s losses and coincides with a large, flat-topped Ichimoku ‘cloud’ so we feel prices will thrash excitedly either side of here for another week, maybe until month-end. We feel the Euro should form another new interim base between 1.3800 and 1.3600, setting up for another strong rally in thin summer conditions. Note that futures volume has been very good, hinting that there is a genuine worry as to the staying power of the US dollar – and the Euro!


EUR/JPY

Chart Levels:

Support 135.30..134.25..133.85..133.00.

Resistance 137.50..138.33..139.26..140.00

Not charting neatly but still mapping out this year as expected – broadly sideways! We feel Yen crosses will continue to trade across the page at the higher half of the ranges so far this year. Picking interim tops and bottoms will not get any easier and the worry of ‘missing out’ on the big move will persist. In fact many have still not got their heads around the idea that the Yen is not necessarily a one way street. For this pair prices should hold below 138.00 for much of the coming week, maybe dropping as low as the 26-day moving average at 133.00. If the range since March has been roughly 126.00 to 138.00, then its mid-point is 132.00 and prices should hold above here, probably until the end of the month.


GBP/JPY

Chart Levels:

Support 160.000..155.50..153.45..150.75.

Resistance 161.75..162.55..163.35..165.00.

As the pound is the best performing major currency over the last one, three and six months, this cross has traded a little higher again to 162.55. This is more than a 38% retracement of last year’s declines and it has met the weekly Ichimoku ‘cloud’. This hints that further gains this month might be difficult and that we should allow for a period of sideways moves. The difficulty will be in establishing where these interim highs and lows might lie. We feel the 9-week moving average at 150.75 has a good chance of limiting drops, at least on a first attempt. As for the upside, a sustained break above the psychological 165.00 (and November’s high) is unlikely. Note the increasingly deep ‘cloud’ though.


GBP/USD

Chart Levels:

Support 1.6300..1.6125..1.6000..1.5800.

Resistance 1.6475..1.6622..1.6664..1.6800.

Retreating from this month’s high at 1.6664 in what those who have missed Cable’s rally (and there are an awful lot of them) are hoping is a ‘double top’. A good rule of thumb when one has missed a big move is to buy a portion now, at any price, and hope for an improvement on the second instalment, not to hold out and hope – and maybe miss the boat again. Almost record volume in the futures contracts suggest this might already be the case (or maybe just roll overs). Bullish momentum is stronger than it has been since 1993 as foreigners look on incredulously at the political mess our MP’s and their expenses have caused. Here is one group that missed out, though maybe not on the way down.


EUR/GBP

Chart Levels:

Support 0.8475..0.8400..0.8250..0.8200.

Resistance 0.8650..0.8800..0.8870..0.9035.

A weekly close at a new low for this year (0.8520) is impressive. Pity it didn’t also manage a close below retracement support and the thin Ichimoku ‘cloud’ while it as at it, making our life easier. Downside pressure is stronger than anything seen in the last twenty years, so maybe we should not complain. The 0.8475 level is two standard deviations above the equivalent mean since 1986 so allow for a little hesitation here for a week or two. We continue to target a drop towards 0.8250, a move currently suggested by moving averages. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. Especially impressive considering the politics.

Published on  Mon, Jun 15 2009, 10:24 GMT

1

0

Weekly Technical Commentary

Mon, Jun 8 2009, 14:38 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 96.60..95.50..94.40..93.55.

Resistance 99.00..99.80..100.75..101.45

Last week’s strong rally from support at the 26-week moving average (which held for four consecutive weeks) has forced us to adjust our view. It signals a failed downside push and heralds yet more sideways trading in the broad band that has held since March (roughly between 94.00 and 100.50). Because the Ichimoku ‘cloud’ has become relatively narrow, and more importantly because it is now moving across the page rather than lower, it is unlikely to limit moves this summer. Note also that moving averages suggest a long dollar position so very mixed signals and maybe it might be better to leave this currency pair alone if possible. Implied volatility has not picked up as much as we had hoped.

EUR/USD

Chart Levels:

Support 1.3800..1.3750..1.3600..1.3425.

Resistance 1.4000..1.4200..1.4339..1.4363.

The Euro reached a high at 1.4339 Thursday, its best level since January’s high at 1.4363 and on the ECB’s Effective Exchange rate it is not too far off the all-time high of 2008. The 1.4200 area is the 50% retracement of last year’s losses and coincides with a large, flat-topped Ichimoku ‘cloud’ so we feel prices will thrash excitedly either side of here for another fortnight, maybe until month-end; this should lift implied volatility. Friday’s sell-off has corrected the overbought situation while keeping momentum bullish. We feel the Euro should form another new interim base between 1.3800 and 1.3600, setting up for another strong rally in thin summer conditions.

EUR/JPY

Chart Levels:

Support 135.30..134.25..133.85..133.00.

Resistance 137.50..138.00..139.26..140.00

Because our outlook for dollar/Yen has changed somewhat, so has our medium term view on Yen crosses. We feel these will continue to trade broadly sideways and at the higher half of the ranges so far this year. Note that over the next nine months or more we favour EUR/JPY, and other Yen crosses, to move broadly sideways in very wide ranges, picking interim tops and bottoms very difficult indeed. Friday’s sudden squeeze to a high at 139.26 looks, for now, like a small ‘extension’ and prices should hold below 138.00 for much of the coming week. If the range since March has been roughly 126.00 to 138.00, then its mid-point is 132.00 and prices should hold above here, possibly until the end of the month.

GBP/JPY

Chart Levels:

Support 155.50..153.45..149.50..143.00.

Resistance 157.75..160.50..163.35..165.00.

With the pound fairly well supported despite its politicians, GBP/JPY rallied to a new high for the year at 160.50. We remind that moves so far this year have been subdued relative to last year’s carnage and that the Yen is still trading not far off its strongest ever levels against several currencies. Because it is not overbought this week it should continue to trade either side of 155.50, probably between 153.00 and 160.00. Interestingly one-month at-the-money implied volatility appears to be trying to base against the 16.00% area. From 1995 to 2007 this traded between 6.00% and 16.00% most of the time suggesting we will form a new higher price for vol between 16.00% and 26.00%.

GBP/USD

Chart Levels:

Support 1.5800..1.5600..1.5450..1.4350.

Resistance 1.6100..1.6235..1.6664..1.6800.

Dropping from a high at 1.6664 last week, in part because many look on in disbelief at cabinet resignations. Technically it was stopped dead in its by tracks retracement and weekly Ichimoku ‘cloud’ resistance. The dramatic-looking ‘shooting star’ candle looks impressive and might just limit the upside until the end of this month, but we remind that on the 21st May Cable managed to drop and recover 4 cents within a day. Open interest in the futures contract is still roughly half that of the peaks in 2007 and 2008. One-month at the money implied volatility is moving smartly towards our target at 18.00% (with the possibility of a massive overshoot to 22.00%). The long term trend to a higher Cable is bruised but intact.

EUR/GBP

Chart Levels:

Support 0.8700..0.8635..0.8576..0.8500.

Resistance 0.88000..0.8870..0.8925..0.9050.

Dipping briefly to a new low for the year at 0.8576, then bouncing ahead of a widening Ichimoku ‘cloud’ and retracement support, to end the week as a ‘doji’ candle. This suggests prices will hold above here again this week, maybe longer, with slow cautious sideways moves dominating. A sustained break below 0.8600 very late in Q2 2009 should see the pair move slowly lower towards 0.8250, a move currently suggested by moving averages. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. One-month at-the-money implied volatility has based and should move back up to 16.00%.

Published on  Mon, Jun 8 2009, 14:38 GMT

13

1

Weekly Technical Commentary

Mon, May 11 2009, 10:39 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 97.50..96.50..95.65..93.55.

Resistance 99.00..99.80..100.75..101.45

Retreating again from March’s high at 99.69 in what is a potential, irregular, oversized ‘head-and-shoulders’ top. Prices should now turn their focus to cautious downside probing, starting with this morning’s test of the top of the daily Ichimoku ‘cloud’. In what is expected to be generalised US dollar selling, this month the Yen may well outperform other major currencies dragging Yen crosses lower. Moving averages are already suggesting a short position in dollar/Yen and Pacific rim currencies are leading the way as they strengthen to some of the best levels of the last six months. A daily close below 97.00 will probably turn momentum bearish and note that the greenback is certainly not oversold here.


EUR/USD

Chart Levels:

Support 1.3550..1.3400..1.3200..1.2965.

Resistance 1.3670..1.3740..1.3965..1.4200.

The FX market, having wasted an awful lot of time so far this year, looks set to wake from its slumber. The Euro’s ‘flag’ formation has pushed it on to a weekly close above long term trendline resistance. Moving averages are still a way off crossing to a long position and many may be clutching to the fact we are still below March’s high at 1.3740. Vain hopes, we feel, as generalised US dollar weakness should be the dominant feature this month and maybe for the next six months. One-month at-the-money implied volatility appears to have based against the 13.30% area and should now rally (as should JPY volatility). On the ECB’s Effective Exchange rate it is well below last year’s December peak.


EUR/JPY

Chart Levels:

Support 132.00..130.90..130.00..126.45.

Resistance 134.00..134.80..135.50..137.45

Difficult and inconclusive as prices consolidate close to the upper edge of the broad trading band that held from October until March (roughly 114.00 to 134.00) with a ‘spike high’ at 137.42 in April. Re-testing resistance between 134.00 and 135.00 today and we feel it should stall again here. Note that a few Yen crosses have posted new recent highs but these are likely to turn into ‘extensions’. A daily close below 132.00 would add weight to our view while a weekly close below 130.00 hints that perhaps another interim high is in place. Note that over the next nine months or more we favour EUR/JPY, and other Yen crosses, to move broadly sideways in very wide ranges, picking interim tops and bottoms very difficult indeed.


GBP/JPY

Chart Levels:

Support 147.00..145.50..144.00..139.00.

Resistance 150.50..151.00..151.50..153.25.

Struggling ahead of April’s high at 151.50 with signs that it will hold below here this week and maybe all month. Traders should allow for a drop back down to 139.00 while investors are reminded that our outlook for Yen crosses is for a broadly sideways move throughout this year. While not our favoured view just yet, if this cross was to start holding consistently below 140.00 we would have to review as it hints that an interim high is already in place and the next step ought to be downside probing before a new interim low is established. We remind that moves so far this year have been subdued relative to last year’s carnage and that the Yen is still trading not far off its strongest ever levels against several currencies.


GBP/USD

Chart Levels:

Support 1.5000..1.4835..1.4500..1.4350.

Resistance 1.5280..1.5375..1.5535..1.5725.

One of the leaders, probably to the surprise of many, as consensus opinion swerves 180 degrees so that the pound is now the most ‘undervalued’ currency in a recent poll. As for risk-aversion causing people to buy US dollars, the words ‘head’ and ‘examining’ spring to mind. The weekly close above 1.5000 and the moving averages ought to help but a shame Cable did not manage a weekly close above the highest close since October (1.5365). Maybe it will this week, causing the averages to turn bullish. Note that open interest while rising, is still roughly half of the peaks in 2007 and 2008. One-month at the money implied volatility appears to have based against the 12.00% area and our target is now18.00%.


EUR/GBP

Chart Levels:

Support 0.8880..0.8785..0.8750..0.8635.

Resistance 0.9050..0.9100..0.9200..0.9320.

Bouncing from the lower edge of the broad trading band that has dominated since December. For the next week or two we shall allow for a series of random messy moves roughly between 0.8750 and 0.9100. Over the next six weeks we continue to pencil in a re-test of February’s low at 0.8635. A sustained break below 0.8600 very late in Q2 2009 should see the pair move slowly lower towards 0.8250. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. One-month at-the-money implied volatility, which collapsed from 21.00% to 12.00%, should form an interim base.

Published on  Mon, May 11 2009, 10:39 GMT

14

0

Weekly Technical Commentary

Mon, Apr 27 2009, 10:20 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 96.45..95.45..94.00..93.55.

Resistance 97.50..98.00..99.00..99.69

Today’s brief dip below 96.50, and last week’s close below 97.00, has forced us to adjust our view and we now see April’s high at 101.45 as an interim top. It is an ‘extension’ above March’s high at 99.69 (and the 50% retracement area) which was stopped by the Ichimoku ‘cloud’ and the Fibonacci 61% level. Now prices should turn their focus to cautious downside probing, in what is expected to be generalised US dollar selling, where a drop below 92.00 on a first attempt is considered unlikely. We remind that the faster we move towards, and the closer we get to this year’s low at 87.10, the greater the chance of some form of intervention. Volatility should pick up over the coming month.


EUR/USD

Chart Levels:

Support 1.3000..1.2885..1.2775..1.2600.

Resistance 1.3300..1.3400..1.3585..1.3739.

The Euro bounced from the bottom of a fairly large ‘flag’ formation and is consolidating between the 9 and 26-week moving averages. The Euro is no longer oversold but neither is momentum bullish. We favour an upside test this week but we remind that only when the Euro starts holding consistently above the 1.3500 area will something more like a proper rally emerge. Until then prepare to remain flexible with relatively small positions, with a tendency towards generalised US dollar weakness against major currencies and increased risk aversion – so that some Eastern European ones suffer. Note also that one-month at-the-money implied volatility is expected to rally.


EUR/JPY

Chart Levels:

Support 126.50..126.00..125.00..121.75.

Resistance 130.00..131.00..134.50..137.40

Still difficult and inconclusive as prices consolidate close to the upper edge of the broad trading band that held from October until March, roughly between 115.00 and 130.00. A second consecutive weekly close below 130.00 hints that perhaps an interim high is already in place. Note that over the next nine months or more we favour EUR/JPY, and other Yen crosses, to move broadly sideways in very wide ranges. At the moment we still see the pullback of the last three weeks as corrective, and therefore prices should base around the 126.00 area. This would then set up for another cautious upside probe next month, where rallies will probably be capped by resistance around 142.00. Implied volatility should pick up too.


GBP/JPY

Chart Levels:

Support 140.00..139.00..137.65..135.00.

Resistance 147.00..148.50..150.00..151.50.

Retreating from the psychological level at 150.00 in a corrective move which should base this week against the 61% Fibonacci level and the top of the Ichimoku ‘cloud’. Momentum however is no longer bullish and the pound is almost oversold against the Yen. One-month implied volatility is expected to base from the 22.00% area and eventually rally sharply. If this cross was to start holding consistently below 140.00 we would have to review as it hints that an interim high is already in place and the next step ought to be downside probing before a new interim low is established. We remind that the Yen and Yen crosses are expected to be very difficult this year as they trade broadly sideways in very broad bands.


GBP/USD

Chart Levels:

Support 1.4500..1.4435..1.4395..1.4200.

Resistance 1.4700..1.4780..1.4960..1.5070.

Consolidating fairly neatly around 1.4600, despite some sharp intra-day moves, and above the top of the Ichimoku ‘cloud’. Expect more of the same this week noting that Sterling is no longer overbought and momentum remains bullish so that longer term we continue to feel Cable should trade higher. What it needs is a little help from rallies in other major currencies and a weekly close above 1.5000. This should send many off to re-think this currency pair in particular (and the value of the US dollar) and UK plc generally. On the Bank of England’s Trade Weighted basis the pound is still very close to its cheapest ever levels; even against a laggard like the Canadian dollar it is almost as low as it has ever been.


EUR/GBP

Chart Levels:

Support 0.8900..0.8800..0.8725..0.8635.

Resistance 0.9050..0.9100..0.9200..0.9320.

Bouncing slowly from the lower edge of the broad trading band that has dominated since December. For the next week or two we shall allow for a series of random messy moves roughly between 0.8750 and 0.9100. Over the next six weeks expect a re-test of February’s low at 0.8635. A sustained break below 0.8600 very late in Q2 2009 should see the pair move slowly lower towards 0.8250. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. One-month at-the-money implied volatility, which collapsed from 21.00% to 12.00% over the last two months, should form an interim base.

Published on  Mon, Apr 27 2009, 10:20 GMT

12

0

Weekly Technical Commentary

Mon, Apr 20 2009, 14:07 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 98.00..97.00..96.55..95.65.

Resistance 99.77..100.75..100.55..101.45

Because we predict a series of broadly sideways moves for the bulk of this year, with many interim highs and lows along the way, predicting where these lie will be a difficult problem which we will have to face again and again. This is the case with April’s high at 101.45, just as it was with March’s one at 99.69. At the moment we see the pull-back from the recent high as corrective, retracing just 38% of the previous rally, and an A, B, C-type move which should base imminently. This should then set up for another cautious upside probe next month. However, if the market was to break and then trade consistently below the 97.00 area we will probably be tempted to say an interim high is already in place.

EUR/USD

Chart Levels:

Support 1.2945..1.2835..1.2775..1.2600.

Resistance 1.3300..1.3400..1.3585..1.3739

Unfortunately, given our negative view on the US dollar, the thick Ichimoku ‘cloud’ has done a splendid job capping the Euro, forcing it to give up 61.8% of the previous rally. Because the ‘cloud’ thins dramatically this week we feel there is a chance of basing and then rallying sharply until month-end. The Euro is oversold so watch for a strong reversal candle to form on the daily and weekly charts. Further out only when the Euro starts holding consistently above the 1.3500 area will something more like a proper rally emerge. Until then prepare to remain flexible with relatively small positions. Note also that one-month at-the-money implied volatility is expected to base and rally from 14.00%.

EUR/JPY

Chart Levels:

Support 127.40..126.40..125.00..121.75.

Resistance 130.00..131.00..134.50..137.40

Consolidating rather unsteadily close to the upper edge of the broad trading band that held from October until March, roughly between 115.00 and 130.00. Last week’s close below 130.00 is worrying and hints that perhaps an interim high is already in place. Note that over the next nine months or more we favour this, and other Yen crosses, to move broadly sideways in very wide ranges. At the moment we see the pullback of the last two weeks as corrective, and therefore it should base imminently around the 128.00 area. This would then set up for another cautious upside probe next month, where rallies will probably be capped by resistance around 142.00. Implied volatility should pick up too.

GBP/JPY

Chart Levels:

Support 141.50..139.00..137.65..135.00.

Resistance 147.00..148.50..150.00..151.50.

Retreating from the psychological level at 150.00, and because this year’s rally was stronger than that in some other Yen crosses it has not pulled back into the previous range. Therefore it is clearly corrective and we continue to favour another rally to the measured target which remains at 165.00. Momentum is still bullish and the pound is almost oversold against the Yen. One-month implied volatility is expected to base from the 22.00% area and eventually rally sharply. If this cross was to start holding consistently below 140.00 we would have to review as it hints that an interim high is already in place and the next step ought to be downside probing before a new interim low is established.

GBP/USD

Chart Levels:

Support 1.4530..1.4435..1.4365..1.4200.

Resistance 1.4665..1.4780..1.4960..1.5070.

Having broken above the downward-sloping ‘wedge’ formation Cable is now struggling under the psychological and Technical level at 1.5000. The drop of the last three days has seen it give up 38% of March’s rally and the move ought to find support and base between here and the Ichimoku ‘cloud’. Sterling is no longer overbought and momentum remains bullish, open interest in the futures contracts down 50% from the peak, suggesting a lot less speculation. What it now needs is a little help from rallies in other major currencies and a weekly close above 1.5000. This should send many off to re-think this currency pair in particular (and the value of the US dollar) and UK plc generally. Volatility should also start picking up again.

EUR/GBP

Chart Levels:

Support 0.8785..0.8725..0.8635..0.8500.

Resistance 0.8920..0.9000..0.9075..0.9200.

Difficult as we approach the lower edge of the broad trading band that has dominated since December. For this week, and maybe the next three, we shall allow for a series of random messy moves roughly between 0.8750 and 0.9050. Over the next six weeks expect a re-test of February’s low at 0.8635. A sustained break below 0.8600 very late in Q2 2009 should see the pair move slowly lower towards 0.8250. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. One-month at-the-money implied volatility, which collapsed from 21.00% to 12.00% over the last two months, should form an interim base.

Published on  Mon, Apr 20 2009, 14:07 GMT

6

0

Weekly Technical Commentary

Mon, Mar 16 2009, 11:09 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 97.00..96.55..95.65..94.45.

Resistance 98.75..99.69..100.00..100.55.

It might just be possible that we have formed an interim high at 99.69, but until we start holding consistently below the 97.00 area this has yet to be confirmed. Therefore the outlook for this week and possibly for the rest of this month is unclear. As we predict a series of broadly sideways moves for the bulk of this year, it will be the sort of problem we will have to face again and again, making work tedious. We also cannot rule out a very brief ‘spike high’ this month at 100.55 before a slide to 93.00. In this case one-month at-the-money implied volatility should creep back up to the 25.00% area. Note that open interest in the futures contract is running at about one quarter of the 2007 peak, evidence of unwinding the ‘carry trade’.


EUR/USD

Chart Levels:

Support 1.2835..1.2775..1.2700..1.2600.

Resistance 1.3000..1.3100..1.3385..1.3600.

Breaking above the top of the downward-sloping ‘wedge’ formation and momentum is now bullish. Hopeful signs that we are about to start trending higher but note the raft of resistance levels we shall have to overcome allthe way up. Therefore rallies will probably be a surprise to many, bringing with it the possibility of slightly higher implied volatility. Note that volume in the futures contract picked up steadily this year, suggesting a shift out of trading Yen crosses and into/against the US dollar versus the majors. Note that as is so often the case the currencies that were hardest hit in January and February are the ones that have performed best this month, South Korea and Sweden leading.


EUR/JPY

Chart Levels:

Support 125.50..121.70..120.00..119.50.

Resistance 127.65..128.55..129.70..131.00

Yen crosses are rallying towards the upper edges of bands that have held since October, as expected. Though maybe not this week some time this month we continue to target the top of the band around 130.00. Many are probably still wrongly positioned for this move as it is quite rare for a drop on the scale of the move of 2008 to come to such a sudden, unexpected, complete halt. While not exactly comparable currency moves during the Asia crisis of 1997/1998 were similar, with massive one-off moves and exchange rates not seen again subsequently. Though not our current favoured view, we shall also have to consider whether a serious retracement of last year’s drop is possible.

GBP/JPY

Chart Levels:

Support 135.50..133.80..131.55..130.00.

Resistance 141.80..146.45..148.55..150.00.

Consolidating neatly above the Ichimoku ‘cloud’ and the ‘neckline’ of an inverted ‘head-and-shoulders’ pattern. Over the next three weeks we cannot rule out a re-test of the 130.00 area, followed by a slow move back up to increasingly important resistance around 141.50. Momentum is bullish and one-month at-the-money implied volatility should increase towards 30.00% this month. As and when this pair manages a weekly close above 141.50 we then favour another short-covering squeeze where the measured target is 165.00. A move on this scale is easily possible because of the massive declines last year, taking sterling to a record low at 119.00, as it came under extreme pressure against a series of other currencies.


GBP/USD

Chart Levels:

Support 1.3895..1.3655..1.3500..1.3380.

Resistance 1.4300..1.4660..1.5000..1.5375.

Slow work as we consolidate in an interminable, horrid, downward-sloping ‘wedge’ formation. Sterling bears may be disappointed that super long term support around 1.3500 held again and are probably confidently predicting an imminent break below here. We disagree and feel that this area will probably hold this year and that the danger is to the upside and a vicious short squeeze. Futures volume last week was better than of late, closer to the average for 2007 and 2008, suggesting at least some are maybe becoming overconfident in trading this currency pair. Note that on the Bank of England’s Trade Weighted basis sterling is still close to its weakest ever, having lost around 30% of its value over the last 18 months.


EUR/GBP

Chart Levels:

Support 0.9100..0.8860..0.8725..0.8635.

Resistance 0.9200..0.9320..0.9400..0.9520.

The latest corrective bounce extended beyond what we had thought, to a high at 0.9320 and the Euro to overbought levels, in a market that will probably be dominated by this sort of move (‘extensions’ and ‘spikes’) for the coming month or more. Ideally this week this currency pair should drift slowly lower, back down through 0.9100 and maybe as low as 0.9000 where more messy consolidation is likely. A sustained break below 0.8600 later in Q2 2009 should see the pair move slowly lower towards 0.8250. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. One-month at-the-money implied volatility should hold around 18.00%.

Published on  Mon, Mar 16 2009, 11:09 GMT

11

1

Weekly Technical Commentary

Mon, Mar 9 2009, 12:07 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 97.30..96.55..95.25..94.00.

Resistance 98.75..99.69..100.00..100.55

The outlook for dollar/Yen has just become an awful lot harder although many economists are glibly talking as though a rally through the psychological 100.00 mark to 110.00 was a done deal. Having retraced 50% of the previous decline, and formed a ‘doji’ candle on the weekly chart, and with the US dollar overbought, we shall allow for another week of instability probably between 96.00 and 99.00. The longer we hold below last week’s high at 99.69, the sooner we should drop back to the 93.00 area. We also cannot rule out a very brief ‘spike high’ at 100.55 before a slide to 93.00. In this case one-month at-the-money implied volatility should creep back up to the 25.00% area.


EUR/USD

Chart Levels:

Support 1.2600..1.2450..1.2388..1.2329.

Resistance 1.2755..1.2885..1.3000..1.3100.

Truly nasty as we cling to support in the 1.2400 area, still within the downward-sloping ‘wedge’ formation. The FX market currently feels like something to be avoided, or rather, which currencies to avoid at all costs, rather than currency of choice. The US dollar continues to attract inflows as banks and corporates desperately try to recapitalise ailing core operations. Yet still the Euro is not in a proper downtrend. Emerging markets are increasingly out of favour though we are beginning to distinguish between the various Eastern European and Baltic states. Note that we have a small bias towards the Swiss franc and Sterling over the Euro.


EUR/JPY

Chart Levels:

Support 123.90..122.00..121.70..119.50.

Resistance 125.75..126.25..127.30..128.55

Yen crosses are going to plan, rallying towards the upper edges of bands that have held since October, the USD and NOK leading, KRW and SEK lagging. Though probably not this week, maybe some time this month we continue to target the top of the band around 130.00. The 9-day moving average limited the downside for most of last week and might help push the cross up to new recent highs by Friday with a rally to 128.50 attainable. Note that we have broken and are consolidating neatly above the thin Ichimoku ‘cloud’, something that should also increase bullish momentum. We also feel that one-month at-the-money implied volatility should increase slightly, say to around 28.00%.


GBP/JPY

Chart Levels:

Support 135.50..133.70..130.00..127.00.

Resistance 141.80..146.45..148.55..150.00.

Consolidating neatly above a widening Ichimoku ‘cloud’. Price action since mid-December is seen as an inverse ‘head-and-shoulders’ pattern the ‘head’ being the drop to the record low at 119.00, and now we are holding above the ‘neckline’. Momentum has turned bullish and a sustained break above January’s high at 141.55 should set off another round of short-covering where we currently favour a squeeze to 147.00 in March. If anything though because declines in Q4 2008 were so very extreme this currency pair is likely to exceed expectations on the way up as well. Therefore one-month at-the-money implied volatility should increase towards 30.00% this month.


GBP/USD

Chart Levels:

Support 1.3700..1.3620..1.3500..1.3380.

Resistance 1.4300..1.4660..1.5000..1.5375.

Still working in an interminable, horrid, downward-sloping ‘wedge’ formation and looking set for another downside probe this week. The low could be anywhere, and we would point out that rarely has Cable traded below 1.3500 (1.6 Standard Deviations from the mean since 1982). One-month at-the-money implied volatility is still relatively high at 17.00% and is likely to edge back up to 25.00% whether we trade below 1.3400 or above 1.5000. Note that spreads between US dollar Libor and TBills have widened again over the last three weeks suggesting another round of bank problems looming. Selling peripherals to prop up core business is far from over.


EUR/GBP

Chart Levels:

Support 0.8745..0.8635..0.8575..0.8500.

Resistance 0.9100..0.9200..0.9265..0.9520.

Consolidating fairly neatly in a ‘triangle’ following a pair of sharp declines over year-end. Things are likely to get a bit messier over the coming month, with chart levels less likely to hold, ‘extensions’ and ‘false breaks’ a very real possibility. Price options accordingly, EUR/GBP one-month at-the-money implied volatility holding above 14.00% for several more months. This week we think this cross should establish another interim top between 0.9100 and probably 0.9200. A sustained break below 0.8600 later in Q2 2009 should see the pair move slowly lower towards 0.8250. Readers should note that the pound is not considered particularly attractive, just that many other currencies look so flaky.

Published on  Mon, Mar 9 2009, 12:07 GMT

6

0

Weekly Technical Commentary

Tue, Feb 24 2009, 05:54 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 93.75..92.75..92.00..91.00.

Resistance 95.00..95.65..97.55..99.50

No doubt to the surprise of many, dollar/Yen has squeezed up through the Ichimoku ‘cloud’ and just now through January’s high at 94.65. This might turn out to be an ‘extension’ and later it will consolidate below here for a week or two. However, depending on how much momentum is generated by the other Yen crosses we shall have to allow for a sustained burst through here some time in March. Note that a brief squeeze up as high as 98.00 some time in H1 2009 cannot be ruled out. While this takes place the tendency will be for the Yen to loose ground against a host of other major currencies, taking Yen crosses higher. One or two exceptions as some emerging market currencies come under increasing pressure.


EUR/USD

Chart Levels:

Support 1.2700..1.2650..1.2500..1.2425.

Resistance 1.3000..1.3100..1.3200..1.3400.

Last week’s ‘hammer’ gives us hope that the five consecutive weeks’ worth of cautious downside probing of the downward-sloping ‘wedge’ formation might have ended. A sustained break above the top of this, around 1.3100, would add some much-needed weight to our argument. This would mean that the Euro may catch up a little with what Cable has already done and would help lift Yen crosses too. One-month at-the-money implied volatility remains relatively high at 18.50% and will probably trade around 20.00% for another month. Note that we currently favour the Swiss franc and Sterling over the Euro, while several emerging markets currencies are still very vulnerable to another onslaught of selling. FX markets very jittery.


EUR/JPY

Chart Levels:

Support 119.00..117.00..115.65..114.00.

Resistance 122.35..125.00..126.25..128.55

At last moving back towards the middle of the band that has been in place since October. Note the very thin Ichimoku ‘cloud’ should not pose too much of a problem so that late in March we should be closer to the top of the band around 130.00. The 9-day moving average has crossed above the 26-day one adding weight to our view. A break above the mid-point of the range since October, roughly at 122.35 might be too much to hope for this week, but in March this should see some short-covering taking up back up towards 130.00. Consensus opinion is not this way round and is likely to find many once again incorrectly positioned. The one exception is KRW/JPY which dropped to a new recent low.


GBP/JPY

Chart Levels:

Support 133.00..129.00..127.00..125.25.

Resistance 139.00..141.55..147.00..148.50.

Bursting through trendline resistance exactly at the point where the Ichimoku ‘cloud’ becomes very thin. Price action since mid-December might also be seen as an inverse ‘head-and-shoulders’ pattern the ‘head’ being the drop to the record low at 119.00. Momentum has turned bullish and a break above January’s high at 141.55 should set off another round of short-covering where we currently favour a squeeze to 147.00 in March. If anything though because declines in Q4 2008 were so very extreme this currency pair is likely to exceed expectations on the way up as well. Therefore one-month at-the-money implied volatility should remain above 20.00% for several more weeks.


GBP/USD

Chart Levels:

Support 1.4365..1.4140..1.4050..1.3620.

Resistance 1.4700..1.4900..1.5000..1.5375.

Holding up better than many currencies as some are coming round to the idea that this one is at least relatively ‘cheap’, if not ‘attractive’ in a realm of grim choices. Retracement support around 1.4050 held last week setting off today’s rally to trendline resistance and a rapidly thinning Ichimoku ‘cloud’. A break through here this week should allow follow-through to February’s high at 1.5000. Another clear-out is likely on a sustained break above 1.5500. One-month at-the-money implied volatility is still relatively high at 19.00% and as and when short-covering kicks in should edge back up to 25.00%. Note that this is the second month in a row that we have potential ‘dojis’ on the monthly candles suggesting extreme instability.


EUR/GBP

Chart Levels:

Support 0.8745..0.8635..0.8575..0.8500.

Resistance 0.8925..0.9085..0.9265..0.9520.

Some are now discussing Switzerland’s exposure to financial services and a downturn in these, thankfully taking the focus off the UK. Eastern Europe and its creditors look increasingly vulnerable too, ‘stones’ and ‘glasshouses’ springing to mind. We shall continue to allow for extreme volatility in the FX market especially in currency pairs that are trading at extremes. Price long-dated options accordingly, EUR/GBP one-month at-the-money implied volatility holding above 14.00% for several more months, possibly pushing above the record high at 21.50%. Price wise we feel this pair should drop back down to the February low at 0.8637 and then continue South towards 0.8500.

Published on  Tue, Feb 24 2009, 05:54 GMT

12

0

Weekly Technical Commentary

Mon, Feb 16 2009, 10:27 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 89.70..88.50..88.00..87.10.

Resistance 92.50..93.10..94.65..95.65

Consensus opinion for a stronger Yen, coupled with a North American holiday today, might mean that we manage a squeeze above trendline resistance in thin markets later on. This may rattle some, setting off buy stops, and allowing prices to extend their rally. We continue to allow for a lot of messy broadly sideways work, with an initial squeeze towards 94.00 later this month. Note that a brief squeeze to 98.00 some time in H1 2009 cannot be ruled out. While this takes place the tendency will be for the Yen to loose ground against a host of other major currencies, taking Yen crosses higher, probably to the surprise of many who are still calling for de-leveraging to cause a stronger Yen.


EUR/USD

Chart Levels:

Support 1.2700..1.2650..1.2500..1.2550.

Resistance 1.3000..1.3100..1.3200..1.3400.

Terribly slow work as the Euro continues to try and base around 1.2800 inside a downward-sloping ‘wedge’ formation - a difficult reversal pattern. Expect more of the same this week, potentially with a ‘spike low’ in holiday-thin conditions late today. A sustained break above the top of this, around 1.3100, would add some much-needed weight to our argument. This would mean that the Euro may catch up a little with what Cable has already done and would help lift Yen crosses too. One-month at-the-money implied volatility remains relatively high at 18.50% and will probably trade around 20.00% for another month. In fact FX volatility is likely to remain relatively high in many currencies for another three months.


EUR/JPY

Chart Levels:

Support 116.50..114.00..113.60..112.00.

Resistance 120.30..121.00..122.35..125.00

Little to add as prices consolidate above the lower edge of the band that has been in place since October, in turn the lowest level since 2002. The latest bounce has once again been limited by the 26-day average but as the 9-day one looks set to cross above this one we feel that a squeeze higher is imminent. Later this month we expect it to move to new recent highs, noting that the Ichimoku ‘cloud’ is now very thin. A break above the mid-point of the range since October, roughly at 122.35 might prove difficult this week, but this should see some short-covering taking up back up towards 130.00. Consensus opinion is not this way round and is likely to find many once again incorrectly positioned.


GBP/JPY

Chart Levels:

Support 128.80..127.00..125.25..119.00.

Resistance 134.00..135.15..136.00..137.35.

Leading the way, consolidating under a large Ichimoku ‘cloud’ which gets considerably thinner at the end of this month. Therefore this week we shall allow for more consolidation at these slightly higher levels, above the record low at 119.00, and above retracement support. A break above January’s high at 141.55 should also set off another round of short-covering.
Therefore one-month at-the-money implied volatility should remain above 20.00% for many more weeks. Note that the FX market at the moment looks more like a line-up of the ugly than a beauty pageant. It is a question of the least evil, the currency with the least bleak prospects, the lesser of two evils. Interest rate differentials zero when rates are zero.


GBP/USD

Chart Levels:

Support 1.4150..1.4050..1.3800..1.3500.

Resistance 1.4600..1.4900..1.5000..1.5375.

Consolidating rather nervously under trendline resistance and a rapidly thinning Ichimoku ‘cloud’. Expect more work under here this week with retracement support at 1.4050 hopefully limiting the downside (though we cannot rule out a brief ‘spike low’ in thin market conditions today). Cable is no longer oversold, bearish momentum is now zero, and should turn bullish on a weekly close above the 50-day moving average at 1.4560. Another clear-out is likely on a sustained break above 1.5500. Because volatility has been so extreme over the last month a squeeze up to here by the end of February is a distinct possibility. Note that open interest is still half of last year’s peak suggesting many have given up speculating in this pair.


EUR/GBP

Chart Levels:

Support 0.8800..0.8635..0.8575..0.8500.

Resistance 0.9085..0.9130..0.9285..0.9520.

Rather messy as price action neither holds retracement support nor the Ichimoku ‘cloud’. This suggests more rather random moves this week roughly inside the ‘cloud’. Note that on the Bank of England’s Trade Weighted index it is hauling itself up from December’s record low and still has masses of room for improvement. We shall continue to plan for extreme volatility and price long-dated options accordingly, one-month at-the-money implied volatility holding above 14.00% for several more months, possibly pushing above the record high at 21.50%. The process is one of weighing up Britain’s vulnerability to crumbling financial services versus its ability to ‘go it alone’ on exchange and interest rates.

Published on  Mon, Feb 16 2009, 10:27 GMT

2

0

Weekly Technical Commentary

Mon, Feb 9 2009, 10:25 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 90.87..90.00..89.00..88.50.

Resistance 92.00..92.50..93.10..94.65

Support around 88.50 has given the dollar a boost, turning momentum bullish and pushing prices above the 26-day moving average at 90.87. If we can hold above here today upside pressure should increase further for a squeeze up towards 94.00 around month-end. Note that a brief squeeze to 98.00 some time in H1 2009 cannot be ruled out. While this takes place the tendency will be for the Yen to loose ground against a host of other major currencies, taking Yen crosses higher, probably to the surprise of many who are still calling for de-leveraging causing a stronger Yen. One-month at-the-money implied volatility remains relatively high at 17.50% and should hold between 14.00% and 22.00% for a few more weeks.


EUR/USD

Chart Levels:

Support 1.2800..1.2700..1.2650..1.2550.

Resistance 1.3000..1.3100..1.3200..1.3400.

Such slow work but we still view price action as an attempt to try and base around 1.2800 and Fibonacci 78.6% retracement support. Since early January we also have a potential downward-sloping ‘wedge’ formation which is a difficult reversal pattern. A sustained break above the top of this, around 1.3100, would add some much-needed weight to our argument. This would mean that the Euro may catch up a little with what Cable has already done and would help lift Yen crosses too. One-month at-the-money implied volatility remains relatively high at 18.00% and will probably trade around 20.00% for another month. In fact FX volatility is likely to remain relatively high in many currencies for another three months.


EUR/JPY

Chart Levels:

Support 117.00..114.00..113.60..112.00.

Resistance 120.30..121.00..122.35..125.00

Hauling itself off the lower edge of the band that has been in place since October, in turn the lowest level since 2002. The latest bounce has been limited by the 26-day average at 120.32 and possibly the cross will hold below here all week. Later this month we expect it to move to new recent highs. Remember: inside the 112.00 to 130.00 band, price swings could be big and therefore one-month at-the-money implied volatility should remain relatively high, say between 18.00% and 32.00%. A break above the mid-point of the range since October at 122.35 within a fortnight remains doubtful, but this should see some short-covering taking up back up towards 130.00. Consensus opinion is not this way round.


GBP/JPY

Chart Levels:

Support 133.50..130.00..126.50..119.00.

Resistance 137.35..139.25..141.55..146.50.

Leading Yen crosses higher, now trading above the top of the downward-sloping ‘wedge’ formation, so that the drop to a record low at 119.00 looks increasingly like an ‘extension’. The large Ichimoku ‘cloud’ prevented a weekly close above 136.00, and until then we are not out of the woods. A break above January’s high at 141.55 should also set off another round of short-covering. Therefore one-month at-the-money implied volatility should remain above 20.00% for many more weeks. Having suffered the worst ever three consecutive monthly falls, there is plenty of scope to undo the damage done, leading many to re-think the relative merits of the two countries. Few will be tempted back into the ‘carry trade’ though.


GBP/USD

Chart Levels:

Support 1.4550..1.4350..1.4050..1.3500.

Resistance 1.4890..1.5000..1.5375..1.5500.

Back up to the top of the downward-sloping ‘wedge’ formation, stalling at a relatively large Ichimoku ‘cloud’, with precious little help from any other currencies. This adds weight to our view that the drop to 1.3500 was an ‘extension’ caused by over-excitable (probably novice) dealers. Cable is no longer oversold, bearish momentum is now zero, and should turn bullish on last week’s close above 1.4500. Another clear-out is likely on a sustained break above 1.5500. Because volatility has been so extreme over the last month a squeeze up to here by the end of February is a distinct possibility. Note that open interest is still half of last year’s peak suggesting many have given up speculating in this pair.


EUR/GBP

Chart Levels:

Support 0.8663..0.8575..0.8500..0.8333.

Resistance 0.8800..0.8850..0.8930..0.9100.

Dropping below retracement support and the lower edge of the Ichimoku ‘cloud’ rather sooner than expected. This suggests more unwinding this week and were we to hold below the ‘cloud’ and the 0.8850 area bearish momentum should match January’s record even though the Euro is already very oversold. Note that on the Bank of England’s Trade Weighted index it is hauling itself up from December’s record low and still has masses of room for improvement. We shall continue to plan for extreme volatility and price long-dated options accordingly, one-month at-the-money implied volatility holding above 14.00% for several more months, possibly pushing above the record high at 21.50%.

Published on  Mon, Feb 9 2009, 10:25 GMT

7

2

Weekly Technical Commentary

Tue, Feb 3 2009, 05:45 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 88.00..87.10..86.10..85.00.

Resistance 90.79..91.33..92.00..94.65

Hovering unsteadily between 88.00 and 91.00, above a potential ‘double bottom’ at 87.10, and below a fairly thick Ichimoku ‘cloud’. During February we shall continue to allow for another cautious downside probe towards 85.00. Nervous authorities will probably be tempted to talk the Yen weaker as we approach this point. They might actually intervene as the Yen is very strong against a raft of other currencies. As for the upside, prices should initially be capped around 94.00 but a brief squeeze to 98.00 some time in H1 2009 cannot be ruled out. One-month at-the-money implied volatility remains relatively high at 17.00% and should hold between 14.00% and 21.00% for a few more weeks.


EUR/USD

Chart Levels:

Support 1.2700..1.2650..1.2550..1.2425.

Resistance 1.3000..1.3200..1.3300..1.3400.

Dipping below the 78.6% retracement support of December’s rally and one-month at-the-money implied volatility remains relatively high, and will probably trade around 20.00% for another month. During January the Euro has lost ground against all major currencies, the only exceptions being the New Zealand dollar and Eastern European currencies. Stock indices are testing key support and look set to break lower this month. Rigidities in the system will become ever more apparent as financial markets edge closer to meltdown. Faith in the authorities will be seriously tested and few will know what has hit them, let alone how to respond. ‘Each man for himself’ is our motto.


EUR/JPY

Chart Levels:

Support 113.00..112.00..111.30..110.00.

Resistance 115.25..116.75..119.60..121.00

Re-testing the lower edge of the band that has been in place since October, only the New Zealand dollar putting on a worse performance. We shall allow for cautious downside testing this week, and while we might get tiny and brief moves below 112.00, we expect the range to hold. Once back inside the 112.00 to 130.00 band, price swings could be big and therefore one-month at-the-money implied volatility should remain relatively high, say between 18.00% and 32.00%. This week expect the Euro to try to base slowly against the 113.00 area, moving slowly higher over the coming month. A break above the mid-point of the range since October at 122.35 within a fortnight remains doubtful.


GBP/JPY

Chart Levels:

Support 126.00..124.75..122.00..119.00.

Resistance 130.70..133.00..135.85..139.25.

Back inside the downward-sloping ‘wedge’ formation so that the drop to a record low at 119.00 looks increasingly like an ‘extension’. Until we get a weekly close above 136.00 we are not out of the woods though, so expect a series of nervous price swings over the coming month or two. Therefore one-month at-the-money implied volatility should remain high, though still below last year’s record high at 44.25%. We expect this to stay above 20.00% for many more weeks. Sterling is no longer oversold and bearish momentum has totally disappeared. Having suffered the worst ever three consecutive monthly falls, there is plenty of scope to undo the damage done.


GBP/USD

Chart Levels:

Support 1.4185..1.4070..1.3550..1.3500.

Resistance 1.4530..1.4890..1.5000..1.5375.

Back inside the downward-sloping ‘wedge’ formation with precious little help from any other currencies. This adds weight to our view that the drop to 1.3500 was an ‘extension’ caused by over-excitable (probably novice) dealers. One-month at-the-money implied volatility is holding above 18.00% and should move towards the 28.00% area. Cable is no longer oversold though momentum remains decidedly bearish (if a little less extreme). Futures open interest is half of last year’s peak suggesting many have avoided speculating in this tarnished currency. Now we shall have to wait for a weekly close above 1.4500 to see momentum turn bullish and trigger a second round of short-covering.


EUR/GBP

Chart Levels:

Support 0.8840..0.8800..0.8725..0.8575.

Resistance 0.9050..0.9130..0.9200..0.9520.

After dropping for five consecutive days today’s bounce from retracement support at the lower edge of the Ichimoku ‘cloud’ should not come as a surprise. The ‘cloud’ is very thick at the moment but narrows considerably in March. Expect hesitation here today and probably all week, maybe longer, prior to a drop to the 0.8550 area. Note that on the Bank of England’s Trade Weighted index it is scraping along at the bottom after hitting its weakest ever in December. We shall continue to plan for extreme volatility and price long-dated options accordingly, one-month at-the-money implied volatility holding above 14.00% for several more months, possibly pushing above the record high at 20.55% established in November.

Published on  Tue, Feb 3 2009, 05:45 GMT

7

0

Weekly Technical Commentary

Tue, Jan 27 2009, 05:55 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 88.00..87.10..86.10..85.00.

Resistance 90.00..91.33..92.00..94.65

A potential ‘double bottom’ at 87.10, complete with a massive ‘hammer’ on the 21st, yet momentum remains decidedly bearish. Therefore we shall during February allow for another cautious downside probe towards 85.00. Nervous authorities will probably be tempted to talk the Yen weaker as we approach this point. They might actually intervene as the Yen is very strong against a raft of other currencies. As for the upside, prices should initially be capped around 94.00 but a brief squeeze to 98.00 cannot be ruled out. One-month at-the-money implied volatility remains relatively high at 17.00% and should hold between 14.00% and 21.00% for another several weeks. Jitters in all financial markets could lead to ‘false breaks’.


EUR/USD

Chart Levels:

Support 1.2800..1.2764..1.2650..1.2550.

Resistance 1.3100..1.3200..1.3300..1.3400.

Hovering unsteadily against 75% retracement support of December’s rally. We had hoped for a break higher last week because of the very thin Ichimoku ‘cloud’. One-month at-the-money implied volatility remains relatively high and will probably trade around 20.00% for another month. Weak Eurozone countries are seeing their bonds shot to pieces, spreads on ‘PIGS’ ten-year government bonds at new records: Portugal 159 basis points over Bunds, Ireland 289, Greece 297 and Spain 124 – and Italy 171. EU27 countries outside the Eurozone, including sterling, have seen their currencies sold heavily against the Euro, the Hungarian forint at its weakest ever at 291.50 and the Polish zloty its weakest since August 2004.


EUR/JPY

Chart Levels:

Support 113.50..112.00..111.30..110.00.

Resistance 117.25..119.75..122.20..126.00

Over the next three months, while not being able to completely rule out a very brief dip to new recent lows, we favour a market that will move broadly sideways, here and in nearly all other Yen crosses. The ones that have been hardest hit most recently are the ones likely to bounce first, and furthest. Price swings could be big as we establish this new broad trading band and therefore one-month at-the-money implied volatility should remain relatively high, say between 18.00% and 32.00%. This week expect the Euro to try to base slowly against the 114.00 area, moving slowly higher over the coming month. A break above the mid-point of the range since October at 122.35 within a fortnight remains doubtful.


GBP/JPY

Chart Levels:

Support 121.00..119.00..117.50..115.00.

Resistance 125.00..126.00..130.00..135.8 5.

Dropping to a new record low at 119.00, well below the bottom of the downward-sloping ‘wedge’ formation. Not surprisingly one-month at-the-money implied volatility is on its way up again, at 35.00%, though still below last year’s record high at 44.25%. We expect this to stay above 20.00% for many more weeks. This suggests that over the next month, maybe the next three, we are in for a period of sharp swings in what might be a massive trading band. Therefore last week’s move might turn out to be an ‘extension’ and we feel that over the next two weeks prices should recover somewhat and try and start holding above the psychological level at 125.00. Note: 1985’s previous record low was 128.20.


GBP/USD

Chart Levels:

Support 1.3620..1.3500..1.3380..1.3000.

Resistance 1.4030..1.4440..1.5000..1.5375.

Plummeting to 1.3500, its lowest since the Plaza Accord of the 22nd September 1985. This is well below the long term mean at 1.6400 and below here Cable only traded for 12 months, a period of extreme FX volatility and extreme USD strength because of interest rate policy. One-month at-the-money implied volatility is holding above 18.00% and is moving towards the 28.00% area as expected. Similar moves, with a similar feel, can be seen in other currencies that were hard hit last year like the Australian and New Zealand dollars, and a version of this pattern can be seen on several Yen crosses. Cable open interest is half of last year’s peak suggesting many have avoided speculating in this tarnished currency.


EUR/GBP

Chart Levels:

Support 0.9250..0.9065..0.8960..0.8830.

Resistance 0.9520..0.9555..0.9650..0.9805.

Another big move last week, this time a rally caused by the pound’s weakness. Media and investors’ focus has been on Cable, but it is worth noting that month-to-date Sterling has neither been the worst nor the best performing currency, but just about in the middle of the range of most major currencies. However, on the Bank of England’s Trade Weighted index it is scraping along at the bottom after hitting its weakest ever in December. We expect the bounce to stop at or just ahead of 0.9600 so that we drop back towards 0.8800 in February. We shall continue to plan for extreme volatility and price long-dated options accordingly, one-month at-the-money implied volatility holding above 14.00% for several more months.

Published on  Tue, Jan 27 2009, 05:55 GMT

1

0

Weekly Technical Commentary

Mon, Jan 12 2009, 11:43 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 90.00..89.00..88.00..85.00.

Resistance 91.00..92.00..93.00..94.65

The rally in the first three days of this year is seen as a corrective bounce which ended with a ‘spike high’/reversal-type weekly candle. The US dollar is no longer oversold and medium term momentum is still bearish. During Q1 2009 we expect further concerted downside testing, grinding lower slowly. Nervous authorities tempted to talk the Yen weaker, especially as we approach the fairly pivotal 85.00 area. For the moment rallies will probably be capped ahead of this month’s high at 94.65 but later this quarter we could see a brief but dramatic ‘spike’ or ‘extension’ above here. One-month at-the-money implied volatility remains relatively high at 17.00% and should hold between 14.00% and 21.00% for several weeks.


EUR/USD

Chart Levels:

Support 1.3312..1.3250..1.3100..1.2840.

Resistance 1.3800..1.4060..1.4365..1.4720.

Slightly disappointing as we give back 61% of December’s rally and close towards the lower edge of the week’s range. Even so one-month at-the-money implied volatility remains not far off the record high 28.00% set in October and we still feel it ought to pull back towards the 15.00% area. On its Effective Exchange Rate basis it has also pulled back a tad from its strongest ever early in 2008 though we feel it is just a matter of time before it sets a new record high. Note that volume so far this year has been very poor and investors uncertain about the outlook for Eurozone countries. Greek and Irish government bond spreads wider as S&P threatens to downgrade their sovereign ratings.


EUR/JPY

Chart Levels:

Support 120.00..117.65..115.85..113.62.

Resistance 124.50..126.25..128.55..130.00.

The very large Ichimoku ‘cloud’ has managed to keep prices below 130.00 and the top of the range established in October. They have now dipped below its bottom edge suggesting a retest of trendline support and possibly October’s low at 113.62. Further out we would caution against over-optimistic downside targets as we currently favour several months of broadly sideways price action with large and random price swings. This should keep one-month at-the-money implied volatility above two standard deviations (14.00%) over the mean but below October’s record high of 42.50%. Other Yen crosses look very similar suggesting USD/JPY moves will dominate price action in Yen crosses.


GBP/JPY

Chart Levels:

Support 134.00..132.50..129.80..128.20.

Resistance 141.50..143.30..148.50..151.70.

The catastrophic collapse last quarter came to a juddering halt ahead of its 1995 all time low of 128.20. It is over two standard deviations from the mean since 1992 and appears to be working in a downward-sloping ‘wedge’ formation just like Cable. One-month at-the-money implied volatility is holding below last year’s record high at 44.25%, but appears to now have based around 22.00% and is moving higher. This suggests that either a ‘false break’ or ‘extension’ lower followed by a very sudden short squeeze is likely this month and maybe during the whole of Q1 2009. We urge extreme caution with Cable moves sometimes working in tandem with, at other times against, those of USD/JPY.


GBP/USD

Chart Levels:

Support 1.4860..1.4660..1.4470..1.4350.

Resistance 1.5400..1.5535..1.5725..1.6000.

Little to add as Cable continues to work in a downward-sloping ‘wedge’ formation against the 1.4500 area with three cautious downside tests already in place. This is still seen as part of a long drawn-out process of forming an interim base. One-month at-the-money implied volatility should hold above 18.00% and could rapidly rise to the 28.00% area on a sustained break above 1.5600. This should trigger a short squeeze to 1.6500 in a very short space of time mirroring the speed of the declines of late October. Similar moves, with a similar feel, can be seen in other currencies that were hard hit last year like the Australian and New Zealand dollars. So nice of PM Brown to agree to


EUR/GBP

Chart Levels:

Support 0.8838..0.8800..0.8750..0.8575.

Resistance 0.9065..0.9175..0.9300..0.9440.

Price action over 0.9000 (equivalent to the all-time low GBP/DEM at 2.1750 of May 1995) looks increasingly like a ‘blow off’ top. The all-time high at 0.9805 is too far beyond the two standard deviations level at 0.8325 to be meaningful. Nevertheless it is close enough to parity to have jolted even the most complacent while thwarting neat newspaper story writers. We shall continue to plan for extreme volatility and price long-dated options accordingly. Should one-month at-the-money implied volatility move to a new record over 25.00%, expect some seriously worried central bankers (or at least they should be). This week expect swings between 0.8800 and 0.94.00, then down again towards the end of this month.

Published on  Mon, Jan 12 2009, 11:43 GMT

10

0

Weekly Technical Commentary

Mon, Dec 15 2008, 11:07 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 90.00..89.00..88.10..85.00.

Resistance 92.00..93.00..94.00..96.00

Sliding dramatically to the lowest price since 1995 at 88.10. Subsequent price action, with gaps and a tremendous bounce, hint at potential intervention (or at least the very real worry that they might step in). Therefore we feel that we shall hold above 89.00 until year-end. Note that the all-time low was 79.70 in April 1995 but for most of that month and the next two JPY held above 85.00 much of the time before rallying well clear of this area. As for rallies, these are likely to be subdued and cautious, the very large Ichimoku ‘cloud’ maintaining downside pressure throughout January. Some time in Q1 2009 we expect further concerted downside testing, grinding lower slowly.


EUR/USD

Chart Levels:

Support 1.3350..1.3250..1.3100..1.2900.

Resistance 1.3500..1.3600..1.3800..1.3915.

Getting a little more interesting as at last break we out of the all too neat ‘triangle’ that has held since October. The sooner we break above the very thick Ichimoku ‘cloud’ and 50% retracement at 1.3600 the more quickly bullish momentum should build. Likewise if we hold above 1.3250. The Euro is likely to continue to strengthen against a whole series of other European currencies. One-month at-the-money implied volatility is likely to pick up to the 24.00% area, especially in very thin year-end conditions. This could result in a rush to the 1.4000/1.4100 level by very early January, surprising many who have been lulled into a false sense of security by November’s range.


EUR/JPY

Chart Levels:

Support 120.00..119.30..117.75..116.00.

Resistance 123.00..126.25..127.25..128.45.

Getting a lot more difficult as we push into the apex of the right-angled ‘triangle’ that has dominated since October. Rather than an immediate move lower we have adjusted our view for sideways random and messy moves until year-end. Note that the very large Ichimoku ‘cloud’ continues to see its lower edge drop steadily and ought to bear down on prices during January as another wave of carry-trade unwinding is forced on tired investors. Peripheral currencies and asset classes will be sold at any price in order to prop up core central businesses, benefiting cash, Treasuries, the Yen and the US dollar. No doubt we will discover more ‘rogue traders’ and businesses clamouring to be bailed out.


GBP/JPY

Chart Levels:

Support 135.00..134.00..132.50..130.00.

Resistance 139.00..141.00..145.00..148.50.

We are at the apex of a downward-sloping ‘wedge’ formation (after the biggest ever quarterly loss) so whatever happens we will break the formation by moving sideways. We feel that Friday’s dip to a new multi-year low at 132.50 is some sort of ‘extension’ and that we ought to try and hold above 135.00 this week. Note that the huge Ichimoku ‘cloud’ bears down on this cross relentlessly through January so this is merely a temporary lull. We continue to allow for a drop to the 1995 all-time low at 128.20, possibly even further, in what would then be catastrophic financial conditions. In this case volatility here, and in a whole raft of other instruments and currencies, might hit new record highs.


GBP/USD

Chart Levels:

Support 1.4675..1.4560..1.4500..1.4470.

Resistance 1.5250..1.5535..1.5600..1.6000.

Lagging badly as on the Bank of England’s Trade Weighted index sterling drops to its weakest ever at 78.80. Cable is still very unstable as it consolidates in a downward-sloping ‘wedge’ formation, possibly with a ‘double bottom’ against the 1.4500 area. This is still seen as part of a long drawn-out process of forming an interim base, with an array of resistance levels likely to keep momentum bearish until year-end. One-month at-the-money implied volatility should hold above 18.00% and could rapidly rise to the 28.00% area on a sustained break above 1.5500. This should trigger a short squeeze to 1.6500 in a very short space of time mirroring the speed of the declines of late October.


EUR/GBP

Chart Levels:

Support 0.8760..0.8700..0.8580..0.8335.

Resistance 0.9000..0.9100..0.9250..0.9500.

The mass media are pointing out that with commissions and so on the Bureaux de Change are already exchanging a pound for just one Euro. November’s massive gyrations are not the norm for this currency pair yet we continue to work in Plan C, where we shall allow for massive swings roughly between 0.7800 and 0.9000 (equivalent to the all-time low GBP/DEM at 2.1750 of May 1995) for the next six months at least, possibly a whole year. Therefore plan for extreme volatility and price long-dated options accordingly. Note that while serious, it is not only the pound that has been singled out. Eastern European and some Scandinavian currencies have been hard hit and government bonds of some Eurozone countries likewise.

Published on  Mon, Dec 15 2008, 11:07 GMT

13

0

Weekly Technical Commentary

Mon, Dec 1 2008, 11:35 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 93.93..93.53..92.48..91.88.

Resistance 96.00..97.44..98.70..99.50

Testing the lower edge of the ‘triangle’ though above November’s low at 93.53. Hopefully we will get a successful break this week and we continue to feel there is another downside move due by the end of this year as the ‘carry trade’ unwinds further and the credit crunch affects more areas of business. As for rallies, these will now hopefully be capped by the large Ichimoku ‘cloud’. These are seen as good selling opportunities for a subsequent drop back down to 92.00 and eventually below this year’s low at 90.87. The question is whether we get to this point this month or whether we must wait until Q1 2009. If we drop below here this month, there is a chance that one-month implied volatility could trade over 38.00%.


EUR/USD

Chart Levels:

Support 1.2600..1.2400..1.2329..1.2225.

Resistance 1.2700..1.2860..1.29251.3100.

A small short squeeze but still holding very much within the neat range above October’s low at 1.2329, below retracement resistance. It should remain trapped here for another week but some time in December we might see a brief (and scary) ‘extension’ lower. The Euro is likely to continue to strengthen against a whole series of other European currencies. Before that though we may have to live through a series of ‘false breaks’ as the market continues to try and put in an interim base, something it has struggled to do for the last five weeks. One-month at-the-money implied volatility has eased from the record high at 28.50% yet at 21.00% it is still more double the long run mean of 9.75% (which should put off some speculators).


EUR/JPY

Chart Levels:

Support 118.00..116.45..114.45..113.62.

Resistance 123.45..126.25..127.25..128.45.

Consolidation since late October is getting a little boring. Hopefully this month things will get going again as we continue to favour another sell-off, a continuation of the unwinding of the ‘carry trade’. The move might get going in earnest by mid-December as the very large Ichimoku ‘cloud’ bears down on prices. In the meantime we still cannot rule out another (hopefully final) upside probe to the 126.00/127.00 area, something which is seen as a good selling opportunity. Note that all Yen crosses are doing something similar, with Yen strength across the board being the issue. Peripheral currencies and asset classes will be sold at any price in order to prop up core central businesses.


GBP/JPY

Chart Levels:

Support 139.00..137.65..134.50..132.60.

Resistance 147.00..148.50..150.00..153.75.

A right-angled ‘triangle’ formation below a massive Ichimoku ‘cloud’ mean it is just a matter of time before we break lower. November’s monthly close below 150.00 signals a renewed downside attack which should take us down to the 1995 all-time low at 128.20, possibly even further, in what would then be catastrophic financial conditions. In this case volatility here, and in a whole raft of other instruments and currencies, might hit new record highs. As has been the case since July 2007, we feel that GBP/JPY is leading the way lower, the unwinding of the ‘carry trade’ coupled with the peculiarities of non-core currencies. Rate differentials will matter less as many countries consider zero interest rate policies.


GBP/USD

Chart Levels:

Support 1.5000..1.4700..1.4560..1.4470.

Resistance 1.5250..1.5535..1.5600..1.6000.

Still very unstable as we consolidate in a downward-sloping ‘wedge’ formation, a mirror image of the Dollar Index futures contract. This is seen as part of a long drawn-out process of forming an interim base. The monthly candle has an almost ten cent bounce from November’s low to the closing price, not a mean feat but still not enough to mark a low point. Possibly in holiday-thin markets this month we shall see an ‘extension’ below 1.4560, which might take one-month at-the-money implied volatility back up to this year’s high at 29.45%, in turn its highest in decades. Britain plc’s economic situation is probably not much worse nor any better than many countries; it’s problem is that it is not core G7.


EUR/GBP

Chart Levels:

Support 0.8300..0.8225..0.8175..0.8060.

Resistance 0.8435..0.8570..0.8675..0.8750.

November’s massive gyrations are not the norm for this currency pair so no wonder one-month at-the-money implied volatility remains close to record high (23.90%). We continue to work in Plan C, where we shall allow for massive swings roughly between 0.7800 and 0.9000 (equivalent to the all-time low GBP/DEM at 2.1750 of May 1995) for the next six months at least, possibly a whole year. Therefore plan for extreme volatility and price long-dated options accordingly. Note that while serious, it is not only the pound that has been singled out. Eastern European and some Scandinavian currencies have also been hard hit as money is moved out of ‘riskier’ assets to prop up rotting core business arms.

Published on  Mon, Dec 1 2008, 11:35 GMT

14

0

Weekly Technical Commentary

Mon, Nov 24 2008, 12:03 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 94.48..93.53..92.48..91.88.

Resistance 97.00..98.50..99.50..100.55

Little to add as we continue in a holding pattern, ‘triangle’ consolidation below retracement resistance. We continue to feel there is another downside move due by the end of this year as the ‘carry trade’ unwinds further and the credit crunch affects more areas of business. As for rallies, these now will hopefully be capped between 98.00 and 100.00, although a brief but dramatic squeeze to 103.00 still cannot be ruled out completely. These are seen as good selling opportunities for a subsequent drop back down to 92.00 and eventually below this year’s low at 90.87. This should keep one-month at-the-money implied volatility below October’s record high of 43.50%, probably swinging between 20.00% and 32.00% for another few weeks.


EUR/USD

Chart Levels:

Support 1.2400..1.2329..1.2225..1.2000.

Resistance 1.2700..1.2860..1.29251.3100.

A most extraordinary chart pattern as the Euro clings to the lower edge of the ‘triangle’ above October’s low at 1.2329. It is almost too neat, possibly hinting at an attempt to manipulate its value. Nevertheless we still favour a slow rally back up to 1.3000 and then through here to the 1.3300 area where more consolidation should take place. The Euro is likely to continue to strengthen against a whole series of other European currencies. Before that though we may have to live through a series of ‘false breaks’ as the market looks for direction. One-month at-the-money implied volatility has eased from the record high at 28.50% yet at 20.00% it is still more double the long run mean of 9.75% (which should put off some speculators).


EUR/JPY

Chart Levels:

Support 117.65..116.45..114.45..113.62.

Resistance 122.25..126.00..128.50..131.05.

Like dollar/Yen this currency pair is holding in a consolidation pattern and there is little to add since last week. This should eventually lead to another sell-off, a continuation of the unwinding of the ‘carry trade’. The move might start in holiday-thin markets this week, and should have got going in earnest by mid-December. In the meantime we still cannot rule out another initial upside probe, probably no higher than the 127.00 area, something which is seen as a good selling opportunity. Note that all Yen crosses are seeing similar moves and patterns, BRL/JPY, CHF/JPY and IDR/JPY having dipped to new recent lows already last week. These are seen to be leading the way to Yen strength and other Yen crosses should follow.


GBP/JPY

Chart Levels:

Support 139.00..137.65..134.50..132.60.

Resistance 143.70..144.75..148.00..152.75.

Dipping to a new recent low at 137.65, just below October’s low at 139.00, and it should try and hold above here early this week. A monthly close below 150.00 should signal a renewed downside attack which should take us down to the 1995 all-time low at 128.20, possibly even further, in what would then be catastrophic financial conditions. In this case volatility here, and in a whole raft of other instruments and currencies, might hit new record highs. As has been the case since July 2007, we feel that GBP/JPY is leading the way lower, the unwinding of the ‘carry trade’ coupled with the peculiarities of non-core currencies. Interest rate differentials will matter less and less as many countries consider zero interest rates.


GBP/USD

Chart Levels:

Support 1.4700..1.4645..1.4560..1.4470.

Resistance 1.5100..1.5250..1.5600..1.6000.

Still working in a downward-sloping ‘wedge’ formation, a mirror image of the Dollar Index futures contract. This highly unstable pattern, following the catastrophic collapse of the last four months, suggests a reversal is imminent. Possibly in holiday-thin markets this week, and probably in even thinner markets by mid-December, Cable should attempt a rally back up to 1.6000, maybe 1.6500. All well and good but seeing as we were trading over 2.0000 in July, this would represent just a 38% corrective bounce. Interesting to note how some Eurozone currencies have been sold heavily, while the Treasury bonds of some EZ15 countries have been sold instead.


EUR/GBP

Chart Levels:

Support 0.8400..0.8333..0.8300..0.8200.

Resistance 0.8500..0.8600..0.8675..0.8750.

Consolidating slightly unsteadily below the record high at 0.8675. Similarly one-month at-the-money implied volatility has eased from a record high at 23.90%, over three times the mean at 7.00%, to 18.50%. We continue to work in Plan C, where we shall allow for massive swings roughly between 0.7800 and 0.9000 (equivalent to the all-time low GBP/DEM at 2.1750 of May 1995) for the next six months at least, possibly a whole year. Note that while serious, it is not only the pound that has been singled out. Eastern European and some Scandinavian currencies have also been hard hit as money is moved out of ‘riskier’ or peripheral assets to prop up rotting core business models.

Published on  Mon, Nov 24 2008, 12:03 GMT

22

0

Weekly Technical Commentary

Mon, Nov 17 2008, 11:14 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 95.87..94.48..92.48..91.88.

Resistance 98.45..99.79..100.56..101.55

Still in a holding pattern, ‘triangle’ consolidation below retracement resistance. We continue to feel there is another downside move due by the end of this year as the ‘carry trade’ unwinds further and the credit crunch affects more areas of business and daily life. As for rallies, these ought to be capped between 99.00 and 101.00, although a brief but dramatic squeeze to 103.00 cannot be ruled out just yet. These are seen as good selling opportunities for a subsequent drop back down to 95.00 and eventually below this year’s low at 90.87. This should keep one-month at-the-money implied volatility below October’s record high of 43.50%, probably swinging between 20.00% and 32.00% for another few weeks before dropping at year-end.


EUR/USD

Chart Levels:

Support 1.2500..1.2400..1.2329..1.2225.

Resistance 1.2860..1.3000..1.3120..1.3300.

Clinging to the lower edge of the ‘triangle’ above October’s low at 1.2329. We expect a slow rally back up to 1.3000 and then through here to the 1.3300 area where more consolidation should take place. One-month at-the-money implied volatility has eased from the record high at 28.50% yet at 22.00% it is still more than double the long run mean of 9.75% (which should put off some speculators). The Euro is still oversold and bearish momentum has eased from October’s record. We favour more subdued trading in November but warn that financial conditions might deteriorate very dramatically before year-end. We warn against complacency and potential ‘false breaks’.


EUR/JPY

Chart Levels:

Support 120.00..117.65..116.00..113.62.

Resistance 126.00..128.50..131.05..135.00.

Like dollar/Yen and Euro/dollar, this currency pair is holding in a consolidation pattern after plummeting like a stone the previous three months. While very dramatic, this was the start and not the end of the reversal of the rally that originally started late in 2000. Therefore the long term trend is for yet more Yen strength against a whole raft of other currencies. Moves should be a lot slower and steadier, but be careful at year-end when the desperate may have to slash and burn positions again to raise money to square up books. We shall continue to allow for a re-test of the recent high at 131.05 and cannot rule out a brief but surprising (to many) squeeze towards the 135.00 area. This is seen as a good selling opportunity.


GBP/JPY

Chart Levels:

Support 140.00..139.00..138.00..134.50.

Resistance 150.00..157.50..165.00..175.00.

Hard to believe but Sterling has lost 53.5% of its value against the Yen so far this year, 33.0% against the US dollar, and not a peep from the authorities up until this weekend (warning that a run on the currency was a possibility some time in the future!) Last week’s dip below October’s low at 139.00 to 138.85 looks like a step too far and the cross should hold above here this week and probably until month-end. A monthly close below 150.00 should signal a renewed downside attack which should take us down to the 1995 all-time low at 128.20, possibly even further, in what would then be catastrophic financial conditions. In this case volatility here, and in a whole raft of other instruments and currencies, might hit new record highs.


GBP/USD

Chart Levels:

Support 1.4645..1.4560..1.4470..1.4340.

Resistance 1.5000..1.5260..1.6000..1.6675.

Record bearish momentum, record one-month at-the-money implied volatility at 29.45%, a record quarterly drop (and we still have over a month to go!)…and the authorities continue to look the other way. ‘Benign neglect’ on an unprecedented scale and still very oversold. This year Sterling has weakened against all major currencies except the South African rand and South Korean won (and even then only just). On the Bank of England’s trade weighted basis it has matched it all-time weakest of November 1995 with an astonishing 10% decline on this index so far this month. Moves on this scale will go a long way to shrinking debt and robbing savings. Who do they think they are kidding?


EUR/GBP

Chart Levels:

Support 0.8475..0.8300..0.8200..0.8050.

Resistance 0.8565..0.8675..0.8750..0.9000.

The very thick Ichimoku weekly ‘cloud’ we had warned of helped propel the Euro to a record high against the pound at 0.8675. This has seen one-month at-the-money implied volatility set a new record high at 23.90%, over three times the mean at 7.00%, and double the two-standard deviation point of 11.50%. These sort of moves are more usually associated with banana republics and not a G7 country, let alone one who’s PM thinks he can lead the way out of the economic mire. We have been forced to move onto Plan C, where we shall allow for massive swings roughly between 0.7800 and 0.9000 (equivalent to the all-time low GBP/DEM at 2.1750 of May 1995) for the next six months at least, possibly a whole year.

Published on  Mon, Nov 17 2008, 11:14 GMT

20

0

Weekly Technical Commentary

Tue, Nov 11 2008, 05:59 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 97.90..96.75..95.95..94.25.

Resistance 99.79..100.56..101.55..102.15

Little to add as we continue in correction and consolidation mode, here and in all variants of the ‘carry trade’. This may continue for another week and possibly for most of November. However, we warn against complacency because we feel there is another downside move due by the end of this year. As for rallies, these ought to be capped between 102.00 and 103.00 and are seen as good selling opportunities for a subsequent drop back down to 95.00 and eventually below this year’s low at 90.87. This should keep one-month at-the-money implied volatility below October’s record high of 43.50%, probably swinging between 15.00% and 25.00% for much of the coming month.


EUR/USD

Chart Levels:

Support 1.2650..1.2525..1.2329..1.2225.

Resistance 1.3000..1.3300..1.3400..1.3600.

Consolidating in a ‘triangle’ above the recent low at 1.2329 and should try to hold above here again this week. We expect a slow rally back up to 1.3300 and then through here to the 1.3600 area where more serious consolidation should take place. One-month at-the-money implied volatility has eased from the record high at 28.50% yet at 20.00% it is still more than double the long run mean of 9.75%. The Euro is less oversold and bearish momentum has eased considerably. We favour more subdued trading in November but warn that financial conditions might deteriorate very dramatically through the year-end. If this is the case unwinding of the ‘carry trade’, and a flight into Yen and US dollars, should resume.


EUR/JPY

Chart Levels:

Support 124.65..122.00..116.00..113.62.

Resistance 128.50..131.05..135.00..138.50.

Consolidating in a neat little band well above October’s low at 113.62 and should hold above the 114.00 area all month. Rallies are corrective in nature and we favour more declines over the next year or more. In other words, the long term trend is for yet more Yen strength despite the massive moves of the last three months. These ought to be a lot slower and steadier, but be careful at year-end when the desperate may have to slash and burn positions again to raise money to square up books if their financial year-end happens to be the 31st December. At the moment we favour a squeeze through the recent high at 131.05 to the 136.00 area and possibly all the way up to 140.00 if enough bullish momentum builds.


GBP/JPY

Chart Levels:

Support 155.00..150.25..148.85..142.80.

Resistance 160.00..162.30..165.00..175.00.

Working in a ‘flag’ formation well above October’s low at 139.00. Because of the size of recent moves, both down and now up, one-month at-the-money implied volatility remains high at 33.65%, well above the long-run average at 10.80%. We shall continue to favour a squeeze through the recent high at 165.00 to 175.00 and probably no higher than 179.00. A monthly close below 150.00 forces us to review, signalling a renewed downside attack which should take us down to the 1995 all-time low at 128.20, possibly even further, in what would then be catastrophic financial conditions. In this case volatility here, and in a whole raft of other instruments as well as currencies, might hit new record highs.


GBP/USD

Chart Levels:

Support 1.5600..1.5535..1.5260..1.5160.

Resistance 1.6200..1.6400..1.6655..1.7000.

On the Bank of England’s Trade Weighted Index sterling is at its weakest since September 1996 while Cable consolidates in a ‘triangle’ barely above this year’s low at 1.5260. One-month at-the-money implied volatility at 22.00% is only just below last week’s staggering peak at 29.45%. Cable is somewhat oversold and bearish momentum is still incredibly strong. We shall allow for a squeeze up to 1.6400 this week, possibly 1.7000 where many will start panicking, followed by a series of sudden random fairly big swings between roughly 1.5600 and 1.7000 until month-end. A weekly close above 1.7500 would ease downside pressure considerably but only above October’s high at 1.7878 does the outlook for Cable improve significantly.


EUR/GBP

Chart Levels:

Support 0.8000..0.7900..0.7800..0.7695.

Resistance 0.8204..0.8240..0.8300..0.8365.

The chattering classes are talking of parity as we probe the upper edge of a potential ‘broadening top’ formation. The very big Ichimoku weekly ‘cloud’ has helped move it up here over the last three weeks and it may limit the downside well into Q2 2009. This type of price action is typical of a market looking for direction which explains why one-month at-the-money implied volatility remains so high at 16.25%. So long as we do not get a weekly close clearly above 0.8200 we shall continue to watch for signs of topping. If we break above 0.8200 we would be forced to move into Plan C, with massive swings roughly between 0.7800 and 0.8500 for the next six months at least, possibly a whole year.

Published on  Tue, Nov 11 2008, 05:59 GMT

25

0

Weekly Technical Commentary

Mon, Nov 3 2008, 11:16 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 97.90..95.95..94.25..92.50.

Resistance 99.79..101.55..102.15..103.00

Many breathing a sigh of relief as markets move into correction and consolidation mode, here and in all variants of the ‘carry trade’. This should continue this week, maybe for most of November. However, we warn against complacency because we feel there is another downside move due by the end of this year. As for rallies, these ought to be capped between 102.00 and 103.00 and are seen as good selling opportunities for a subsequent drop back down to 95.00 and eventually below this year’s low at 90.87. This should keep one-month at-the-money implied volatility below October’s record high of 43.50%, probably swinging between 15.00% and 25.00% for much of the coming month.


EUR/USD

Chart Levels:

Support 1.2665..1.2395..1.2329..1.2225.

Resistance 1.3000..1.3300..1.3400..1.3700.

Bouncing cautiously from a recent low at 1.2329 and likely to hold above here again this week. We expect a slow rally back up to last week’s high at 1.3300 and then through here to the 1.3700 area where more serious consolidation should take place. One-month at-the-money implied volatility has eased only marginally from the record high at 28.50%, and should slowly drop back to the 16.00% area over the coming month. The Euro is still oversold and momentum is bearish, although a lot less so than at 10th October’s record. We favour very much more subdued trading in November after October’s massive monthly range, losing ground against Eastern European currencies which should recover some more this month.


EUR/JPY

Chart Levels:

Support 124.65..121.40..116.00..113.62.

Resistance 128.50..131.05..135.00..138.50.

Bouncing well from October’s low at 113.62 and should hold above the 114.00 area all month. Rallies are corrective in nature and we favour more declines over the next year or more. In other words, the long term trend is for yet more Yen strength despite the massive moves of the last three months. These ought to be a lot slower and steadier, but be careful at year-end when the desperate may have to slash and burn positions again to raise money to square up books if their financial year-end happens to be the 31st December. At the moment we favour a squeeze through last week’s high at 131.05 to the 136.00 area and possibly all the way up to 140.00 if enough bullish momentum builds.


GBP/JPY

Chart Levels:

Support 158.00..156.00..153.00..148.00.

Resistance 165.00..168.00..175.50..179.00.

Bouncing strongly from October’s low at 139.00, below the September 2000 low at 148.00, and shy of the all-time low at 128.20 set in April 1995. Because of the size of recent moves, both down and now up, one-month at-the-money implied volatility remains at a record 44.25%. The collapse of the last five quarters is similar in size and price levels to that of 1992, which then led to a sideways band between 145.00 and 170.00 for another 15 months. Something similar is possible, with the upside less clear and therefore the potential to squeeze through 175.00 to a high around 179.00. As we move into a trading band, volatility should ease slowly but considerably. A monthly close below 150.00 forces us to review.


GBP/USD

Chart Levels:

Support 1.6000..1.5560..1.5260..1.5160.

Resistance 1.6400..1.6675..1.7000..1.7400.

Bouncing from a low at 1.5260, ahead of super-long channel support, after Cable’s biggest kicking since 1992; bearish momentum is at its strongest since then. One-month at-the-money implied volatility is trading only just below last week’s staggering peak at 29.45%. Cable is still oversold and GBP/CHF touched 1.7595, almost matching its record low of 1.7515 of December 1995. During this week, and maybe the following one too, we favour a series of sudden random fairly big swings between roughly 1.5600 and 1.7000. A weekly close above 1.7500 would ease downside pressure considerably but only above October’s high at 1.7878 does the outlook for Cable improve significantly.


EUR/GBP

Chart Levels:

Support 0.7840..0.7800..0.7695..0.7555.

Resistance 0.8000..0.8100..0.8187..0.8197.

Nasty with increasingly sharp moves either side of 0.7900 in what we still see as a potential ‘broadening top’ with the latest rally the third attempt at the top of the pattern. This type of price action is typical of a market looking for direction. So long as we do not get a weekly close clearly above 0.8200 we shall maintain this view, favouring an initial decline towards 0.7400 and then many sharp moves probably between 0.8000 and 0.7300. At-the-money implied volatility hit 19.15%, a record high and way above the May 2000 high at 14.25%. This in turn is way above the mean of 6.00% of the last six years, no doubt doing untold damage to option traders’ books. Over the coming month it should ease back to the 10.00% area.

Published on  Mon, Nov 3 2008, 11:16 GMT

31

0

Weekly Technical Commentary

Tue, Oct 28 2008, 06:07 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 91.88..90.87..89.20..87.75.

Resistance 95.00..97.00..101.00..103.00

The biggest weekly and monthly move in this currency pair since October 1998, again caused by de-leveraging; record one-month volatility at 38.90%. Surprisingly little said by Japanese authorities, in contrast to aggressive intervention in 2000/2001. Bearish momentum is stronger than anything since July 2002 as we approach the strongest ever level for the Yen against the dollar set in April 1995 at 79.70. Friday’s low at 90.87 is holding this morning but we would not pin too much hope on this continuing all week. Yen crosses, EUR/CHF, and all other variations of the ‘carry trade’ are in free-fall. Instruments that are liquid are being sold at any price, even quality things, to raise working capital and stave off bankruptcy.


EUR/USD

Chart Levels:

Support 1.2400..1.2335..1.2225..1.2100.

Resistance 1.2700..1.2940..1.3000..1.3370.

Trashed as firms repatriate anything they can liquidate and we worry about Eastern Europe sliding off a cliff. The long term implications for the Euro are unknown and serious, many relishing in the prospect of a possible end to the single currency. Giving up almost half the gains from the all-time low at 0.8228 in October 2000 to the all-time high at 1.6040 in July this year (hard to believe we have come this far in less than four months), suffering the biggest weekly, monthly and quarterly falls ever. The authorities silent and powerless to deal with the financial chaos they have aided and abetted. The taxpayer is rightly concerned for his and her future, whatever help this will give to exporters.


EUR/JPY

Chart Levels:

Support 113.62..112.00..111.30..110.00.

Resistance 119.50..122.00..125.00..131.50.

The Yen has gained against all currencies this year, a staggering 35.00% against the South African rand this month alone, 46.00% in 2008 versus the South Korean won, and to a record 55.11 to the Australian dollar. Against the Euro this month’s collapse has been even bigger than that of October 1998, a staggering 37 Yen so far and we still have another week to get through. Record one-month at-the-money implied volatility of 32.13% and record bearish momentum. The trade off this week will be the extent to which yet more ‘carry trade’ unwinding is needed versus an instrument that has become too expensive to touch. Desperate times mean terrible consequences. Never again will many be tempted to fund in ‘cheap’ Yen.


GBP/JPY

Chart Levels:

Support 140.00..139.00..134.65..131.00.

Resistance 150.00..155.00..160.00..165.00.

Possibly the biggest monthly move on record, 51 Yen and dropping below the 2000 low, a little shy of the all-time low at 128.20 set in April 1995. One-month at-the-money implied volatility has set a new record at 36.75% and it is more oversold than at any point in the last twenty years. It might be tempting to say, ‘enough is enough’ but record bearish momentum makes this a scary prospect. Over the coming month we feel this pair should try and stabilise and establish a new if wide trading band. The collapse of the last five quarters is similar in size and price levels to that of 1992, which then led to a sideways bend between 145.00 and 170.00 for another 15 months. Something similar is possible.


GBP/USD

Chart Levels:

Support 1.5260..1.5160..1.5000..1.4750.

Resistance 1.5875..1.6000..1.6500..1.7000.

Tumbling with the biggest two consecutive quarter loss since 1992, and on the Bank of England’s Trade Weighted basis to its weakest since October 1996. One-month at-the-money implied volatility reached a staggering 24.75% and still not a peep from the authorities. Cable is terribly oversold and GBP/CHF is almost at its record low of 1.7515. It is terribly oversold and moves of this magnitude are not sustainable, but would you run to the rescue? Doubtful so the slide will be allowed to run its course. Watch for possible signs of basing at the psychological 1.5000 area. Lows in 1996 and 1992 were around 1.4900; in 2001 1.3682 although it held over 1.4000 most of the time that year.


EUR/GBP

Chart Levels:

Support 0.7900..0.7800..0.7695..0.7555.

Resistance 0.8070..0.8100..0.8187..0.8197.

Shooting quickly back up towards 0.8200 as the authorities are accused of benign neglect. We remain under the equivalent all-time high of 0.8480 set in 1995. The pattern could still be a ‘broadening top’ with the latest rally the third attempt at the top of the pattern. So long as we do not get a weekly close clearly above 0.8200 we shall maintain this view, favouring an initial decline towards 0.7400 and then many sharp moves probably between 0.8000 and 0.7300. Note that other currencies have suffered a lot more this month, mainly emerging market ones, with the South African rand down 13.60% and the Australian dollar shrinking 10.70% versus Sterling. At-the-money implied volatility over 15.00% the highest in years.

Published on  Tue, Oct 28 2008, 06:07 GMT

0

0

Weekly Technical Commentary

Tue, Oct 21 2008, 06:06 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 100.60..99.25..98.60..95.77.

Resistance 102.50..103.30..104.50..105.00

Price action last week is seen as consolidation at some of the lowest levels this year, below the fairly pivotal 102.50 area, as we get to grips with the rather scary concept of the US dollar being worth less than 100 Yen. This process should continue this week, maybe until the end of this month, prior to a re-test of March’s low at 95.77. Therefore rallies to 103.00/104.50 are seen as selling opportunities. This is part of a global move to unwind ‘leverage’ in all its many guises, and where some companies are forced to sell the ‘family silver’ in order to stave off immediate bankruptcy. There is more to come so we continue to see Japan plc as a relative ‘safe haven’ in a sea of chaos.


EUR/USD

Chart Levels:

Support 1.3400..1.3345..1.3255..1.3100.

Resistance 1.3600..1.3800..1.3915..1.4040.

We completely underestimated the need for US banks, funds and corporates to re-capitalise and repatriate all forms of non-dollar holdings to shore up creaking edifices at home. Adding to the woe is the realisation by Eurozone citizens that their financial institutions are not immune to the global meltdown and are perhaps more vulnerable than UK ones because of the many central banks involved. The Euro, having given up 61% of the gains versus the USD since late 2005, 50% on the ECB’s Effective Exchange Rate, we still feel it should try and base at current levels. Attempts so far have been a joke. Let’s see if it can try a bit harder this week and between now and month-end.


EUR/JPY

Chart Levels:

Support 136.00..134.75..134.00..132.15.

Resistance 138.50..139.70..141.00..141.75.

While lower than last week’s record 28.00%, one-month at-the-money implied volatility at 23.25% remains very high indeed. Last week the cross consolidated in a ‘triangle’ continuation pattern, which could also be seen as an inverted ‘pennant’. The terribly oversold condition has eased a little while keeping bearish pressure very strong indeed. This should allow traders and investors to get used to these new lower levels, having already given up almost 50% of the rally since 2001. We are in a new long term trend of Yen strength against other majors, one by one they should move lower and drag each other down. Note that some Yen crosses are already trading at extreme levels, KRW/JPY at its lowest since the 1998/1999 Asia crisis.


GBP/JPY

Chart Levels:

Support 175.25..173.00..168.60..165.95.

Resistance 186.00..190.00..195.00..197.50.

Consolidating above this month’s low at 165.95 and should continue to do so for another week or three. Rallies so far have held well below the fairly pivotal 190.00 so that the move lower is formed of large steps down. Corrective bounces shop stop short of the 26-day average at 191.00 and are seen as selling opportunities for another step down later this quarter. One-month at-the-money implied volatility has retreated considerably from a record 33.25% and should hold below here for quite some time. Our medium term target of an ‘extension’ to 165.00 has been met so GBP/JPY should drop by less than some other currencies. Those with the highest interest rate differentials are the ones likely to see the biggest losses.


GBP/USD

Chart Levels:

Support 1.7300..1.7135..1.7065..1.6781.

Resistance 1.7520..1.7660..1.7840..1.7975.

One-month at-the-money implied volatility at 16.00% is admittedly a lot lower than the 21.12% peak last week, but remains terribly high as compared to the last 20 years. This is not ‘normality’ returning, just a breather in among the chaos. Having clawed its way up from a low at 1.6781 Cable is not as oversold as some might think and bearish momentum is lower than it has been since mid-August. Watch for cautious basing activity this week maintaining very cautious trading strategies for at least another two weeks. Investors have realised that the UK is not the only place with a ropey finance industry so Sterling has begun to claw back the one-off loss suffered from July last year. This trend should continue.


EUR/GBP

Chart Levels:

Support 0.7690..0.7650..0.7595..0.7555.

Resistance 0.7795..0.7860..0.7900..0.8025.

One-month at-the-money implied volatility hit 13.55%, just below the 2000 peak at 14.00%. It is expected to swing sharply between 12.50% and 8.50% until year-end. Today the pound dipped below £0.7700 to the Euro, its strongest since March, and looks as though further moves down might be hampered by a very thick Ichimoku ‘cloud’. Long term we favour many large swings roughly between 0.8000 and 0.7300, with swings being limited to trading inside the Ichimoku ‘cloud’ most but not all of the time. Very much a trader’s market. On the Bank of England’s Index while regaining composure, it still has a bit more to do before we can see our way out of the woods.

Published on  Tue, Oct 21 2008, 06:06 GMT

0

0

Weekly Technical Commentary

Mon, Oct 6 2008, 12:29 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 102.50..101.45..100.00..98.00.

Resistance 104.00..105.15..106.00..107.15

The Yen, and Japan plc generally, are seen as a safe-haven in the gathering storm. Counterparty risk is key as we become ever more reluctant to do any type of business with anybody. Wider bid-offer spreads and implied volatility close to record highs make doing business more expensive and difficult. The disjointed and slow response by the authorities is adding to woes. The implosion of leverage has further to go, desperate repatriation and reversion to core markets the symptoms, and unfortunately there is precious little money available outside the immediate banking system. This is likely to get worse, not better. Buy Yen and Yen crosses.


EUR/USD

Chart Levels:

Support 1.3540..1.3450..1.3360..1.3265.

Resistance 1.3700..1.3800..1.3915..1.4040.

We have completely underestimated the need for US banks and funds to repatriate all forms of non-dollar holdings to shore up creaking edifices at home. Adding to the woe is the realisation of Eurozone citizens that their financial institutions are not immune to the global meltdown. One wonders where they will choose to squirrel away their savings. In the meantime one-month at-the-money implied volatility is at a record 17.75% and the Euro has lost 15 cents in twelve weeks. Ouch! We expect this clear-out, which takes the shape of an A, B, C-type formation, to end imminently between 1.3550 and 1.3360. Allow for an ‘extension’, here and in many other instruments, as chaos reigns.


EUR/JPY

Chart Levels:

Support 140.00..139.00..137.00..135.00.

Resistance 142.00..144.50..146.00..150.50.

Yen crosses are (mercifully) going to plan, breaking pivotal long term support. The South Korean won continues to lead the way, closely followed by AUD/JPY and NZD/JPY. This is another version of the unwinding of ‘carry trades’ and also possibly a flight to relative safety seeing as Japan had its banking crisis some years ago (and lived to tell the tale). Over the next few months we expect EUR/JPY to drop to the 130.00 area, in an out and out rout, so that one-month at-the-money implied volatility could match its 1999 record of 23.00%. This is seen as just the first leg in a series of moves lower, a new long term trend of Yen strength against other majors, erasing much of the rally from 2000.


GBP/JPY

Chart Levels:

Support 180.75..180.00..179.00..176.75.

Resistance 186.00..190.00..195.00..197.50.

Trading down even faster than we had imagined as all Yen crosses are hit hard. Now worth just over 180.00 Yen per pound, the cross is at its lowest since November 2003. One-month at-the-money implied volatility has matched its 1998 peak at 24.00%. We feel the move should slow a little here at the 180.00 area, allowing other Yen crosses to catch up. Our medium term target remains at 175.00 with a good chance of an ‘extension’ to 165.00 before some semblance of order returns. Charts with patterns similar to this one are AUD/JPY, NOK/JPY and KRW/JPY. Note that the bulk of these moves ought to be due to Yen strength rather than catastrophic weakness of other major currencies.


GBP/USD

Chart Levels:

Support 1.7500..1.7445..1.7200..1.7000.

Resistance 1.7600..1.7700..1.8000..1.8100.

Holding up better than many, admittedly after one of the biggest quarterly sell-offs in history, as we re-assess Sterling’s vulnerability to the financial sector and the risk of moral hazard generally. One-month at-the-money implied volatility at 19.00% is at its highest in at least sixteen years and futures open interest is running at about half of last year’s peak. Extreme caution is warranted here, and in all financial markets, as moves will be vicious when the ‘price’ is not the issue but the need to ‘get out’ is all-important. The pound is not as oversold as some might think and bearish momentum has halved since mid-September. Watch for cautious basing activity this week and over the coming month.


EUR/GBP

Chart Levels:

Support 0.7700..0.7650..0.7595..0.7555.

Resistance 0.7760..0.7800..0.7900..0.8025.

Dropping to £0.7700, the pound’s strongest against the Euro since mid-March, as investors re-think the dangers of the credit crisis in Britain and abroad. The all-time high at £0.8187 looks like some sort of ‘false break’ or ‘spike high’ and on the Bank of England’s Trade Weighted Index the pound is trying to recover too, gaining against Scandinavian and Eastern European currencies. One-month at-the-money has leapt to 11.00%, still a way below the 2000 peak at 14.00%. This week it should hold below 0.7900, maybe even 0.7800, drifting to 0.7650 and maybe 0.7600 within the next week or so. Long term we favour many large swings roughly between 0.8100 and 0.7300.

Published on  Mon, Oct 6 2008, 12:29 GMT

0

0

Weekly Technical Commentary

Mon, Sep 29 2008, 10:48 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 105.50..105.00..104.50..103.50.

Resistance 106.50..107.00..107.75..108.60

The finance industry is the eye of the storm, making front page news as one after another institutions fail or are rumoured to be failing. This morning we have not had even the tiniest relief rally as US politicians plan a $700B rescue package. Instead sellers are out in force, taking stock indices down to recent lows, and interbank money is non-existent as Q3 ends. Bid/offer spreads in all instruments are very much wider than they should be as we become more reluctant to do any type of business with any counterparty. The Yen maintains its safe-haven status, this aspect increasing in importance as the downward spiral exerts ever greater force on an ever wider set of participants. The authorities’ paralysis most unhelpful.


EUR/USD

Chart Levels:

Support 1.4300..1.4250..1.4150..1.4070.

Resistance 1.4560..1.4600..1.4765..1.4900.

A ‘spike high’ last week after the massive ‘spike low’ two weeks ago suggest this market is looking for direction in increasingly stressed conditions. Over the next month or so we still favour several sharp moves roughly between 1.4200 and 1.4900, keeping one-month at-the-money implied volatility capped around 15.00%. The Euro should continue to lag Eastern European currencies but gain over Scandinavian ones. It is currently oversold against the US dollar but a bout of consolidation should sort this out. We expect sharp intra-day moves as liquidity dries up and spreads get ever wider as participants become increasingly reluctant to deal with an ever wider range of investors.


EUR/JPY

Chart Levels:

Support 152.00..150.75..149.00..147.00.

Resistance 154.00..155.20..156.30..157.00.

Yen crosses should drop again to re-test pivotal long term support, if not this week then within the next month. The South Korean won is leading the way at the moment, dropping to a multi-year low against the Yen this morning. Over the next few months we expect EUR/JPY to drop to the 130.00 area, in what will hopefully be a steady trend rather than an out and out rout. If the latter were to be the case, one-month at-the-money implied volatility could match its 1999 record 20.00% (and three-month’s at 23.00%). This is seen as just the first leg in a series of moves lower, a new long term trend of Yen strength against other majors, erasing much of the rally from 2000.


GBP/JPY

Chart Levels:

Support 190.00..186.75..186.00..184.40.

Resistance 195.65..197.45..200.00..205.00.

Turning down from retracement resistance well ahead of the Ichimoku ‘cloud’ as investors re-think Japan’s economy and its financial system. Having suffered its own asset bubble, burst, and banking crisis several years ago lessons might be learnt. A sustained break below 186.00 next month confirms that the ultra-long term trend is to a stronger Yen. Our medium term target remains at 175.00 with a good chance of an ‘extension’ to 165.00 before some semblance of order returns. Charts with patterns similar to this one are AUD/JPY, NOK/JPY and NZD/JPY. Note that the bulk of these moves ought to be due to Yen strength rather than catastrophic weakness of other major currencies.


GBP/USD

Chart Levels:

Support 1.7900..1.7800..1.7500..1.7445.

Resistance 1.8200..1.8340..1.8672..1.8800.

A ‘spike high’ on the chart last week against the 9-week moving average and ahead of 38% retracement resistance from last year’s multi-year high. This suggests another week or three of fairly vicious price moves as Cable, and other currencies, look for direction. On the monthly candle we have on of the most massive ‘doji’ patterns ever, with a low at 1.7445 and a high of 1.8672, and a potentially tiny little ‘body’ between 1.8190 and tomorrow’s closing price. Watch also the quarterly charts tomorrow for further signs that the sell off since July is an aberration. One-month at-the-money implied volatility has retreated from a high at 13.00%, close to the 1995 peak of 13.80%, and should hold below here for a bit longer.


EUR/GBP

Chart Levels:

Support 0.7900..0.7850..0.7800..0.7745.

Resistance 0.8000..0.8050..0.8100..0.8187.

An oasis of relative calm as storms rage in many financial instruments, holding inside the range that has prevailed for most of the last five months. The monthly and quarterly candles, to be scrutinised Wednesday, add weight to our view that the all-time high at £0.8187 looks like some sort of ‘false break’ or ‘spike high’. We shall continue to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008. On the Bank of England’s Trade Weighted Index the pound is trying to recover too, gaining against Scandinavian and Eastern European currencies but lagging the Canadian dollar. This week it should hold below 0.8020, dipping to 0.7850 within the next few weeks.

Published on  Mon, Sep 29 2008, 10:48 GMT

0

0

Weekly Technical Commentary

Mon, Sep 8 2008, 13:32 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 108.00..107.20..106.40..105.50.

Resistance 109.19..110.67..111.00..111.80

Once again the Ichimoku ‘cloud’ has done a splendid job in limiting sudden collapses. Because it is getting fatter over the coming month, and because the US dollar is fractionally oversold, we feel it should consolidate above 107.00 for another week or two. However, if at-the-money implied volatility remains high, we could find that ranges are riddled with ‘spikes’ and ‘extensions’ making it very hard to decide where to put orders. Daily and weekly closes below 108.00 should add some bearish pressure, while a break below 105.00 may send many into a flap as they are forced to deal with a complex, multi-layered FX situation. Note that all Yen crosses will be subject to similar problems.


EUR/USD

Chart Levels:

Support 1.4200..1.4165..1.4125..1.4015.

Resistance 1.4430..1.4545..1.4700..1.4815.

A pathetic attempt at basing against trendline and retracement support. In what is expected to be a slow process (note that we also based around here in Dec07/Jan08) nerves of steel will be required. The dramatic collapse of the last five weeks has taken us very much by surprise and has postponed the rally that we had targeted for late this year. Hopefully a thickening Ichimoku weekly ‘cloud’ coupled with the fact the Euro is still so very oversold should help it find its feet. The sudden alleged global embracing of the greenback looks suspect and price moves are probably caused by a massive clearout of stale positions rather than new ones being built. We urge extreme caution.


EUR/JPY

Chart Levels:

Support 153.60..152.00..150.60..150.00.

Resistance 157.00..158.00..160.00..163.15.

Tremendous moves as many belatedly pick up worrying signals in their radars; about timetoo! The bounce from Friday’s low at 150.50, and pivotal chart area, is very dramatic but nevertheless just a bounce. One-month at-the-money implied volatility exploded, as expected, and should stay relatively high all month. Only a weekly close below 152.00 completes a very major super-long term ‘rounded/triple top’ that started early 2007. We expect this some time this month, therefore all rallies are seen as good long term selling opportunities for more dramatic declines later this year. We urge readers to look at what happened to Yen crosses in 1997 and 1998 as that is the sort of thing we feel is due imminently.


GBP/JPY

Chart Levels:

Support 190.00..187.50..186.00..185.00.

Resistance 194.00..195.65..200.00..205.00.

Leading the way lower, dipping below March’s low at 192.50, but recovering somewhat late Friday. While the bounce was impressive, the weekly close at the lowest price since July 2005 should make many sit up and listen. We shall allow for a little consolidation at this point, allowing other Yen crosses to catch up a bit. One-month at-the-money implied volatility burst higher on these very sharp moves, as expected, but should subside towards 14.00% over the next week or two. A sustained break below 190.00 confirms that the new ultra-long term trend is to a stronger Yen against the pound, and who cares whether this is because of unwinding of the carry trade or for any other of a myriad different reasons.


GBP/USD

Chart Levels:

Support 1.7565..1.75355..1.7400..1.7000.

Resistance 1.7800..1.8000..1.8200..1.8400.

A complete disaster and the authorities look on and do nothing. Maybe that is for the best as when they do something it is an embarrassing tinkering around the edges at best, and at worst more digging at the graveside. We, possibly alone among analysts, not only feel the move is overdone but that US dollar strength is not something which will carry on for the rest of this year. The move though has forced us to postpone further dollar declines that we now expect in the middle of next year. Therefore we continue to wait until Cable bases before moving higher later this quarter. Today’s half-hearted attempt at a rally is very disappointing, especially as Cable is more oversold than anything seen since late 1982.


EUR/GBP

Chart Levels:

Support 0.8000..0.7965..0.7850..0.7745.

Resistance 0.8100..0.8187..0.8255..0.8400.

Last week’s small ‘spike high’ at a new all-time high for the Euro against the pound at £0.8187 suggests we will hold below here for another week or three. Having moved on to ‘Plan B’ last week we shall continue to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008. On the Bank of England’s Trade Weighted Index the pound is at its weakest since November 1996, when its weakest ever on this basis was February 1996. This week it should hold below 0.8100, dipping to 0.7965 and stabilising here before dropping towards 0.7800 next month. Then sideways in a very broad band of at least five pence, potentially with ‘spikes’ up to ten pence wide.

Published on  Mon, Sep 8 2008, 13:32 GMT

0

0

Weekly Technical Commentary

Tue, Sep 2 2008, 08:22 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 107.20..106.40..105.75..105.00.

Resistance 109.90..110.67..111.00..111.80

August’s candle is an ‘evening/shooting star’ with the move above 110.00, an important long term pivotal area, being an ‘extension’. Over the next month or three we expect the Yen to gain against the US dollar, and for the Yen to gain against most if not all major currencies. Whether this is because of unwinding of the carry trade, or whether it is a flight to safety, we feel that the Swiss franc should do something similar and gain against the Euro. Daily and weekly closes below 108.00 should add a little bearish momentum, while a break below 105.00 may send many into a flap as they are forced to deal with a complex, multi-layered FX situation. One-month at-the-money implied volatility should move up to 13.50%.

EUR/USD

Chart Levels:

Support 1.4600..1.4570..1.4525..1.4440.

Resistance 1.4800..1.4909..1.5000..1.5100.

Hovering above the recent low at 1.4570 for a second week in a row and well within normal long term retracement parameters. Therefore we continue to wait and watch for reversal patterns here and in a series of other major currencies. Hopefully a thickening Ichimoku weekly ‘cloud’ coupled with the fact the Euro is still so very oversold should help. As and when we start inching higher one-month at-the-money implied volatility should move in tandem towards 12.00%. On the ECB’s effective exchange rate the Euro has actually strengthened since Wednesday as other currencies (mainly Sterling and the South Korean won) have weakened dramatically.

EUR/JPY

Chart Levels:

Support 157.62..157.00..156.00..154.00.

Resistance 159.62..161.00..163.11..164.00.

Our patience has paid off and Yen crosses are at last moving lower as expected. Those closest to March’s lows are GBP/JPY, KRW/JPY and NZD/JPY. This EUR/JPY has today broken below a thin Ichimoku ‘cloud’ which, coupled with the weekly close below 160.00, should send it hurtling a lot lower this month. There is a chance of a fall to 152.00 within the next two weeks, even though the Euro is already oversold. One-month at-the-money implied volatility exploded up to 12.00% and should continue up to 14.00% early this month. Only a weekly close below 152.00 completes a very major super-long term ‘rounded top’ that started early 2007 following a rally which started late in 2000.

GBP/JPY

Chart Levels:

Support 194.00..192.50..190.00..185.00.

Resistance 197.00..200.00..205.00..207.50.

Collapsing for a sixth week in a row, rapidly closing in on March’s low at 192.50. Long term bearish pressure should increase with the monthly close below 198.00, so we expect a drop to 190.00 imminently. At this point GBP/JPY may consolidate a little allowing other Yen crosses to catch up a bit. One-month at-the-money implied volatility rallied to 13.00% recently and should move a lot higher this next month, say to 15.00%. A sustained break below 190.00 confirms that the new ultra-long term trend is to a stronger Yen against the pound, and who cares whether this is because of unwinding of the carry trade or for any other of a myriad different reasons. Moves are likely to be fast and furious, taking no prisoners.

GBP/USD

Chart Levels:

Support 1.8000..1.7925..1.7800..1.7750.

Resistance 1.8300..1.8500..1.8800..1.9000.

The biggest monthly collapse since ejection from the ERM in 1992 (when Mr. Soros took on the Bank of England, and won). The move is much faster and bigger than that seen in 2005 (when Cable dropped from 1.9550 to 1.7000) and saying it is oversold must surely be the understatement of the year. No wonder one-month at-the-money implied volatility has picked up to 10.70% and should peak around here shortly. We, possibly alone among analysts and UK authorities, not only feel the move is overdone but that US dollar strength is not something which will carry on this year. Therefore we continue to wait until Cable bases before moving higher later this quarter.

EUR/GBP

Chart Levels:

Support 0.8000..0.7845..0.7800..0.7745.

Resistance 0.8139..0.8200..0.8255..0.8400.

A new all-time high for the Euro against the pound at £0.8139. This has forced us to change our medium and long term view, forcing us to move on to ‘Plan B’. We shall now have to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008. On the Bank of England’s Trade Weighted Index the pound is at its weakest since November 1996, when its weakest ever on this basis was February 1996. This week it should hold above 0.8000, nudging up very slowly to test 0.8200 and maybe 0.8255 later this month. Stabilising here before dropping towards 0.7800 next month. Then sideways in a very broad band of at least five pence, potentially with ‘spikes’ up to ten pence wide.

Published on  Tue, Sep 2 2008, 08:22 GMT

0

0

Weekly Technical Commentary

Mon, Aug 18 2008, 11:06 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 109.00..108.35..108.00..107.00.

Resistance 110.50..110.67..111.00..111.80

A ‘hanging man’ on the weekly chart, half-way between last June’s high and the low of March this year, just under the weekly Ichimoku ‘cloud’. This is the first sign of stalling at this important long term pivotal area, and we shall be watching for more signs of topping until month-end. Here, and in a series of other major currencies against the USD, we shall be watching weekly and monthly candles for confirmation of an interim top/bottom/’spike high/low’. The USD is extremely overbought. Currencies that were sold the hardest are the ones likely to bounce back first and most strongly, making the clearest reversal patterns. Note that Kiwi already has a ‘hammer’ low point on its weekly chart.


EUR/USD

Chart Levels:

Support 1.4645..1.4600..1.4525..1.4440.

Resistance 1.4825..1.5000..1.5100..1.5200.

A massive clear-out with a low so far at 1.4645 as the world and his mother is now convinced that there is only one way for the USD to go and that is stronger. We disagree and remain possibly the one lone voice calling for further dollar weakness later this year and next. Therefore we are waiting and watching for reversal patterns on weekly and monthly charts, where so far we have little to cling to. This week expect the Euro to stage a messy attempt at putting in an interim low. Note it is at its most oversold ever, and that on the ECB’s Effective Exchange Rate it remains trapped in a tight range, higher than last year’s high, as other currencies are also a lot weaker.


EUR/JPY

Chart Levels:

Support 161.40..160.60..158.50..157.00.

Resistance 163.15..164.00..165.00..167.00.

A blessed relief that at least Yen crosses are going our way seeing as we have been pummelled by the US dollar’s sudden strength. This pair is now consolidating under the ‘broadening top’ and a large Ichimoku ‘cloud’. As expected on the break below 164.00 at-the-money implied volatility exploded up to 12.00% and should continue up to 14.00% later this month/early September. This suggests another big drop over the next two weeks, and our target is 158.50. There is a chance of a fall to 152.00 within the next three weeks. Only a weekly close below here completes a very major long term ‘rounded top’ that started early 2007 following a rally which started late in 2000.


GBP/JPY

Chart Levels:

Support 203.30..202.45..200.00..198.00.

Resistance 206.50..208.00..211.00..216.00.

Retreating from retracement resistance at 215.00, ahead of a very large Ichimoku ‘cloud’. The weekly close below 208.75 added to downside momentum as did the break below channel support. Long term bearish pressure should increase on a monthly close below 198.00, as it would do on a break below 190.00. The pound is oversold here, and against the US dollar more so than it has been since ejection from the ERM in1992. Three-month at-the-money implied volatility rallied from 11.00%, and one-month based 10.00%, as expected and these should move a lot higher over the next month, say to 14.00% or 15.00%. This week, and maybe next, allow for nervous consolidation between 202.00 and 209.00.


GBP/USD

Chart Levels:

Support 1.8600..1.8510..1.8385..1.8100.

Resistance 1.8800..1.9000..1.9400..1.9800.

Well at least we got one thing right: one-month at-the-money implied volatility has shot up towards 11.00%. As for Cable, its collapse has been greater than anything seen in a decade and it is more oversold since ejection from the ERM in 1992. Nevertheless, it remains well within long term retracement parameters and we shall continue to expect it to form an interim low point if not this week then by the end of this month. Note that other currencies must try and do something similar, the hardest hit recovering first and most dramatically. Therefore Cable, Aussie and Kiwi are the ones to watch. Then higher later this quarter as many are forced to review the US dollar, where consensus opinion is more one-sided than it has been in years.


EUR/GBP

Chart Levels:

Support 0.7845..0.7795..0.7745..0.7700.

Resistance 0.7945..0.7995..0.8025..0.8100.

Amazingly holding within the large ‘triangle’ despite the punishment Cable has received, and we are still watching for signs of topping. Last week’s fairly large ‘spike high’ is not really enough. Remember: this ‘triangle’ could easily turn into a ‘rectangle’ over the coming month. If we get no clearer picture by the end of the summer, we may also have to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008. All very frustrating and difficult yet we are reluctant to change our core view as price action does not really warrant it. On the Bank of England’s Trade Weighted Index the pound dipped to its weakest in a decade and is trying to recover its poise.

Published on  Mon, Aug 18 2008, 11:06 GMT

0

0

Weekly Technical Commentary

Mon, Aug 11 2008, 10:37 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 109.00..108.60..107.90..107.00.

Resistance 110.00..110.50..111.00..111.80

The Japanese authorities must be looking on smugly as we trade ten Yen above the scary and psychological barrier at 100.00. It has now retraced half of the precipitous declines from June last year to March this year, and reached the weekly Ichimoku ‘cloud’. Once again we shall be watching for signs of stalling at this important long term pivotal area. The corrective rally since March’s low is mature, both in terms of distance travelled and time, and the US dollar is very overbought. Here, and in a series of other major currencies against the USD we shall be watching weekly candles for confirmation of an interim top/bottom/’spike high/low’. A ‘doji’ weekly candle is probably more likely here and clearer reversal ones in other majors.


EUR/USD

Chart Levels:

Support 1.5000..1.4900..1.4800..1.4775.

Resistance 1.5100..1.5200..1.5360..1.5500.

Clear-out time and a lesson to the complacent, including ourselves, and a warning of what is to come. Almost nine consecutive down days and four weeks lower in a row see the Euro at more oversold levels than anything since December 2005. This is obviously not sustainable and we are looking for a reversal pattern on this week’s chart. Price action so far this morning is a good start. Note also that at-the-money implied volatility has rocketed and could easily soar above the 11.00% barrier were we to reverse all of recent losses. Note that on the ECB’s Effective Exchange Rate it remains trapped in a tight range as other currencies are also weaker against the US dollar.


EUR/JPY

Chart Levels:

Support 165.30..164.00..163.65..161.50.

Resistance 165.60..166.00..167.00..169.00.

Slightly stronger support for our view that we are working within a potential ‘broadening top’. Today’s strong bounce from its lower edge, and the bottom of a large Ichimoku ‘cloud’, is understandable and hints that we will hold above here this week and maybe next. The combination of ‘dojis’, a ‘spike highs’ and a ‘spike lows’ on the daily and weekly charts underline this currency pair as one of many looking for direction. Rallies will hopefully be limited roughly to the middle of the formation (around 167.00) which should eventually turn momentum decidedly bearish. As and when we break decisively below 164.00 at-the-money implied volatility should rocket up to 14.00%. Be very careful here and in many Yen crosses.


GBP/JPY

Chart Levels:

Support 210.00..209.00..208.00..204.00.

Resistance 212.50..214.00..215.00..216.00.

Retreating from retracement resistance at 215.00, as expected, with much neater price action than many other Yen crosses. This currency pair continues to move in text book fashion and remains our barometer for future moves in a host of others. A weekly close below 208.75 is needed to add to downside momentum and other Yen crosses should also confirm and back up this idea. Over the coming month we would expect these to try and move in tandem. Three-month at-the-money implied volatility should hold around 11.00%, and one-month base at 10.00%, and if our view is correct move a lot higher late in August, say to 14.00% or 15.00%.


GBP/USD

Chart Levels:

Support 1.9100..1.9000..1.8830..1.8500.

Resistance 1.9400..1.9600..2.0080..2.0170.

Just when this Analyst was about to give up, look what happens! Cable drops to its lowest since November 2006 to cheers from the all too many in the anti-UK plc camp. Since last week one-month at-the-money implied volatility has reversed dramatically from 7.00% to 9.70% and could easily shoot up to 11.00% this quarter if our view is correct. Some may point to the monthly chart on the left saying there is a potential ‘head-and-shoulders’ top. We feel the formation is more likely to disappoint just as something similar did in 2006. Expect this pair to form an interim low point if not this week then by the end of this month. Then scampering higher later this quarter as many are forced to review yet again the outlook here.


EUR/GBP

Chart Levels:

Support 0.7800..0.7766..0.7745..0.7700.

Resistance 0.7850..0.7900..0.7945..0.8000.

Testing the lower edge of the ‘triangle’ and while still watching for signs of topping, this so far does not impress. This ‘triangle’ could easily turn into a ‘rectangle’ over the coming month. If we get no clearer picture by the end of the summer, we may also have to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008. All very frustrating and difficult yet we are reluctant to change our core view as price action does not really warrant it. At-the-money implied volatility has bounced from relatively depressed levels but nothing spectacular, underlining the need for caution and patience here. On the Bank of England’s Trade Weighted Index it has gone nowhere for the last eighteen weeks.

Published on  Mon, Aug 11 2008, 10:37 GMT

0

0

Weekly Technical Commentary

Tue, Aug 5 2008, 07:13 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 107.00..106.00..105.00..104.40.

Resistance 108.39..108.62..109.00..110.15

Hard to believe we have spent the last eight weeks cautiously probing the 108.00/108.70 area. One really needs the patience of Job to survive in these conditions. Back inside the ‘channel’ after July’s ‘spike low’ keeps open the possibility of a ‘spike high’ this week or this month. The corrective rally since March’s low is mature, both in terms of distance travelled and time, and we continue to watch for signs of topping. The US dollar is not especially overbought (although it is against the New Zealand dollar) and momentum is steadily bullish. We favour generalised US dollar weakness in thin summer markets, with the Yen hopefully gaining more than other major currencies.


EUR/USD

Chart Levels:

Support 1.5500..1.5460..1.5345..1.5285.

Resistance 1.5700..1.5850..1.5900..1.6040.

Some whoops of delight as the US dollar gains against the Euro (yet falls precipitously against the South African rand). We remain singularly under whelmed and see it merely as yet another retreat from this year’s upper band to the centre of the range since March. One-month at-the-money implied volatility collapsed and should now try and base around 7.50%. We warn against complacency as thin summer markets may lead to some dramatic and unexpected moves, in complete contrast to what many have come to regard as ‘normal’ trading conditions this year (i.e. neat trading bands, first at 1.4400 to 1.4900, now between 1.5300 and 1.6000). Stock market conditions are likely to deteriorate too.


EUR/JPY

Chart Levels:

Support 167.00..166.70..166.00..165.00.

Resistance 168.60..169.20..169.70..170.00.

Still working within a potential ‘broadening top’ and may do so for another fortnight as the candles provide support for ‘Chikou Span’. The combination of ‘dojis’, a ‘spike highs’ and a ‘spike lows’ on the daily and weekly charts underline this currency pair as one of many looking for direction. The Euro is no longer overbought versus the Yen and bullish momentum continues to droop; a weekly close below 165.00 should tip the balance. Caution is warranted short and medium term and we continue to watch for topping activity in an area that has capped rallies on twelve different occasions. Note that other Yen crosses look very different and some (NZD/JPY) are testing pivotal support.


GBP/JPY

Chart Levels:

Support 211.50..209.00..208.00..204.00.

Resistance 214.00..216.00..219.00..221.00.

Looks just like dollar/yen (as Cable goes nowhere) underlining the fact that it is the Yen that has weakened. We are currently watching for signs of topping here and in a whole host of other Yen crosses. A weekly close below 208.75 is needed to add a little weight to this view. Other Yen crosses should also confirm and back up this idea. We notice that recently many Yen crosses look very different from each other both on the weekly and the long term charts. Over the coming month we would expect them to try and move in tandem. Three-month at-the-money implied volatility should hold around 11.00%, and one-month base at 10.00%, and if our view is correct move a lot higher late in August.


GBP/USD

Chart Levels:

Support 1.9650..1.9600..1.9500..1.9450.

Resistance 1.9850..1.9930..2.0080..2.0170.

Hard to believe we have been consolidating between 1.9400 and 2.0400 since December. Harder to believe that anyone can be expected to write interesting stuff about Cable day after day, week after week. This Analyst has pretty much given up the will to live with this one. One-month at-the-money implied volatility has collapsed to 7.00%, its lowest since November, and at this rate might drop again to 6.00% (where it is probably an excellent buy). While other financial instruments look set for big moves in thin August markets, Cable might go nowhere for another whole month, which is a very depressing thought. This is because ‘Chikou Span’ has to work its way through many candles.


EUR/GBP

Chart Levels:

Support 0.7890..0.7835..0.7766..0.7700.

Resistance 0.7940..0.7975..0.8025..0.8100.

Just as we thought, last week’s price action has done nothing to change the outlook in this nasty little chart pattern. While still watching for signs of topping, this one does not impress. If we get no clearer picture by the end of the summer, we may also have to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008. All very frustrating and difficult yet we are reluctant to change our core view as price action does not really warrant it. Interesting to note that the period of sideways work since late March coincides exactly with the time when the Euro traded between 1.5300 and 1.5900. As our view is that the Euro will eventually break higher, we have to allow for EUR/GBP to break higher with it too.

Published on  Tue, Aug 5 2008, 07:13 GMT

0

0

Weekly Technical Commentary

Mon, Jul 28 2008, 10:32 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 106.00..105.00..104.40..103.77.

Resistance 108.00..108.62..109.00..110.15

Back inside the ‘channel’ following the previous week’s ‘spike low’. This denotes instability and sets up for a potential ‘spike high’ this week. The corrective rally since March’s low is mature, both in terms of distance travelled and time, and we continue to watch for signs of topping. We favour generalised US dollar weakness in thin summer markets, with the Yen hopefully gaining more than other major currencies. Conditions are likely to be especially thin this year because as well as the usual vacations markets have seen volumes shrink because of the lack of capital (or capital being deployed for more urgent things than speculation) and tight stop losses to minimise draw downs.


EUR/USD

Chart Levels:

Support 1.5600..1.5460..1.5345..1.5285.

Resistance 1.5900..1.6040..1.6100..1.6200.

Briefly breaking to a new all-time high at 1.6040 and now back in the middle of the range that has held so incredibly neatly since March. Open interest is declining as is at-the-money implied volatility, and no wonder after so many weeks. We warn against complacency as thin summer markets may lead to some dramatic and unexpected moves, in complete contrast to what many have come to regard as ‘normal’ trading conditions this year (i.e. neat trading bands, first at 1.4400 to 1.4900, now between 1.5300 and 1.6000). Expect more sideways work this week in what will probably be a very dreary time for many financial instruments. Don’t assume this will last until September, though.


EUR/JPY

Chart Levels:

Support 167.50..166.00..165.00..161.70.

Resistance 169.70..170.00..171.00..172.00.

A new all-time high at 169.97 as we work within a potential ‘broadening top’ in the daily and the weekly charts. The combination of ‘dojis’, a ‘spike high’ and a ‘spike low’ inside this pattern underlines this currency pair as one of many looking for direction. The Euro is terribly overbought versus the Yen and bullish momentum continues to collapse. Extreme caution is warranted short and medium term and we continue to watch for topping activity in an area that has capped rallies on twelve different occasions. A weekly close below 165.50 is the absolute minimum needed to hint that a top is already in place. Note that as has been the case several times over the last twelve months, as and when a top is established the drop from there is often very steep and sudden.


GBP/JPY

Chart Levels:

Support 213.50..211.50..209.00..208.00.

Resistance 215.00..216.00..219.00..221.00.

Looking exactly like the chart for dollar/yen (just with different numbers on the right axis), underlining the fact the Yen has weakened and that the pound has gone nowhere since March. We are currently watching for signs of topping here and in a whole host of other Yen crosses. A weekly close below 208.75 is needed to add a little weight to this view. Other Yen crosses should also confirm and back up this idea. We notice that recently many Yen crosses look very different from each other both on the weekly and the long term charts. Over the coming month we would expect them to try and move in tandem. At-the-money implied volatility should hold around 11.00% and if our view is correct move a lot higher late in August.


GBP/USD

Chart Levels:

Support 1.9800..1.9700..1.9650..1.9450.

Resistance 2.0000..2.0085..2.0170..2.0200.

Once again consolidating under 2.0000 and likely to hold under the Ichimoku ‘cloud’ for another week or two. We remind that consensus opinion is heavily stacked against the pound (and against UK plc generally) the median forecast for Cable in twelve months time being 1.8700 (and the lowest 1.6800). Being of a ‘contrarian’ view, we warn that all too often consensus opinion is proved wrong before the thundering herd changes its mind. One-month at-the-money implied volatility still appears to be trying to base at its long term mean of 8.00% and should pick up considerably on a break above 2.0200. Hopefully this will be the case before the end of August because current price action is sapping our will to live.


EUR/GBP

Chart Levels:

Support 0.7890..0.7835..0.7766..0.7700.

Resistance 0.7975..0.8000..0.8025..0.8100.

Some have got excited, and others have got their hopes up, because the Euro has broken below the ‘triangle’ formation and below the Ichimoku ‘cloud’. Being more cynical than many, we feel this may merely be another opportunity to re-draw the pattern. Say, let’s call it a ‘rectangle’, plus the ‘cloud’ was so thin anyway no wonder it did not hold. While still watching for signs of topping, this one does not impress. If we get no clearer picture by the end of the summer, we may also have to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008. All very frustrating and difficult yet we are reluctant to change our core view as price action does not really warrant it.

Published on  Mon, Jul 28 2008, 10:32 GMT

0

0

Weekly Technical Commentary

Mon, Jul 21 2008, 10:51 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 106.00..105.65..104.75..103.77.

Resistance 107.11..107.75..108.59..109.00

Potential signs of forming an interim top even though the break of channel support was not sustained. The ‘spike low/hammer’ on the weekly candle denotes instability even though it also suggests prices will hold above 104.00 possibly until month-end. Last week’s sudden drop has also completely erased all bullish momentum and the dollar is not oversold. Therefore this week we shall allow for a small, cautious, and hopefully final, probe higher followed by generalised US dollar weakness in thin summer markets. We remind that, as is so often the case, when things unravel they can do so at alarming pace. Late this summer we feel that at-the-money implied volatility can briefly push back up to 15.00%.


EUR/USD

Chart Levels:

Support 1.5800..1.5600..1.5460..1.5285.

Resistance 1.5972..1.6040..1.6100..1.6200.

Briefly breaking to a new all-time high at 1.6040, but the move was not sustained. We now feel that the Euro will remain trapped in the neat range that has held since March until the end of this month. Interestingly the Euro is not in the least bit overbought and bullish momentum is almost nil. One-month at-the-money implied volatility still appears to be trying to base against 9.00% and might rush higher in August. Then more of what has been building all year which leads to another serious bout of US dollar weakness. This will take many by surprise as consensus opinion is still very much the recovery story (dollar and the economy) later this year. Next measured target: 1.6300.


EUR/JPY

Chart Levels:

Support 167.00..166.00..165.00..161.70.

Resistance 169.69..170.00..171.00..172.00.

Trading within a whisker of the new all-time high at 169.69, one of the few Yen crosses to do so. At the risk of sounding like the boy who cried ‘wolf’, we are working within a potential ‘broadening top’ this month. The Euro is very overbought versus the Yen and bullish momentum has collapsed. Extreme caution is warranted short and medium term and we continue to watch for topping activity in an area that has capped rallies on twelve different occasions. A weekly close below 165.50 is the absolute minimum needed to hint that a top is already in place. Note that as has been the case several times over the last twelve months, as and when a top is established the drop from there is often very steep and sudden.


GBP/JPY

Chart Levels:

Support 210.00..209.35..208.00..205.80.

Resistance 213.50..213.90..215.00..217.00.

Nothing to add as we trade sideways in a relatively small range just as we did from January to March this year. More small signs of instability (another ‘spike low’) means prices will try and find direction this week. It also hints that we may have found an intermediate top but a weekly close below 208.75 is needed to add a little weight to this view. Further out a break below 202.50 should turn momentum bearish. We continue to urge caution as other Yen crosses do not confirm this. Rallies, where a break above 215.00 is considered unlikely, are seen as good medium term selling opportunities for another big move lower later this year and in 2009. At-the-money implied volatility should hold around 11.00%.


GBP/USD

Chart Levels:

Support 1.9900..1.9800..1.9650..1.9450.

Resistance 2.0000..2.0085..2.0170..2.0200.

Trying to break higher but needs a helpful lift from some more currencies for a meaningful rally. A weekly close above 2.0100, or a sustained break above a very thin Ichimoku ‘cloud’ at 2.0170, should turn the tide. Interesting to note that sterling is not in the least bit overbought and momentum is not really bullish either. We remind that consensus opinion is heavily stacked against the pound (and against UK plc generally) the median forecast for Cable in twelve months time being 1.8700 (and the lowest 1.6800). One-month at-the-money implied volatility appears to be trying to base at its long term mean of 8.00% and should pick up considerably on a break above 2.0200.


EUR/GBP

Chart Levels:

Support 0.7900..0.7830..0.7766..0.7700.

Resistance 0.8025..0.8050..0.80985..0.8150.

No wonder one-month at-the-money implied volatility has collapsed, this currency pair having traded for eighteen consecutive weeks in a tiny range. We continue to look (hope) for signs of topping where sell-stops are likely to lurk under 0.7850. We remind that sterling has been hit exceptionally hard by the credit crunch so we are starting from a position of extreme weakness, on the Bank of England’s index the weakest since January 1997. If we get no clearer picture by the end of the summer, we may also have to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008. All very frustrating and difficult yet we are reluctant to change our core view as price action does not really warrant it.

Published on  Mon, Jul 21 2008, 10:51 GMT

0

0

Weekly Technical Commentary

Mon, Jul 14 2008, 10:12 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 105.65..105.00..103.70..102.50.

Resistance 107.75..108.59..109.00..111.60

Surprisingly unaffected by the storm clouds gathering all round. The corrective rally continues to hold in a very neat channel and at-the-money implied volatility has stabilised around 11.00%. The Technical picture is still very inconclusive and chart levels poor but we feel that shortly signs of forming an interim top will emerge. Here and on generalised US dollar weakness, thin summer markets and institutions teetering on the edge of bankruptcy could set off a huge downward spiral. As is so often the case, when things unravel they unravel faster in the Yen dragging Yen crosses lower quickly. The US dollar is no longer overbought and bullish momentum has eased significantly.


EUR/USD

Chart Levels:

Support 1.5800..1.5600..1.5460..1.5285.

Resistance 1.5972..1.6020..1.6100..1.6200.

The strongest weekly close ever hints that the Euro is setting up for an imminent re-test of the all-time high at 1.6020. Allow for some hesitation this week, here and in equity indices, as investors hope Fed actions will stop the rot. Of course they won’t, just as Northern Rock has not drawn a line in the sand yet (twelve months on). One-month at-the-money implied volatility appears to be trying to base against 9.00% and might rush higher in August. Then more of what has been building all year which leads to another bout of US dollar weakness. This will take many by surprise as consensus opinion is still very much the recovery story (dollar and the economy) later this year.


EUR/JPY

Chart Levels:

Support 167.00..166.00..165.00..161.70.

Resistance 169.69..170.00..171.00..172.00.

Horribly difficult and nasty as we inch up to a new all-time high at 169.69. The Euro is more overbought than it has been in a year and bullish momentum has evaporated completely. Extreme caution is warranted short and medium term and we continue to watch for topping activity. Possibly too many are hoping for the return of the ‘carry trade’, something we will not be holding our breath for. A weekly close below 165.50 is the absolute minimum needed to hint that a top is already in place. Note that as has been the case several times over the last twelve months, as and when a top is established the drop from there is often very steep and sudden. At the risk of crying ‘wolf’ yet again, the rally since March looks unsustainable.


GBP/JPY

Chart Levels:

Support 209.35..207.00..205.75..204.00.

Resistance 212.50..213.90..215.00..217.00.

Amazing! This pair has been stopped completely in its tracks. Nothing to add as we trade sideways in a minuscule range in what will hopefully be the end of a corrective bounce that started in March. Small signs of instability (a ‘spike high’ followed by a small ‘spike low’) hint that we may have found an intermediate top but a weekly close below 208.75 is needed to add a little weight to this view. Further out a break below 202.50 should turn momentum bearish. We continue to urge caution as other Yen crosses do not confirm this. Rallies, where a break above 215.00 is considered highly unlikely, are seen as good medium term selling opportunities for another big move lower later this year and in 2009.


GBP/USD

Chart Levels:

Support 1.9735..1.9650..1.9450..1.9260.

Resistance 1.9888..2.0000..2.0050..2.0200.

Nothing to add as we continue to struggle under the psychological level at 2.0000. Last week’s ‘spike low’ at 1.9650 might see bullish pressure increase fractionally. We remind that consensus opinion is heavily stacked against the pound (and against UK plc generally) the median forecast for Cable in twelve months time being 1.8700 (and the lowest 1.6800). Interestingly open interest is still running at about half this year’s and last year’s peaks, suggesting many have given up on this very difficult pair and it is only economists (rather than traders and investors) who have a strong view. One-month at-the-money implied volatility appears to be trying to base at its long term mean of 8.00%. Above 2.0050 gets interesting.


EUR/GBP

Chart Levels:

Support 0.7900..0.7830..0.7766..0.7700.

Resistance 0.8025..0.8050..0.80985..0.8150.

Still not really going according to plan and narrow ranges over the last thirteen weeks make one wonder whether there is really much point writing this one up. We continue to look (hope) for signs of topping where sell-stops are likely to lurk under 0.7850. One-month at-the-money implied volatility should hold between 7.50% and 10.50% for many months, and is more likely to revert to the mean at 5.70% than trade above 11.00%. We remind that sterling has been hit exceptionally hard by the credit crunch so we are starting from a position of extreme weakness. We may also have to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008.

Published on  Mon, Jul 14 2008, 10:12 GMT

0

0

Weekly Technical Commentary

Mon, Jul 7 2008, 10:54 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 106.00..105.00..103.70..102.50.

Resistance 108.00..108.59..109.00..111.60

Consolidating under this year’s high at 108.96 (June high 108.59). The corrective rally of the last fifteen weeks has surprisingly held in a very neat channel and therefore at-the-money implied volatility has eased considerably from the mid-March peak. The Technical picture is still very inconclusive and chart levels poor. We continue to urge a flexible view as we are likely to trade broadly sideways in a very big band for several months, here and in many other currencies as the US dollar continues to correct and consolidate. Many financial instruments may be dull and difficult this summer, FX sidelined as equity indices take centre-stage and look set to slide further.


EUR/USD

Chart Levels:

Support 1.5600..1.5460..1.5365..1.5285.

Resistance 1.5800..1.5900..1.6020..1.6100.

Retreating sharply from a high at 1.5909 late last week, underlining the increased importance of this chart level. The longer we trade between 1.5300 and 1.5900 (as we have done most but not all of the time since March), the more complacent traders and investors will become. One-month at-the-money implied volatility should ease while we remain range-bound. We continue feel that a break lower is very likely and a drop towards 1.5000 should be pencilled in. Note that much later this year and during 2009 we expect renewed US dollar weakness and do not see current price action as the start of a long term top. As for the downside, a weekly close below 1.4500 is needed to force a re-think.


EUR/JPY

Chart Levels:

Support 166.00..165.00..163.00..161.70.

Resistance 168.50..169.05..169.47..170.00.

Very difficult and inconclusive as we retreat from a new all-time high at 169.47. The Euro is already very overbought and bullish momentum has eased. Small signs of instability with a ‘shooting star’ followed by a ‘doji’ on the weekly chart. Extreme caution is warranted short and medium term and we continue to watch for topping activity. A weekly close below 165.00 is the absolute minimum needed to hint that a top is already in place. Note that as has been the case several times over the last twelve months, as and when a top is established the drop from there is often very steep and sudden. Other Yen crosses are trading well below this year’s and/or last year’s highs and evidence of forming a very important long term top is a lot stronger.


GBP/JPY

Chart Levels:

Support 209.35..207.00..205.75..204.00.

Resistance 212.50..213.30..214.00..215.00.

Nothing to add as we trade sideways in a tiny range in a corrective bounce that started in March. We feel we are in a wave C of an A, B, C-type move. Small signs of instability this last fortnight (a ‘spike high’ followed by a small ‘spike low’) hint that we may have found an intermediate top and a weekly close below 208.75 would add a little weight to this view. Further out a break below 202.50 should turn momentum bearish. We continue to urge caution as other Yen crosses do not confirm this. Rallies, where a break above 215.00 is considered highly unlikely, are seen as good medium term selling opportunities for another big move lower later this year and in 2009.


GBP/USD

Chart Levels:

Support 1.9685..1.9525..1.9400..1.9260.

Resistance 1.9850..1.9900..2.0025..2.0200.

Really very frustrating as we retreat once again from the psychological level at 2.0000. This week we should be back to establishing a new interim low, probably at some random level above 1.9500. Momentum is zero and the RSI in neutral territory. We remind that consensus opinion is heavily stacked against the pound and against UK plc generally, the median forecast for Cable in twelve months time being 1.8700 (and the lowest 1.6800). Interestingly open interest is running at about half this year’s and last year’s peaks, suggesting many have given up on this very difficult pair and it is only economists (rather than traders and investors) who have a strong view on the pair.


EUR/GBP

Chart Levels:

Support 0.7900..0.7830..0.7766..0.7700.

Resistance 0.8000..0.8050..0.80985..0.8150.

Same range; same pattern; nothing to add. Allow for more of the same this week with downside pressure increasing slightly if we hold below 0.7950. More sell-stops are likely to lurk under 0.7800 forcing out some of the more aggressive positions. Note how thin the Ichimoku ‘cloud’ becomes in July suggesting that a decisive move lower is more likely then rather than this month. One-month at-the-money implied should hold between 7.50% and 10.50% for many more months, and is more likely to revert to the mean at 5.70% than trade above 11.00%. We remind that sterling has been hit exceptionally hard by the credit crunch so we are starting from a position of extreme weakness.

Published on  Mon, Jul 7 2008, 10:54 GMT

0

0

Weekly Technical Commentary

Mon, Jun 23 2008, 09:23 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 107.00..106.50..106.00..105.00.

Resistance 108.00..108.59..109.00..111.60

Tiny signs of instability as prices retreat from last week’s high at 108.59. After thirteen weeks of a corrective bounce the US dollar is no longer overbought and bullish momentum has eased. The Technical picture is still very inconclusive and chart levels poor. We continue to urge a flexible view as we are likely to trade broadly sideways in a very big band for several months, here and in many other currencies as the US dollar continues to correct and consolidate. One-month at-the-money implied volatility eased to 10.0% and will probably drop to 9% this month. Many financial instruments may be dull and difficult this summer, FX sidelined as equity indices take centre-stage as they look set to slide further.


EUR/USD

Chart Levels:

Support 1.5460..1.5345..1.5300..1.5285.

Resistance 1.5650..1.5740..1.5844..1.5900.

The Euro bounced from an area of support between 1.5400 and roughly 1.5300 meaning that the Technical picture has not changed. The longer we trade between 1.5300 and 1.5900 (as we have done most but not all of the time since March), the more complacent traders and investors will become. One-month at-the-money implied volatility should ease while we remain range-bound. We continue feel that a break lower is very likely and a drop towards 1.5000 should be pencilled in. Note that much later this year and during 2009 we expect renewed US dollar weakness and do not see current price action as the start of a long term top. As for the downside, a weekly close below 1.4500 is needed to force a re-think. Produced by London Branch - Nicole Elliott +44-20-7786-2509 (email: Nicole.Elliott@mhcb.co.uk)


EUR/JPY

Chart Levels:

Support 166.40..165.00..163.00..161.70.

Resistance 168.15..169.05..170.00..171.50.

Very difficult and inconclusive as we retreat from a recent high at 168.13, ahead of the all-time high of 169.05 set in July last year. The Euro is already very overbought and bullish momentum is strong. One-month at-the-money implied volatility has eased to 9.15%, not what we had expected, but might increase by month-end if this cross starts to drop suddenly. Extreme caution is warranted short and medium term and we continue to watch for topping activity. A weekly close below 165.00 is the absolute minimum needed to hint that a top is already in place. Note that as has been the case several times over the last twelve months, as and when a top is established the drop from there is often very steep and sudden.


GBP/JPY

Chart Levels:

Support 210.00..208.75..205.75..204.00.

Resistance 212.20..213.30..214.00..215.00.

Squeezing to 213.30 last week, the highest price since the beginning of March and almost the highest price this year. The overly aggressive may have been surprised by the break above 210.00 but we see this as wave C in an A, B, C-type move. Last week’s small ‘spike high’ hints that we may have found an intermediate top and a weekly close below 208.75 would add a little weight to this view. Further out a break below 202.50 should turn momentum bearish. We continue to urge caution as other Yen crosses do not confirm this. Rallies, where a break above 215.00 is considered highly unlikely, are seen as good medium term selling opportunities for another big move lower later this year and in 2009.


GBP/USD

Chart Levels:

Support 1.9600..1.9525..1.9400..1.9260.

Resistance 1.9750..1.9850..2.0025..2.0200.

A pity Cable did not manage to close above trendline resistance on Friday, but explains why one-month at-the-money implied volatility eased last week. Not really too critical as even better resistance lies around 1.9850, so only above here are plenty of buy stops likely. Also only above here is momentum likely to turn decidedly bullish. Over the next month or two we feel a break above the psychological level at 2.0000 is due. Until then allow for plenty more work roughly between 1.9400 and 1.9800 with small ‘spikes’ outside this band. The bigger the probe lower, the more likely it is to reverse suddenly and dramatically. We remind that consensus opinion is heavily stacked against the pound and against UK plc generally. Time to re-group?


EUR/GBP

Chart Levels:

Support 0.7860..0.7830..0.7766..0.7700.

Resistance 0.7950..0.8050..0.80985..0.8150.

Sharp intra-day moves as prices cling to trendline support. Allow for more of the same this week with downside pressure increasing slightly the longer we hold below 0.7950. More sell-stops are likely to lurk under 0.7800 forcing out some of the more aggressive positions. Note how thin the Ichimoku ‘cloud’ becomes in July suggesting that a decisive move lower is more likely then rather than this month. One-month at-the-money implied should hold between 7.50% and 10.50% for many more months, and is more likely to revert to the mean at 5.70% than trade above 11.00%. We remind that sterling has been hit exceptionally hard by the credit crunch so we are starting from a position of extreme weakness.

Published on  Mon, Jun 23 2008, 09:23 GMT

0

0

Weekly Technical Commentary

Wed, Jun 18 2008, 12:58 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 107.40..106.50..106.00..105.00.

Resistance 108.70..109.00..110.00..111.60

Breaking above weekly trendline resistance as the corrective bounce that started in March extends, both in terms of price and time, beyond what we had imagined. Now in its thirteenth week, the Technical picture is very inconclusive and chart levels poor. The US dollar is not overbought and momentum is steadily if unspectacularly bullish. We continue to urge a flexible view as we are likely to trade broadly sideways in a very big band for several months, here and in many other currencies as the US dollar continues to correct and consolidate. One-month at-the-money implied volatility is holding below 14% and will probably drop to 9% this month. Many financial instruments may be dull and difficult this summer.


EUR/USD

Chart Levels:

Support 1.5345..1.5285..1.5200..1.5145.

Resistance 1.5570..1.5650..1.5740..1.5844.

The Euro continues a process of correction and consolidation, something that started in March and which is likely to continue for another three months. Picking each and every little turn is bound to be a fruitless task, and longer term investorswill fret but do nothing on each dip. At the moment we are testing the downside, an area of support between 1.5400 and roughly 1.5350. We feel that a break below here is very likely and a drop towards 1.5000 should be pencilled in. Note that much later this year and during 2009 we expect renewed US dollar weakness and do not see current price action as the start of a long term top. As for the downside, a weekly close below 1.4500 is needed to force a re-think.


EUR/JPY

Chart Levels:

Support 165.65..164.45..163.00..161.70.

Resistance 167.15..167.73..168.00..169.05.

Like JPY, this currency pair is not going to plan as are many other Yen crosses. We are holding in a tiny range at this year’s highest level, close to the all-time high of 169.05 set in July last year. Expect a probe higher again early this week, noting that the Euro is already very overbought. One-month at-the-money implied volatility should probably increase to 12.00% as traders and investors worry whether we will se a new all-time high. Extreme caution is warranted short and medium term. A weekly close below 165.00 is the absolute minimum needed to hint that a top is already in place. Note that as has been the case several times over the last twelve months, as and when a top is established the drop from there is often very steep and sudden.


GBP/JPY

Chart Levels:

Support 210.00..208.75..205.75..204.50.

Resistance 212.00..213.00..214.00..215.00.

This is the third consecutive month that this currency pair consolidates above the psychological 200.00 level. The overly aggressive may have been surprised by the break above 210.00 but we see this as wave C in an A, B, C-type move. Either this month or in July the move should top, probably around the 214.00 area. Until then caution is warranted and warn of excessive hype and headlines. Note that the charts of many Asian currencies against the Yen look similar in shape to this one. Rallies, where a break above 215.00 is considered highly unlikely, are seen as good medium term selling opportunities for another big move lower later this year and in 2009.


GBP/USD

Chart Levels:

Support 1.9400..1.9350..1.9260..1.9185.

Resistance 1.9650..1.9850..2.0025..2.0200.

Price action since January 2007 is quite extraordinary with umpteen attempts at, and bounces from, support between 1.9200 and 1.9400. Some are suggesting this is a ‘head-and-shoulders’ top but we disagree. We feel the formation has extended for much too long in terms of time and has therefore lost the dynamism needed for a successful break lower. Note that price action in 2004 to the summer of 2006 could also be viewed as a ‘head-and-shoulders’ top but which, in hindsight, failed miserably. Over the next month or two we feel a break above the psychological level at 2.0000 is overdue, ballooning open interest also hinting at a ferocious short squeeze. At-the-money implied volatility now looks to have based and is likely to inch up to 10.50%.


EUR/GBP

Chart Levels:

Support 0.7860..0.7830..0.7766..0.7700.

Resistance 0.7950..0.8050..0.80985..0.8150.

Peaking again against May’s high, hopefully setting off a slow drift back down to increasingly important support ahead of 0.7800. More sell-stops are likely to lurk under 0.7800 forcing out some of the more aggressive positions. Note how thin the Ichimoku ‘cloud’ becomes in July suggesting that a decisive move lower is more likely then rather than this month. One-month at-the-money implied should hold between 7.50% and 10.50% for many more months. A move above 11.50% is considered unlikely but is a possibility if we start some very serious topping activity. Note that this year Sterling has lost ground against all currencies except the rand, won and kiwi so it is starting at a position of serious weakness.

Published on  Wed, Jun 18 2008, 12:58 GMT

0

0

Weekly Technical Commentary

Mon, Jun 9 2008, 11:13 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 104.00..103.00..102.50..100.75.

Resistance 106.00..106.44..107.00..107.50

Last week ended with a small ‘spike high’ at 106.44, above weekly trendline resistance. The Technical picture is very inconclusive and we urge a very cautious approach. Momentum is now neutral and we have squeezed a little higher than we had allowed for. Probably not this month but some time during the summer we favour for a drop back down to 100.00. In fact we would urge a flexible view as we are likely to trade broadly sideways in a big band for several months. Note that open interest is running at about half of last year’s peak. One-month at-the-money implied volatility is holding below 14% and will probably drop to 9% this month. Many financial instruments may be dull and difficult this summer.Resistance 106.00..106.44..107.00..107.50


EUR/USD

Chart Levels:

Support 1.5700..1.5600..1.5500..1.5400.

Resistance 1.5845..1.5905..1.6020..1.6100.

Short-covering by the world and his mother this morning has taken the Euro higher than May’s high and suggests many have lost money again. The very fast rally from the 1.5400 area increases the importance of this first support level and over the coming week or two we shall allow for a series of upside probes. This is yet another of the many corrective/consolidative moves within the very broad band we warned of. Support for a US dollar recovery will probably have been dented today, and please note the Australian dollar is within a whisker of an all-time high. Later this year the greenback should come under renewed attack and the Euro (and others) should climb to a new record.


EUR/JPY

Chart Levels:

Support 165.00..164.00..162.00..160.60.

Resistance 167.15..167.73..168.00..169.05.

Not going at all to plan as we surge to the highest price this year and close to the all-time high of 169.05 set in July last year. Expect a probe of October’s high at 167.73, and probably higher still, over the coming month. Note that swapping Yen for US dollars in money market funds may be one of the motors propelling this currency pair higher. A pattern similar to this one is seen only in AUD/JPY, BRL/JPY and CHF/JPY. All other Yen crosses look much more like the GBP/JPY chart below. One-month at-the-money implied volatility should probably increase to 12.00% as traders and investors worry whether we will se a new all-time high. Extreme caution is warranted short and medium term.


GBP/JPY

Chart Levels:

Support 205.50..202.50..200.00..198.00.

Resistance 209.00..210.00..211.00..214.00.

Really very dull, as we had warned, while we consolidate in a small range above the psychological 200.00 level. Over the next month or two we shall continue to allow for a prolonged bout of consolidation above 197.00 as Sterling recovers somewhat against a range of other currencies. During June we favour a slow squeeze higher to re-test increasingly important resistance around 209.00/210.00. Note that the charts of many Asian currencies against the Yen look similar in shape to this one. Rallies, where a break above 215.00 is considered highly unlikely, are seen as good medium term selling opportunities for another big move lower later this year and in 2009.


GBP/USD

Chart Levels:

Support 1.9655..1.9525..1.9450..1.9350.

Resistance 1.9880..1.9975..2.0025..2.0200.

Quite extraordinary the way Cable’s monthly chart has been dominated by ‘spike lows’ for so long. It suggests aggressive positioning which is then cut out. Some think the pattern since 2007 is a top (a Christmas tree?), but we disagree. Over the next month or two we feel a break above the psychological level at 2.0000 is overdue. Ballooning open interest also hints at big positions being built. At-the-money implied volatility dropped to 8.00% but now looks as though we have based here and are likely to inch up to 10.50%. We still feel the pound has been excessively castigated by the fall-out from sub-prime and that it should strengthen against the Euro and some other currencies over the coming months, albeit slowly.


EUR/GBP

Chart Levels:

Support 0.7950..0.7890..0.7820..0.7800.

Resistance 0.8000..0.8035..0.8050..0.80985.

Another currency pair not going according to plan as we re-test May’s high at 0.80345. Hopefully we will top here again this week setting off a slow drift back down to increasingly important support ahead of 0.7800. More sell-stops are likely to lurk under 0.7800 forcing out some of the more aggressive positions. Note how thin the Ichimoku ‘cloud’ becomes in July suggesting that a decisive move lower is more likely then rather than this month. One-month at-the-money implied volatility has bounced from 7.50% and should hold above 7.00% for many more months. Talk that this pair will trade up to £1.0000 and then join the single currency is terribly premature.

Published on  Mon, Jun 9 2008, 11:13 GMT

0

0

Weekly Technical Commentary

Thu, May 29 2008, 07:58 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 103.00..102.50..100.75..100.00.

Resistance 104.38..104.66..105.50..105.70

Terribly slow work but prices appear to be forming an interim ‘double top’ at 105.50 area. As well as being the 50% Fibonacci retracement level, this has been a pivotal area over many years. Momentum is just bearish and should increase on a break below the recent low at 102.57. Probably not this month but some time during the summer we favour for a drop back down to 100.00. In fact we would urge a flexible view as we are likely to trade broadly sideways in a big band for several months. Note that open interest is running at about half of last year’s peak. One-month at-the-money implied volatility should hold below 14% and will probably drop to 9% next month. Many financial instruments may be dull this summer.


EUR/USD

Chart Levels:

Support 1.5600..1.5500..1.5400..1.5360.

Resistance 1.5819..1.5905..1.6020..1.6100.

Having rallied to 1.5800 as expected, prices should now form an intermediate top between here and 1.5900. This is part of a series of corrective waves that we have pencilled in for another couple of months or so. The trouble is that on each and every one of these it will be difficult to know where exactly tops and bottoms should and will lie. This broad band of consolidation does not imply that US dollar weakness is over. Rather a market taking a breather although note that many other currencies are continuing to strengthen against the greenback. Later this year it should come under renewed attack and the Euro should climb to a new record high. At-the-money implied volatility should hold well below 12.00%.


EUR/JPY

Chart Levels:

Support 161.45..160.00..159.00..158.25.

Resistance 164.00..164.50..165.00..166.65.

We continue to look for signs of topping because we are at the upper edge of the massive ‘diamond’ pattern that has dominated the chart for months. Nothing yet, but as we have learnt this year, patience has been the most useful trait for those involved in Yen crosses. Probably not this week, and more likely early June, expect a serious test of the pivotal 154.00 area. Bullish momentum has collapsed from very high levels and the Euro is no longer oversold. While prices may well hold above 160.00 again this week, topping activity between 163.00 and 164.00 is what we expect. This is seen as a good selling opportunity for a sudden move lower later on this year. Note that the Yen has gained considerably against many Asian currencies.


GBP/JPY

Chart Levels:

Support 202.50..200.00..198.00..195.00.

Resistance 206.50..209.00..211.00..214.00.

Really very dull, as we had warned, while we consolidate in a small range above the psychological 200.00 level. Over the next month or two we shall continue to allow for a prolonged bout of consolidation above 197.00 as Sterling recovers somewhat against a range of other currencies. Therefore at-the-money implied volatility should decrease further, dropping towards 10.00% later this summer. During June we favour a slow squeeze higher to re-test increasingly important resistance around 209.00/210.00. Rallies, where a break above 215.00 is considered highly unlikely, are seen as good medium term selling opportunities for another big move lower later this year or maybe in 2009.


GBP/USD

Chart Levels:

Support 1.9700..1.9600..1.9550..1.9450.

Resistance 1.9880..1.9975..2.0025..2.0200.

At last! We have broken above the downward-sloping ‘wedge’ formation. Now Cable has to contend with Fibonacci 50% retracement resistance and that of (an extremely thin) Ichimoku ‘cloud’. This year’s weekly chart now hints of a ‘double bottom’ against the 1.9400 area. Ballooning open interest was checked last week, probably as too many were overly negative on the pound. At-the-money implied volatility dropped to 8.00% as predicted and might well carry on down towards 7.00% over the next month or so. We feel the pound has been excessively castigated by the fall-out from sub-prime and that it should strengthen against the Euro and some other currencies over the coming months, albeit slowly.


EUR/GBP

Chart Levels:

Support 0.7950..0.7900..0.7820..0.7800.

Resistance 0.7987..0.8000..0.8035..0.80985.

We continue to feel we are building the ‘right shoulder’ of a ‘head-and-shoulders’ top (or ‘diamond top’ formation). Last week’s brief ‘spike’ above 0.8000 and small ‘bearish engulfing’ candle hint that an interim high is in place. Downside pressure might increase marginally on a drop through the top of the Ichimoku ‘cloud’ at 0.7950 and the nine-day average at 0.7900. More sell-stops are likely to lurk under the ‘neckline’ just under 0.7800 forcing out some of the more aggressive positions. Getting down to this point will probably take another week or two, after which moves might pick up speed. We target a drop to the 0.7200 area long term, and implied volatility to drop back down to 6.00%.

Published on  Thu, May 29 2008, 07:58 GMT

0

0

Weekly Technical Commentary

Mon, May 19 2008, 13:03 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 103.00..102.50..100.75..100.00.

Resistance 104.66..105.50..105.70..106.65

Very slow work but prices appear to be forming an interim ‘double top’ at 105.50 area. As well as being the 50% Fibonacci retracement level, this has been a pivotal area over many years. Momentum is just bearish and should increase on a break below last week’s low at 102.57. Probably not this month but some time during the summer we favour for a drop back down to 100.00. In fact we would urge a flexible view as we are likely to trade broadly sideways in a big band for several months. Note that open interest is running at about half of last year’s peak. One-month at-the-money implied volatility should hold below 14% and will probably drop to 9% next month. Many financial instruments may be dull this summer.


EUR/USD

Chart Levels:

Support 1.5500..1.5400..1.5360..1.5285.

Resistance 1.5665..1.5700..1.5740..1.5900.

Early May’s ‘spike low’ marked the end of the first leg of what should be a series of corrective moves this summer. We are now working our way slowly higher and we target 1.5700 and probably a top ahead of 1.5900. The trouble is that on each and every one of the next legs it will be difficult to know where exactly tops and bottoms should and will lie. This does not imply renewed US dollar weakness over the rest of this month, but rather the next in a series of complex corrective moves within a broad band of consolidation that might last up to three months. At-the-money implied volatility should hold well below 12.00%, drifting to 8.00%. Position-trimming is likely on rallies and as we approach futures delivery mid-June.


EUR/JPY

Chart Levels:

Support 160.00..159.00..158.25..156.00.

Resistance 163.00..164.00..165.00..166.65.

Utterly boring as we continue to work in the upper half of a huge ‘diamond’ formation. Interim support around 159.00 led to a smart rally last week, postponing yet again the break lower we have been waiting for. This year patience has been the most useful trait for those involved in Yen crosses. Probably not this week, and more likely at the very end of May or early June, expect a serious test of the pivotal 154.00 area. Bullish momentum has collapsed from very high levels and the Euro is no longer oversold. While prices may well hold above 158.00 again this week, topping activity between 163.00 and 164.00 is what we expect. This is seen as a good selling opportunity for a sudden move lower later on.


GBP/JPY

Chart Levels:

Support 202.50..200.00..198.00..195.00.

Resistance 205.00..209.00..211.00..214.00.

Really very dull as we consolidate in a small range above the psychological 200.00 level. Over the next month or two we shall continue to allow for a prolonged bout of consolidation above 197.00 as Sterling recovers somewhat against a range of other currencies. Therefore at-the-money implied volatility should decrease further, dropping towards 10.00% later this summer. Momentum is just bearish and the pound is not oversold. Against the South Korean won the pattern looks very much like this one as the won has been sold even more than the South African rand or Sterling over the last twelve months. A sustained break below 0.9800 on that one should trigger the next leg lower in many Yen crosses.


GBP/USD

Chart Levels:

Support 1.9440..1.9360..1.9335..1.9180.

Resistance 1.9635..1.9700..1.9880..2.0025.

Dipping to almost this year’s lowest level but reversing at 1.9360 in what we see as a downward-sloping ‘wedge’ formation. We have formed a small ‘spike low’ on the daily chart and it was a pity that the weekly chart did not manage something a little more convincing. Hopefully it will do better this week. Ballooning open interest this month suggests too many are convinced the only way for Cable is lower. At-the-money implied volatility should hold around 9.00%, probably dropping to 8.00% later this summer. We feel the pound has been excessively castigated by the fall-out from sub-prime and that it should strengthen against the Euro and some other currencies over the coming months, albeit slowly.


EUR/GBP

Chart Levels:

Support 0.7870..0.7800..0.7766..0.7600.

Resistance 0.7987..0.8050..0.80985..0.8150.

As we continue to feel we are building the ‘right shoulder’ of a ‘head-and-shoulders’ top (or ‘broadening top’ formation) we shall watch for topping activity around 0.8000 this week. Downside pressure might increase marginally on a drop below the top of the Ichimoku ‘cloud’ at 0.7870. More sell-stops are likely to lurk under the ‘neckline’ just under 0.7800 forcing out some of the more aggressive positions. Were this to happen before month-end, there is a very real chance of a sudden collapse to 0.7600. If the Euro tops at 1.5700 and then trades down over the rest of the month, this would help EUR/GBP trade lower. So too would Cable managing a sustained break above 1.9800, the top of the ‘wedge’ this week.

Published on  Mon, May 19 2008, 13:03 GMT

0

0

Weekly Technical Commentary

Mon, Apr 21 2008, 13:55 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 103.00..101.00..100.00..98.50.
Resistance 104.00..104.66..105.00..105.50

The bounce from March’s extreme low is seen as corrective and takes the shape of an A, B, C-type formation where at the moment C is 0.60 times A. This instinctively makes sense as A was a powerful big move to undo the sudden collapse through 100.00 earlier in the month. The rally has done wonders in correcting the very oversold position the US dollar had got into and has probably stopped out ultra- aggressive traders. This week we feel this currency pair will from an interim top, probably between 104.66 and 105.50. Any cautious rallies are seen as good selling opportunities for a drop back down to 100.00 over the next four to six weeks.

EUR/USD

Chart Levels:

Support 1.5650..1.5510..1.5340..1.5280.
Resistance 1.5905..1.5985..1.6050..1.6150.

Another new record high at 1.5985 as the Euro consolidates at these very expensive levels for a sixth week in a row. Although looking slightly unsteady it should be noted that it is not in the least bit overbought and that momentum is still (just) bullish. We feel that this bout of consolidation is constructive and at the moment there is nothing in the Technical picture to suggest any sort of topping activity. Looking forward, while we expect further gains for the Euro, we shall allow for a lot more two-way price action with a series of swings either side of 1.6000 for several months. Hard hit Sterling and the Swiss franc might outperform the single currency if this were to be the case.

EUR/JPY

Chart Levels:

Support 162.00..160.50..158.00..154.00.
Resistance 164.68..165.40..166.70..168.00

The rally of the last four weeks has been far greater than anything we had imagined, taking the cross almost all the way back to the high at the very beginning of January. It almost feels as though some believe that the ‘carry trade’ is alive and kicking, back in full swing. While the move has seriously postponed the significant move lower we have been calling for, and seriously dented our confidence, Technically there is no reason to change our long held view. Yen crosses are forming very big important topping patterns and later this year should start to trend lower. Note that some are leading the way down, having not done nearly as well as the Euro in terms of gaining against the Yen since late March.

GBP/JPY

Chart Levels:

Support 205.00..198.00..196.75..192.50.
Resistance 209.00..211.00..214.00..217.00.

While many have been surprised by the extent of the bounce from March’s low, we beg to differ. It is still well within normal retracement parameters, takes an A, B, C-type shape, and should stall between 209.00 and 214.00. It is seen as a good selling opportunity for further Yen strength, if not in May then later this year. In fact over the next month or two there is a good chance of a prolonged bout of consolidation above 197.00, in which case at-the-money implied volatility should decrease further. Note that the Yen has gained 12.50% against the South Korean won so far this year, and also a lot against the Indonesian rupiah, unsettling the balance between Asian currencies.

GBP/USD

Chart Levels:

Support 1.9870..1.9725..1.9600..1.9480.
Resistance 2.0050..2.0200..2.0400..2.0656.

Trying to break above 2.0000 after suddenly forming an interim base at 1.9600 last week. The moves coincides with extreme negative sentiment towards the pound and suggests overly-aggressive positioning. Momentum has just turned bullish and is likely to increase as and when Cable starts holding consistently above 2.0000. We disagree with those who feel that this psychological level is some sort of watershed and predict that prices are likely to swing either side of here for another two months. Maybe a lot longer as this is basically what we have been doing since the beginning of last year. At-the-money implied volatility should hold below 11.00%, moving to a more ‘normal’ 8.00%.

EUR/GBP

Chart Levels:

Support 0.7900..0.7800..0.7745..0.7600.
Resistance 0.8000..0.80980..0.8150..0.8200.

Sharp intra-day moves last week, and throughout April, have kept at-the-money implied volatility higher than it has been since 2000. A small ‘spike high’ on the weekly chart suggests that we can look forward to more of the same sudden big moves this week and maybe for the whole of next month. Note that on the Bank of England’s Trade Weighted Index the pound is still weaker than it has been since 1996. We feel that Sterling has been punished too hard because of the ‘sub-prime’ mess and that other financial centres also have skeletons in cupboards. We continue to watch for sharp reversal formations in EUR/GBP and in a whole raft of other currencies against the pound.

Published on  Mon, Apr 21 2008, 13:55 GMT

0

0

Weekly Technical Commentary

Tue, Mar 11 2008, 09:59 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 102.00..101.40..101.00..100.00
Resistance 103.25..104.20..105.00..106.00

Dropping to a low of 101.40 on Friday, lower than the January 2005 low at 101.65 and just above the December 1999 low at 101.25. What is even more extraordinary is that despite being at some of the lowest levels ever (only between July 1994 and September 1995 did we trade below 100.00) we have not heard a peep from the authorities. A change of heads at the Bank of Japan on the 19th will also make coordinated policy less likely. How far and for how long will sub-100.00 Yen per dollar hold is the big question. Note that there is far more room for the Yen to appreciate against other major currencies and this should be the line of least resistance. At-the-money implied volatility should remain very high.

EUR/USD

Chart Levels:

Support 1.5300..1.5200..1.5145..1.5000.
Resistance 1.5400..1.5465..1.5500..1.5550.

Tiny signs of instability as we hit a new record high at 1.5465 on Friday. Allow for some consolidation under 1.5500 early this week and either side of here for a week or more. Dips should hold above 1.5000, and a sustained break below 1.4900 would force us to review. One-month at-the-money implied volatility should hold above the 8.50% and might squeeze up to 12.00% later this year if chronic US dollar weakness sets in. Futures positions are being re-built and consensus opinion is for US dollar strength in the second half of this year. Note that we continue to favour the Swiss franc and Japanese Yen over the Euro, while the South African rand is probably the only currency that is likely to see considerable weakness.

EUR/JPY

Chart Levels:

Support 156.60..155.95..154.00..152.65.
Resistance 157.50..159.22..160.00..161.43.

The Indonesian rupiah and South Korean won are leading the way lower for the Yen crosses; it is just a question of time before this one does too. We see price action so far this year as a massive inverted ‘flag’ which suggests an imminent and extremely sharp move lower. Because of this one-month at-the-money implied volatility should hold above 13.00% and may well rally towards 20.00%. Note that Yen crosses spent the whole of 2007 forming immense topping patterns so one by one we shall be looking for breaks of key support levels. Patterns in many equity indices are very similar, manifestations of the ‘carry trade’ in its many different guises.

GBP/JPY

Chart Levels:

Support 204.50..203.45..202.50..200.00.
Resistance 208.00..210.00..213.50..214.00.

This pair will probably take a back seat this week allowing other Yen crosses to catch up. Momentum is still clearly bearish but we are oversold again. Allow for random moves between 204.50 and 209.00 for a week or two. Rallies, which should be capped at 210.00, are seen as excellent medium term selling opportunities. A sustained break below last week’s ‘spike low’ at 203.45 will set off the next step down to the psychological level at 200.00 around which we expect a bout of consolidation. Yen crosses provide less resistance than the US dollar/Yen which must grapple with the pivotal 101.00/100.00 area. Expect renewed interest in these as investors fret in an increasingly fragile financial system.

GBP/USD

Chart Levels:

Support 2.0000..1.9800..1.9700..1.9337.
Resistance 2.0225..2.0365..2.0500..2.0656.

Having formed an interim base against the 1.9400 area in what might be a ‘triple/rounded bottom’ last week’s break above the psychological level at 2.0000 is just what the doctor ordered. It should also send many scurrying back to their drawing boards because consensus opinion is at its most negative for Sterling this year. At-the-money implied volatility is expected to rally to 10.00%, it is not too overbought, and open interest, while picking up, is still a fraction of last year’s peak. With so many other currencies trading at record highs against the dollar, surely the attraction of Cable, which is still nine cents below last year’s peak, must be worth a try.

EUR/GBP

Chart Levels:

Support 0.7600..0.7500..0.7390..0.7300.
Resistance 0.7658..0.7693..0.7750..0.7800.

Interesting to note that the pound’s weakness started at the same time as the credit crunch. Last week it inched to a new all-time high at 0.7693 and we continue to watch for signs of topping. A small ‘spike high’ on the weekly chart is of little use after such a steep rally. One-month at-the-money implied volatility should hold below 9.00% and then drop down to a more ‘normal’ 6.00% or so late this month. A weekly close below 0.7400 should add a little downside pressure as would a monthly close below 0.7300. Note that on the Bank of England’s Trade Weighted index we have already rallied from a low at 94.50, one of the lowest levels in a decade and close to the 2003 low at 94.20.





Published on  Tue, Mar 11 2008, 09:59 GMT

0

0

Weekly Technical Commentary

Mon, Feb 18 2008, 11:50 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:

Support 107.00..106.00..105.50..105.00.
Resistance 108.62..109.00..110.13..111.50

Terribly boring as we consolidate in a surprisingly tiny range above 104.95, and above 106.00 most of the time, for a fifth consecutive week. Very important support lies between 105.00 and 105.50 so we shall allow for yet more consolidation above here. The RSI is neutral and so is momentum. At-the-money implied volatility should continue to hold between 9.00% and 13.00%. Bounces are seen as selling opportunities. Later this month or late in Q1 we favour a downside probe, to 103.50/103.00, with a simultaneous spike higher in implied volatility. Note that in what we see as generalised US dollar weakness to come later this year, the Yen should do better than most currencies so that Yen crosses will trade lower.

EUR/USD

Chart Levels:

Support 1.4520..1.4440..1.4310..1.4250.

Resistance 1.4800..1.4920..1.4968..1.5000.

Back in the middle of the large ‘triangle’ formation (which is a continuation pattern) that has dominated since November. The Euro has not done as well as some other currencies over this period, notably the Czech koruna and Singapore dollars both of which have gained steadily. Note that open interest in the futures contract is still way below last year’s peak suggesting many have yet to re-build positions. One-month at-the-money implied volatility should hold around the 10.00% area and may squeeze up to 12.00% later this quarter as and when the Euro trades up to new all-time highs. Note that we continue to favour the Swiss franc and Japanese Yen over the Euro, and now also the pound.

EUR/JPY

Chart Levels:

Support 155.50..154.00..152.65..150.00.

Resistance 159.00..159.50..160.00..162.00.

So difficult to be patient when one can see the ‘roadmap’ so clearly. The massive topping pattern of 2007 is still not complete. This requires a weekly close below 153.00, better still below 152.00. Other Yen crosses look very similar. One-month at-the-money implied volatility should hold above 10.00% and could hit 19.00% if drops later this quarter in this currency pair are as sharp as we fear. Our medium term measured target is 140.00 and as is so often the case, when then Yen and its crosses unravel they do so with a vengeance taking no prisoners. Our long term target is 125.00 at which point the chance of covert smoothing operations and/or intervention is high.

GBP/JPY

Chart Levels:

Support 206.75..205.85..205.00..204.50.

Resistance 212.00..214.00..217.50..222.00

Trading sideways as expected as we wait for other Yen crosses to catch up. Unfortunately they have not done so yet, so we have a stalemate. Sit it out. Allow for more random moves roughly between 205.00 and 214.00 this week. Note that bearish pressure has eased and the pound is still oversold. Rallies are seen as good selling opportunities for renewed Yen strength later this quarter and in Q2 2008; we maintain a target at 200.00 medium term and 190.00 longer term. This should concentrate the minds of all those who have become accustomed to borrowing in Yen to invest (all too often the case) in European property. A weekly close above 222.00 would force us to review.

GBP/USD

Chart Levels:

Support 1.9400..1.9337..1.9200..1.9000.

Resistance 1.9740..1.9800..1.9960..2.0000.

Little to add as we creep sideways across the page despite the fiasco that is the authorities’ handling of Northern Rock. There is a potential ‘double bottom’ at the 1.9400 area, but Cable will have to try an awful lot harder before anything convincing emerges. This should keep at-the-money implied volatility relatively high. Momentum is neutral and Cable is less overbought than it has been in almost three years. Late February or early March we ought to be trading closer to 2.0000 than 1.9200. Note that open interest is still a fraction of last year’s peak and that FX Polls show consensus opinion is for Cable to drop steadily, and by more than the Euro or Swiss franc, over the next twelve months.

EUR/GBP

Chart Levels:

Support 0.7420..0.7390..0.7300..0.7250.

Resistance 0.7525..0.7544..0.7575..0.7614.

Not trending lower as we had thought, but moving sideways above 0.7400. We continue to feel the pound has been overly punished for the nationalisation of Northern Rock and that we should retreat from these high levels over the coming months. Our target is 0.7225 in what should be a hesitant drop with many small bounces along the way. One-month at-the-money implied volatility is still higher than it has been in years but should drop too, down to a more ‘normal’ 6.00% or so. A weekly close below 0.7400 should add a little downside pressure as would a monthly close below 0.7300. Note that on the Bank of England’s Trade Weighted index we are at some of the lowest levels in a decade.





Published on  Mon, Feb 18 2008, 11:50 GMT

0

0

Weekly Technical Commentary

Mon, Feb 11 2008, 14:05 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY


Chart Levels: Support 106.00..105.50..105.00..104.20
Resistance 107.00..108.13..109.00..110.13

Little to add as we consolidate in a surprisingly tiny range above 104.95, the strongest the Yen has been against the US dollar since May 2005. Good support lies between 105.00 and 105.50 so we shall allow for yet more consolidation above here. The US dollar is not oversold and momentum is neutral. At-the-money implied volatility should continue to hold between 9.00% and 13.00%. Later this month or late in Q1 we favour a downside probe, to 103.50/103.00, with a simultaneous spike higher in implied volatility. Note that in what we see as generalised US dollar weakness to come later this year, the Yen should do better than most currencies so that Yen crosses will trade lower.


EUR/USD

Chart Levels: Support 1.4440..1.4365..1.4310..1.4250
Resistance 1.4600..1.4750..1.4825..1.4968.

Some have tried to make a lot of last week’s drop, labelling it the biggest weekly decline in x time etc etc. We see it merely as normal consolidation in a ‘triangle’ formation (which is a continuation pattern). It has though wiped out bullish momentum and the Euro is no longer overbought. Note that open interest in the futures contract is still way below last year’s peak suggesting many have yet to re-build positions. One-month at-the-money implied volatility should hold around the 10.00% area and may squeeze up to 12.00% later this quarter as and when the Euro trades up to new all-time highs. Note that we continue to favour the Swiss franc and Japanese Yen over the Euro, and now also the pound.


EUR/JPY

Chart Levels: Support 159.75..159.00..158.00..155.00.
Resistance 162.30..164.30..165.75..166.65.

We continue to feel that this currency pair is forming a massive topping pattern, a sort of ‘double top’ or irregular ‘head-and-shoulders’. We are now consolidating inside the Ichimoku ‘cloud’ and note that it narrows sharply early February. A weekly close below 159.00 should add to bearish momentum and one below 154.00 completes the formation. Until then allow for a series of random moves roughly between 159.00 and 165.00. Rallies are seen a good medium and long term selling opportunities. At-the-money implied volatility has drifted from near record highs and is expected to swing between 10.50% and 16.50% for the next month or two. It could hit 19.00% if drops are as sharp as we fear.


GBP/JPY

Chart Levels: Support 206.75..205.85..205.00..204.50.
Resistance 212.00..214.00..217.50..222.00.

At-the-money implied volatility should remain high as this currency pair leads the way lower. Allow for some more random moves roughly between 205.00 and 212.00 this week. Note that bearish pressure, which is already at its strongest in nine years, should increase if we now hold below the recent highs at 214.00. Rallies are seen as good selling opportunities for renewed Yen strength later this quarter and in Q2 2008; we maintain a target at 200.00 medium term and 190.00 longer term. This should concentrate the minds of all those who have become accustomed to borrowing in Yen to invest (all too often the case) in European property. A weekly close above 222.00 would force us to review.


GBP/USD

Chart Levels: Support 1.9400..1.9337..1.9200..1.9000.
Resistance 1.9600..1.9800..1.9960..2.0000.

We still do not understand why the pound has taken such a hammering since November’s multi-year peak. There is now a potential ‘double bottom’ at the 1.9400 area but Cable will have to try an awful lot harder before anything convincing emerges. This should keep at-the-money implied volatility relatively high. Momentum is neutral and Cable is less overbought than it has been in almost three years. Late February or early March we ought to be trading closer to 2.0000 than 1.9200. Note that open interest is still a fraction of last year’s peak and that FX Polls show consensus opinion is for Cable to drop steadily, and by more than the Euro or Swiss franc, over the next twelve months.

EUR/GBP

Chart Levels: Support 0.7420..0.7390..0.7300..0.7250
Resistance 0.7500..0.7544..0.7575..0.7614.

Trading under the record high of 0.7614 but not really trending lower as we had thought. We continue to feel the pound has been overly punished for the run on Northern Rock and that we should retreat from these high levels over the coming months. Our target is 0.7225 in what should be a hesitant drop with many small bounces along the way. One-month at-the-money implied volatility is still higher than it has been in years but should drop too, down to a more ‘normal’ 6.00% or so. A weekly close below 0.7400 should add a little downside pressure as would a monthly close below 0.7300. Note that on the Bank of England’s Trade Weighted index we are at some of the lowest levels in a decade.

Published on  Mon, Feb 11 2008, 14:05 GMT

0

0

Weekly Technical Commentary

Tue, Jan 15 2008, 14:47 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY


Chart Levels: Support 107.22..106.50..105.50..105.00.
Resistance 109.00..111.80..112.70..114.65

December’s rally to 114.65 was the excellent selling opportunity we had favoured and we continue to expect generalised US dollar weakness this year. The Yen is should do better than most major currencies and the question now is the speed of moves. One-month at-the-money implied volatility should hold above the average of the last ten years which is 10.50%, with lurches towards 17.00% as major chart levels give way. We continue to feel that the ‘carry trade’, in all its many guises, is ending and that it could unwind very dramatically. GBP/JPY and the Swedish OMX stock index, closely followed by CAD/JPY and the Dow Jones Industrial Average are leading the way.


EUR/USD

Chart Levels: Support 1.4775..1.4640..1.4565..1.4310.
Resistance 1.4915..1.4968..1.500..1.5250.

Over the last three weeks many did not have their eye on the ball because they focused on Sterling. The reality is that it is just a matter of time before the Euro, and a whole raft of other currencies, strengthen to new record levels against the US dollar. One-month at-the-money implied volatility is expected to revert to its mean – 9.57%, keeping one standard deviation from here at 7.40% and 11.75% most of this year. While still unclear what effect the credit crunch will have on FX rates, current thinking is based on the avoidance of US assets. We remind that instruments priced in US dollars will have an underlying bid tone from a rapidly shrinking greenback. Resistance levels above 1.5000? Pick a number, any number.


EUR/JPY

Chart Levels: Support 159.75..159.00..158.00..155.00.
Resistance 162.30..164.30..165.75..166.65.

We continue to feel that this currency pair is forming a massive topping pattern, a sort of ‘double top’ or irregular ‘head-and-shoulders’. We are now consolidating inside the Ichimoku ‘cloud’ and note that it narrows sharply early February. A weekly close below 159.00 should add to bearish momentum and one below 154.00 completes the formation. Until then allow for a series of random moves roughly between 159.00 and 165.00. Rallies are seen a good medium and long term selling opportunities. At-the-money implied volatility has drifted from near record highs and is expected to swing between 10.50% and 16.50% for the next month or two. It could hit 19.00% if drops are as sharp as we fear.


GBP/JPY

Chart Levels: Support 211.00..209.50..205.00..201.50.
Resistance 217.30..232.00..225.00..230.35.

Leading the way down from a fabulously neat, massive topping pattern. We feel we have completed a long term, very important ‘head-and-shoulders’ top and that this pair is indicating where a whole raft of other charts will go. Not just Yen crosses, but many stock indices have similar formations as does EUR/CHF. The collapse of the last two weeks is typical of the Yen, ‘catching up’ after dithering for so long. Our target remains at 200.00 medium term. Below 190.00 on a first attempt is considered unlikely. Something similar happened in September 1998 when GBP/JPY dropped from 232.00 to 193.00 within a month. This suggests that pressure on sterling crosses may ease at that point.


GBP/USD

Chart Levels: Support 1.9550..1.9483..1.9400..1.9260.
Resistance 1.9800..2.0000..2.0200..2.0550.

A terrible two months for the pound as it drops to its weakest on the Bank of England’s Trade Weighted Index since September 2003. The speed of the move and its relentless nature have also taken us completely by surprise. Cable is more oversold than it has been since November 2005 yet long term momentum is only just bearish. Not surprisingly one-month at-the-money implied volatility is close to the upper edge of the last decade at 11.00%. It is likely to remain here until at least the end of January. While we understand why Sterling may have weakened so much against other major currencies, we feel the drop against the US dollar is overdone and should reverse imminently.


EUR/GBP

Chart Levels: Support 0.7545..0.7450..0.7400..0.7300.
Resistance 0.7600..0.7805..0.7900..0.8000.

Layman and market professional alike have been rocked by the speed and size of Sterling’s collapse against the Euro – and the Czech, Yen, Kiwi, Norway, Swedish, Swiss and Co. Thumbs down all round then to the economy, politics, financial sector and prospects. Freefall, overkill, oversold, horrendous are words which spring to mind. Avoid doing anything too hasty and we shall be watching for signs of an equally dramatic top. The fiasco of 1992 also creeps back into the conscious mind, with all its myriad ramifications for trade, investment and comparative values. Above 0.8000, even as a dramatic ‘spike high’ is considered unlikely this month. Continue to watch for signs of topping.

Published on  Tue, Jan 15 2008, 14:47 GMT

0

0

Weekly Technical Commentary

Tue, Nov 27 2007, 10:47 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels: Support 108.00..107.55..107.00..106.50.

Resistance 109.00..110.00..111.00..112.00

Last week’s close was the lowest in many, many months and hints that we will get a monthly close below 110.00 this Friday. Bearish momentum is stronger than it has been since May 2006 and the US dollar is surprisingly not oversold. Futures positions continue to be trimmed as we approach December delivery. We maintain our target at 105.00 long term. Note that we expect the Yen to do a lot better than other currencies and may have to revise down our targets for USD/JPY. We remind that thin year-end markets combined with a chronically weak US dollar mean implied volatility should remain high and price moves may be extreme and reverse suddenly.


EUR/USD

Chart Levels: Support 1.4775..1.4600..1.4521..1.4500.

Resistance 1.4875..1.4968..1.5000..1.5250.

The very strong rally since August looks as though it could do with a period of correction and consolidation. A pullback to the 1.4400 area is seen as a good medium term buying opportunity for renewed US dollar weakness next year. On the ECB’s effective exchange rate at 111.84, the Euro is at its highest ever, gaining against Sterling and Eastern European currencies this month. Note that so many have missed the bulk of the Euro’s rally, having just woken up to the chronic state of the US dollar, that there is likely to be an awful lot of pent up demand to diversify out of what has been considered until now the world’s reserve currency of choice.


EUR/JPY

Chart Levels: Support 160.50..160.00..159.00..158.00.

Resistance 163.41..163.75..164.31..165.00.

At first glance the chart looks pretty much as it did last week. But note that Friday’s close was the lowest in many weeks and July’s close below 162.00 led to a massive sell-off. Downside momentum is currently at its strongest since then. We continue to feel we are in the process of building a very large and important long term top where a weekly close below 154.00 completes the ‘head-and-shoulders’ pattern. Until then allow for a series of random moves roughly between 159.00 and 164.00. Rallies are seen a good medium and long term selling opportunities. Note that at-the-money implied volatility has drifted from near record highs and is expected to swing between 11.50% and 16.50% for the next month or two.


GBP/JPY

Chart Levels: Support 222.00..221.00..220.00..219.25.

Resistance 228.40..232.00..233.00..236.00.

This Yen cross is leading the way lower as Sterling takes a hammering against the strongest currencies this month. We have formed a massive ‘head-and-shoulders’ top. Last week’s close below the ‘neckline’ at 227.00, and below the bottom of the Ichimoku ‘cloud’ means downside momentum is at its strongest in years. This should send this pair tumbling to 220.00 short term and 200.00 medium term. Below 190.00 on a first attempt is considered unlikely. Something similar happened in September 1998 when GBP/JPY dropped from 232.00 to 193.00 within a month. One-month at-the-money implied volatility is still not as high as it was then, so is likely to rocket higher if we get the huge moves we expect.


GBP/USD

Chart Levels: Support 2.0500..2.0350..2.0200..2.0000.

Resistance 2.0765..2.0845..2.0925..2.1162.

Consolidating under this year’s high at 2.1162, as expected, and likely to do so again for another week or two. Medium term we shall allow for another downside probe to 2.0400, probably 2.0200, but a sustained break below 2.0000 is unlikely. However, even if we do drop below there it does not alter our medium and long term view. For next year we continue to favour prolonged US dollar weakness. The only question is the speed of the moves, here and in a whole raft of other currencies. Open interest is declining as we approach December delivery so these positions will have to be re-built. The problem is that thin year-end markets may be unduly influenced by this renewed buying pressure.


EUR/GBP

Chart Levels: Support 0.7120..0.7080..0.7000..0.6900.

Resistance 0.7216..0.7225..0.7265..0.7300.

The highest price since 2003 and we have stalled just ahead of very important resistance at 0.7225. The Euro is still horribly overbought against sterling and Bullish momentum is at its strongest in two years. One-month at-the-money implied volatility has rocketed to the highest level since the summer of 2003 and is likely to stall in the 9.00% area. Wait and watch for signs of a dramatic reversal. In the unlikely event that we do move and hold above 0.7300 the consequences for the currency, and the country in general, are enormous. No point ignoring facts but the relationship with Eurozone countries would suffer extreme pressure and a move to 0.8000, maybe the 1996 equivalent 0.8480, are possible.

Published on  Tue, Nov 27 2007, 10:47 GMT

0

0

Weekly Technical Commentary

Mon, Nov 12 2007, 12:34 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels: Support 110.00..109.00..108.00..107.00.

Resistance 112.00..113.40..114.00..115.05

Last week’s very big ‘bearish engulfing’ candle adds weight to our view that the next decent move will be south. The weekly close below 112.00 completes a very large ‘broadening top’ formation, a pattern that looks like a megaphone. A sustained break below the 2006 low at 109.00 should add considerable downside momentum, as would a monthly close below 110.00. Futures positions are still roughly half of what they were at June’s peak and will need rebuilding. If not this week, where cautious consolidation is likely (because the US dollar is oversold), then later this month we expect another sharp drop. We maintain or target at 105.00 long term. Note that we expect the Yen to do a lot better than other currencies.


EUR/USD

Chart Levels: Support 1.4577..1.4500..1.4450..1.4400.

Resistance 1.4680..1.4753..1.4800..1.4900.

The Euro set a new record high at 1.4753 Friday, ending the day with a ‘doji’ candle. This suggests correction and consolidation this week noting that so far we are holding above the nine-day moving average at 1.4577. It is not nearly as overbought as many might think and open interest, while increasing, is still well below September’s peak. Remember, what we are witnessing is generalised US dollar weakness where the Euro is in the middle of the pack. This month the Yen is expected to significantly outperform other currencies. The most vulnerable are those most closely associated with the ‘carry trade’. As this is unwound it will also affect other currency pairs.


EUR/JPY

Chart Levels: Support 161.00..160.50..159.00..158.00.

Resistance 162.40..163.35..164.20..165.00.

Looking increasingly top-heavy and we remind that price action so far this year in all Yen crosses takes the shape of a highly irregular ‘triple top’ and might mark the end to the rally which started in 2001. Note that in 1987 and again in 1992 EUR/JPY peaked around the 170.00 area. Last week’s ‘bearish engulfing’ candle and weekly close below 162.00 add weight to our view. A daily close below 160.50 should increase bearish momentum considerably. We favour a sharp sell-off this month to 158.00, maybe even 154.00. A weekly close below this point would complete this massive topping formation and send the cross tumbling to 144.00 medium term. At-the-money implied volatility should remain high.


GBP/JPY

Chart Levels: Support 228.35..227.00..225.75..224.80.

Resistance 231.00..233.00..236.00..240.00.

A huge ‘bearish engulfing’ candle last week adds weight to our view that we are forming a massive ‘head-and-shoulders’ top where the ‘right shoulder’ is at the same level as the left one. Other Yen crosses look less top-heavy but most have some sort of variation of a ‘triple top’. Note that many major equity indices have similar patterns and the question of how plentiful, and how ‘cheap’ money really is should come to dominate analysis over the coming month. A weekly close below the ‘neckline’ at 227.00, ending a long term rally that started in September 2000, should send this pair tumbling to 200.00 medium term. Something similar, at similar levels, happened in September 1998.


GBP/USD

Chart Levels: Support 2.0755..2.0650..2.0565..2.0400.

Resistance 2.0900..2.1010..2.1162..2.1250.

Having reached a multi-year high at 2.1162 the subsequent sharp sell-off and ‘bearish engulfing’ daily candle and ‘shooting star’ weekly candle suggest at least a week’s worth of correction and consolidation. Needless to say implied volatility should remain highish for quite some time, especially if we get, as we expect, sharp intra-day moves in a two-way street. A drop this week will probably be limited to the 2.0600 area. However, further out we shall allow for another leg down, to 2.0400 and maybe 2.0200. At the moment we feel that a drop below 2.0000 is unlikely, at least on a first attempt. Note that the pound should do better than many other currencies, the Czech koruna and Swiss franc the main exceptions.


EUR/GBP

Chart Levels: Support 0.6925..0.6894..0.6850..0.6800.

Resistance 0.7020..0.7045..0.7110..0.7120.

It comes as rather a shock to see the Euro trading up at 0.7045, the strongest it has been against the pound since January 2005 (that was when EUR/USD first traded above 1.3500). On closer inspection the break higher looks a lot less impressive, and a lot less frightening, than at first glance. Therefore we expect it to top around 0.7000, retreating very slowly over the next few weeks. This should keep one-month at-the-money implied volatility below the 7.00% mark, albeit considerably higher than last year’s low at 3.30%. Note that the Euro is slightly overbought and that we are currently trading just over one standard deviation from the mean (0.6836) since April 2003. This has limited the range of EUR/GBP for most but not all of the time since then.

Published on  Mon, Nov 12 2007, 12:34 GMT

0

0

Weekly Technical Commentary

Mon, Nov 5 2007, 11:46 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels: Support 114.00..113.75..112.60..111.60.

Resistance 115.44..116.00..116.50..118.00

Last week’s ‘spike high’ under the Ichimoku ‘cloud’ two weeks after the very big ‘bearish engulfing’ candle that peaked at the top of the cloud and the 26-day moving average adds weight to our view that the next decent move will be south. Expect hesitation and cautious moves this week as we toy with a band of important support roughly between 114.00 and 112.00. A weekly close below here completes a very large ‘broadening top’ formation, a pattern that looks like a megaphone. Futures positions are still almost half of what they were at June’s peak. This pair will gather downside momentum if it holds below 115.60 this week. We target 110.00 and 105.00 long term.


EUR/USD

Chart Levels: Support 1.4375..1.4300..1.4200..1.4100.

Resistance 1.4530..1.4550..1.4600..1.4750.

Closing at a new record high for a third consecutive week. Investors are getting used to these terribly high levels and the record high at 1.4530 has matched the previous record based on USD/Deutschemark whose all-time low (1.3455 March 1995) is equivalent to a EUR/USD 1.4535. The Euro is not as overbought as many might think and open interest, while increasing, is still well below September’s peak. Remember, what we are witnessing is generalised US dollar weakness where the Euro is in the middle of the pack. Over the last three months the US dollar has lost 13% against the Canadian dollar, 8.50% against the South African rand and Brazilian real, 5% against the Euro.


EUR/JPY

Chart Levels: Support 165.00..163.00..160.50..159.00.

Resistance 167.30..167.75..169.05..170.00.

Price action so far this year in all Yen crosses takes the shape of a highly irregular ‘triple top’ and might mark the end to the rally which started in 2001. Note that in 1987 and again in 1992 EUR/JPY peaked around the 170.00 area. Therefore we continue to watch for signs of topping. If we are correct we favour a sharp sell-off this month to 158.00, maybe even 154.00. A weekly close below this point would complete this massive topping formation and send the cross tumbling to 144.00 medium term. Note a similar pattern can be seen in CHF/JPY, KRW/JPY, and SGD/JPY, so it is a Yen move and not the Euro. Implied volatility is likely to remain well above the average of the last two years.


GBP/JPY

Chart Levels: Support 235.00..233.00..230.00..228.00.

Resistance 240.00..241.50..245.00..251.15.

Topping again at the same level that held in January and potentially a massive ‘head-and-shoulders’ top where the ‘right shoulder’ is at the same level as the left one. Other Yen crosses look less top-heavy but most have some sort of variation of a ‘triple top’. Note that many major equity indices have similar patterns and the question of how plentiful, and how ‘cheap’ money really is should come to dominate analysis over the coming month. A weekly close below the ‘neckline’ at 246.00, ending a long term rally that started in September 2000, should send this pair tumbling to 200.00 medium term. Something similar, at similar levels, happened in September 1998. Implied volatility should hold around 13.00%.


GBP/USD

Chart Levels: Support 2.0750..2.0650..2.0565..2.0400.

Resistance 2.0900..2.1000..2.1100..2.1250.

The strongest daily and weekly close in twenty-six years should make the lazy and complacent sit up and listen. Cable is surprisingly not overbought. In October 1980 it traded at 2.4500 having touched a low of 2.1400 in April that year. Many are now beginning to factor in 2.1000 for this pair, a target we have held since July 2004. Our patience appears to be paying off and for hedging purposes we warn that our target might now be considered conservative. Persistent and possibly chronic US dollar weakness late this year and early next year, in very thin markets, could mean something closer to 2.4500 will have to be factored in. Needless to say implied volatility should remain highish for quite some time.


EUR/GBP

Chart Levels: Support 0.6920..0.6894..0.6850..0.6800.

Resistance 0.7000..0.7015..0.7025..0.7040.

Still consolidating between the 0.7000 area and 0.6900, as expected, and we shall be looking for more signs of topping around 0.7000 this month. In what should still be a slow process we favour more cautious sideways work prior to a drop to 0.6850 probably very late this year. This should keep one-month at-the-money implied volatility below the 6.00% mark, considerably higher than last year’s low at 3.30%, and possibly dragging it back down to 4.50% very late this year. Note that the Euro is no longer overbought and that we are currently trading just over one standard deviation from the mean (0.6836) since April 2003. This has limited the range of EUR/GBP for most but not all of the time since then.

Published on  Mon, Nov 5 2007, 11:46 GMT

0

0

Weekly Technical Commentary

Mon, Oct 22 2007, 10:02 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels: Support 113.25..112.60..111.60..110.00.
Resistance 115.00..116.00..116.50..118.00

Not only did the corrective rally stall at top of the Ichimoku ‘cloud’ and the 50% retracement level, they have formed a massive ‘bearish engulfing’ candle on the weekly chart. One-month at-the-money implied volatility has leapt from 7.00% to 11.00% and may hit 14.00% as and when we start trading steadily below 112.50. Futures positions are being re-built but are still almost half of what they were at June’s peak. Interestingly the US dollar is not nearly as oversold as it was mid-August so there is a greater chance of holding below the pivotal 115.00 area. All bounces to the 116.00 area are seen as selling opportunities for a medium term drop to 110.00 and 105.00 long term.


EUR/USD

Chart Levels: Support 1.4200..1.4140..1.4100..1.4015.
Resistance 1.4350..1.4400..1.4500..1.4550.

A new all-time high of 1.4349 as the US dollar loses ground this month against most major currencies. Investors are getting used to these terribly high levels but based on the USD/Deutschemark we are not yet at its all-time low (1.3455 March 1995) which is equivalent to a EUR/USD rate of 1.4535. The Euro is not especially overbought and open interest, while increasing, is still well below September’s peak. Remember, what we are witnessing is generalised US dollar weakness where the Euro is in the middle of the pack. Since mid-August the US dollar has lost 9% against the South African rand and Iceland’s crown, 8% against the Canadian dollar and 7% vs the Polish zloty.


EUR/JPY

Chart Levels: Support 162.45..160.60..159.00..156.00.
Resistance 164.00..164.50..166.00..169.05.

Last week’s fairly big ‘bearish engulfing’ candle must have felt like a bolt out of the blue to those happily and naively assuming the ‘carry trade’ was back for good. Price action so far this year takes the shape of a highly irregular ‘triple top’ and might mark the end to the rally which started in 2001. Note that in 1987 and again in 1992 this cross peaked around the 170.00 area. If we are correct we favour a sharp sell-off this week to 158.00, maybe even 154.00. A weekly close below this point would complete this massive topping formation and send the cross tumbling to 144.00 medium term. Note a similar pattern can be seen in CHF/JPY, KRW/JPY, and SGD/JPY, so it is a Yen move and not the Euro.


GBP/JPY

Chart Levels: Support 232.00..231.00..228.00..226.00.
Resistance 234.45..235.50..240.00..241.50.

The strongest and clearest pattern of all the Yen crosses: potentially a massive ‘head-and-shoulders’ top where the ‘right shoulder’ is at the same level as the left one. Other Yen crosses look a less top-heavy but most have some sort of variation of a ‘triple top’. Note that many major equity indices have similar patterns and the question of how plentiful, and how ‘cheap’ money really is should come to dominate analysis over the coming month. A weekly close below the ‘neckline’ at 246.00, ending a long term rally that started in September 2000, should send this pair tumbling to 200.00 medium term. Something similar, at similar levels, happened in September 1998.


GBP/USD

Chart Levels: Support 2.0300..2.0245..2.0175..2.0050.
Resistance 2.0560..2.0656..2.0750..2.0800.

A higher weekly close than the last three and almost the highest weekly close this year. The pound is obviously lagging some of the strongest currencies but this is probably understandable as many remember what happened when Cable was last up at these dizzying heights. Futures positions continue to be re-built following September’s expiry but they are still about half of what they were at last December’s peak. Cable is not in the least bit overbought even though we are at some of the highest prices seen since June 1981. October 1980 it traded at 2.4500 having touched a low of 2.1400 in April that year. So many have missed the FX boat that if they jump in things could get very nasty indeed.


EUR/GBP

Chart Levels: Support 0.6950..0.6894..0.6850..0.6800.
Resistance 0.7000..0.7015..0.7025..0.7040.

Consolidating between the 0.7000 area and 0.6900, as expected, and we shall be looking for more signs of topping around 0.7000 this week. In what should still be a slow process we favour more cautious sideways work prior to a drop to 0.6850 probably very late this month/early November. This should keep one-month at-the-money implied volatility below the 6.00% mark, considerably higher than last year’s low at 3.30%, and possibly dragging it back down to 4.50% very late this year. Note that the Euro is still overbought and that we are currently trading just over one standard deviation from the mean (0.6836) since April 2003. This has limited the range of EUR/GBP for most but not all of the time since then.

Published on  Mon, Oct 22 2007, 10:02 GMT

0

0

Weekly Technical Commentary

Mon, Oct 15 2007, 10:31 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:
Support 117.00..116.40..115.80..114.80.
Resistance 117.83..118.00..118.75..119.00

Slow work but we got our squeeze towards 118.00, the top of the Ichimoku ‘cloud’ and the 50% retracement level. Because bullish momentum gathered on the way up has been poor we are unlikely to get as high as 119.00, our original estimate. Rather, we now feel that the corrective bounce following the July/August collapse and should stall this week around the 118.00 area. Note that many have all too readily re-embraced the ‘carry trade’ and the chance of another sickening lurch lower, for a third time this year, has increased rather than decreased. Futures positions are being re-built, from an extremely low base, suggesting some are getting tired/bored with this very difficult currency pair.


EUR/USD

Chart Levels:
Support 1.4150..1.4100..1.4015..1.3930.
Resistance 1.4250..1.4283..1.4300..1.4400.

Little to add as we consolidate below the all-time high of 1.4283 for another week. Investors are getting used to these terribly high levels and at-the-money implied volatility has eased to a more ‘normal’ 6.00-6.50%. Dips to the 1.3900 area are seen as buying opportunities for a push higher later this month and later this year. Based on the Deutschemark we are not yet at its all-time low (1.3455 March 1995) which is equivalent to a EUR/USD rate of 1.4535. The Euro is no longer overbought and open interest, while increasing, is still well below September’s peak. Remember, what we are witnessing is generalised US dollar weakness where the Euro is in the middle of the pack.


EUR/JPY

Chart Levels:
Support 166.00..165.55..164.00..163.60.
Resistance 167.63..168.30..169.05..170.00.

The outlook for all Yen crosses is still very mixed indeed, both short term and medium term, and therefore we shall continue to keep trading strategies flexible and a willingness to change our view if necessary. Many might be thinking that the ‘carry trade’ is back for good, but we would not be so confident. Very small signs of instability last week but still no tangible evidence that we are starting to top. Note that the Euro is terribly overbought against the Yen and bullish momentum has collapsed, as has at-the-money implied volatility (one-month down to 7.60%). Interesting to note that the Yen has lost ground this month against every single currency bar none.


GBP/JPY

Chart Levels:
Support 237.00..235.00..232.00..228.00.
Resistance 240.35..241.00..241.50..242.00.

Small signs of instability with last week’s ‘doji’ candle, and the bigger picture remains extremely top-heavy and really very frightening. Potentially a massive ‘head-and-shoulders’ top and we shall be watching for signs of an interim high around 240.00 this week. This would then suggest a ‘right shoulder’ at the same level as the left one. Not necessary for the pattern but it would make it nice and neat. Intra-day moves are likely to be sudden and hopefully a lot smaller than those of late July and early August. Other Yen crosses look a lot less top-heavy, and some have even sneaked to a new high for the year, and might be leading. We remain unconvinced though.


GBP/USD

Chart Levels:
Support 2.0300..2.0245..2.0175..2.0050.
Resistance 2.0500..2.0656..2.0750..2.0800.

Stalling at ‘trendline’/’triangle’ resistance and by the end of the month we favour a sustained break above 2.0500. While we cannot rule out another dip to 1.9900, bullish pressure should hold at current levels if we hold above 2.0175 this week. Futures positions have started to be re-built following September’s expiry but they are about half of what they were at last December’s peak. Cable is not in the least bit overbought even though we are at some of the highest prices seen since June 1981. October 1980 it traded at 2.4500 having traded at a low of 2.1400 in April that year. One-month at-the-money implied volatility should hold above 6.50% for another week, trading up to 8.00% later in the month.


EUR/GBP

Chart Levels:
Support 0.6903..0.6891..0.6850..0.6800.
Resistance 0.6985..0.7000..0.7025..0.7040.

Holding between the 0.7000 area and 0.6900, as expected, and we shall be looking for more signs of topping around 0.7000 this week. In what should still be a slow process we favour more cautious sideways work prior to a drop to 0.6850 probably by the end of this month. This should keep one-month at-the-money implied volatility below the 6.00% mark, considerably higher than last year’s low at 3.30%, and possibly dragging it back down to 4.50% very late this year. Note that the Euro is overbought and that momentum is still bullish. Both the pound and the Euro are expected to lag the strongest currencies (AUD, CAD, NOK and NZD) and beat the weakest.

Published on  Mon, Oct 15 2007, 10:31 GMT

0

0

Weekly Technical Commentary

Mon, Oct 8 2007, 13:55 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels: Support 116.95..116.25..115.25..114.00.
Resistance117.50..118.00..118.75..119.00

We continue with a slight bias for a squeeze to 118.00, the top of the Ichimoku ‘cloud’ and the 50% retracement level. Depending on momentum gathered, which is already bullish, we might get as high as 119.00. This is seen as a corrective bounce following the July/August collapse and should be followed by a very steep decline later this year. Note that many have all too readily re-embraced the ‘carry trade’ and the chance of another sickening lurch lower, for a third time this year, has increased rather than decreased. Futures positions are being re-built, from an extremely low base, suggesting some at least are getting tired/bored with this very difficult currency pair.


EUR/USD

Chart Levels:
Support 1.4060..1.4032..1.3935..1.3900.
Resistance 1.4160..1.4283..1.4300..1.4400.

Correcting and likely to consolidate below the all-time high of 1.4283 for at least another week. Dips to the 1.3900 area are seen as buying opportunities for a push higher later this month and later this year. Based on the Deutschemark we are not yet at its all-time low (1.3455 March 1995) which is equivalent to a EUR/USD rate of 1.4535. The Euro is no longer overbought and open interest in the futures contract is well below September’s peak. At-the-money implied volatility ought to drop to the 6.50% area prior to a move up to 7.50% later this month. The Euro is likely to appreciate more slowly against the US dollar later this year than the current favourites: AUD and CAD.


EUR/JPY

Chart Levels:
Support 164.00..163.60..161.00..160.00.
Resistance 166.00..167.00..169.05..170.00.

Squeezing a little higher than expected but still trapped rather unsteadily between July’s high and August’s dramatic low. We remind that the outlook for all Yen crosses is still very mixed indeed, both short term and medium term, and therefore we shall continue to keep trading strategies flexible and a willingness to change our view if necessary. Many might be thinking that the ‘carry trade’ is back for good, but we would not be so confident. For this week we favour very hesitant moves around 165.00, probably in quite a tight range. Note that the Euro is overbought against the Yen and bullish momentum collapsed last week, as has at-the-money implied volatility.


GBP/JPY

Chart Levels:
Support 236.00..234.00..232.00..228.00.
Resistance 239.75..240.00..241.50..242.00.

Squeezing higher as the pound recovers from its recent mauling. However, the bigger picture remains extremely top-heavy and really very frightening. The current chart looks very similar to that of 1998 in what is potentially a massive ‘head-and-shoulders’ top. This week we shall be looking for signs that the short squeeze is about to stall between 240.00 and 242.00, a process that might in fact take several weeks. Intra-day moves are likely to be sudden and hopefully a lot smaller than those of late July and early August. Therefore at-the-money implied volatility should hold around 10.00% and might even drop to 8.00% over the coming month. Other Yen crosses look a lot less top-heavy.


GBP/USD

Chart Levels:
Support 2.0275..2.0200..2.0050..1.9880.
Resistance 2.0500..2.0656..2.0750..2.0800.

Holding above 2.0000 for a fortnight and if not this week then by the end of the month we favour a sustained break above 2.0500. We view price action since July’s high at 2.0656 as ‘triangle’ consolidation. Dips to 1.9900 are therefore seen as buying opportunities for a subsequent rally. One-month at-the-money implied volatility should hold around 7.50%, probably trading between 6.50% and 8.50% most of the time. Futures positions have started to be re-built following September’s expiry and this has already turned momentum bullish. Cable is not in the least bit overbought even though we are at some of the highest prices seen since June 1981. November 1980 it traded at 2.4460.


EUR/GBP

Chart Levels:
Support 0.6900..0.6850..0.6780..0.6700.
Resistance 0.6975..0.7000..0.7025..0.7040.

Topping activity in the 0.7000 area, as expected, and now the Euro is consolidating between here and 0.6900. In what should still be a slow process we favour more cautious sideways work prior to a drop to 0.6850 probably by the end of this month. This should keep one-month at-the-money implied volatility below the 6.00% mark, considerably higher than last year’s low at 3.30%, and possibly dragging it back down to 4.50%. Note that from grotesquely overbought the Euro is now only marginally so and that momentum is still bullish. Both the pound and the Euro are expected to lag the strongest currencies (AUD, CAD, NOK and NZD) and beat the weakest.

Published on  Mon, Oct 8 2007, 13:55 GMT

0

0

Weekly Technical Commentary

Mon, Sep 24 2007, 11:18 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:
Support 113.98..113.45..112.60..111.60.
Resistance 115.55..116.50..116.76..117.15

Really rather dull as we get stuck in the same levels of the last five weeks. We shall allow for yet more consolidation either side of 115.00 this week, the mean of the last eight years. The question therefore will be how large will the price swings be? At the moment we favour two Yen swings either side of 115.00, so 113.00 to 117.00. If anything the downside is more vulnerable, but a drop below 110.00 before month-end is considered highly unlikely. We are obviously in a holding pattern and we could break either up or down. At the moment we have a slight bias for a squeeze to 118.00.119.00 followed by a very steep decline later this year.


EUR/JPY

Chart Levels:
Support 161.50..161.00..160.00..158.80.
Resistance 162.85..164.00..165.00..165.40.

Squeezing a little higher as expected but still trapped rather unsteadily between July’s high and August’s dramatic low. This week we feel it should inch up a bit higher again, to the 164.00 area where it should stall on a first attempt. We remind that the outlook for all Yen crosses is still very mixed indeed, both short term and medium term, and therefore we shall continue to keep trading strategies flexible and a willingness to change our view if necessary. Generally while above 158.80 we favour cautious rallies, here and especially in the stronger currencies like the Canadian dollar and the Norwegian and Swedish krones. Many might be thinking that the ‘carry trade’ is back for good, but we would not be so confident.


GBP/USD

Chart Levels:
Support 2.0150..2.0000..1.9900..1.9745.
Resistance 2.0325..2.0400..2.0500..2.0656.

Consolidating either side of 2.0000 and likely to continue to do so for another week. Slightly more difficult too as we are in the middle of the price range since June. We view this as ‘triangle’ consolidation and a sustained break above trendline resistance should result in a re-test of this year’s high at 2.0656. One-month at-the-money implied volatility should hold around 7.50%, probably holding between 6.50% and 8.50% most of the time. Futures positions need re-building following September’s expiry so maybe this will turn momentum bullish. Cable is not in the least bit overbought even though we are at some of the highest prices seen since June 1981. November 1980 it traded at 2.4460.

Published on  Mon, Sep 24 2007, 11:18 GMT

0

0

Weekly Technical Commentary

Mon, Sep 17 2007, 13:41 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:
Support 113.68..112.60..111.60..110.00.
Resistance 115.00..115.50..116.50..117.15

Prices are consolidating slightly precariously under a very fat Ichimoku ‘cloud’. We shall allow for several weeks’ worth of consolidation either side of 115.00. Note that this is the mean of the last eight years. This should keep at-the-money implied volatility at the higher end of the 7.00% to 14.00% range of the last decade. It has also eased the slightly oversold situation very considerably. The question therefore will be how large will the price swings be? At the moment we favour two Yen swings either side of 115.00, so 113.00 to 117.00. If anything the downside is more vulnerable, but a drop below 110.00 before month-end is considered highly unlikely.


EUR/USD

Chart Levels:
Support 1.3825..1.3780..1.3700..1.3550.
Resistance 1.3930..1.4025..1.4055..1.4200.

The strongest weekly close ever and a new record high at 1.3930. Interestingly the Euro is only slightly overbought and momentum is steadily bullish. Futures positions have switched into December 2007 with open interest soaring. So many so late to the party. Generally while above 1.3700 upside pressure is maintained and by posting new record highs at-the-money implied volatility should remain relatively high too. On the ECB’s Effective Exchange Rate, currently 108.06, it is almost at its highest ever (108.27 in January 2005). The all-time low for this index was 79.72 in October 2000. Based on the Deutschemark we are not yet at its all-time low (1.3455 March 1995) exchange rate versus the US dollar.


EUR/JPY

Chart Levels:
Support 157.80..155.00..154.50..152.65.
Resistance 160.50..161.50..164.00..165.40.

Still hovering rather precariously between July’s high and August’s dramatic low. At-the-money implied volatility has collapsed from August’s extreme but is still at the higher end of the range of the last six years. The outlook for all Yen crosses is still very mixed indeed, both short term and medium term, and therefore we shall continue to keep trading strategies flexible and a willingness to change our view if necessary. We currently favour an initial upside squeeze, here and in many other Yen crosses, but the move has started so slowly (except CAD/JPY and NOK/JPY) that it might fizzle out well ahead of measured targets. Again, be prepared to be flexible and try not to be too dogmatic.


GBP/JPY

Chart Levels:
Support 228.00..227.35..224.85..221.45.
Resistance 234.00..235.50..239.00..241.50.

Like EUR/JPY but slightly more ‘top-heavy’. For four consecutive weeks prices have held above 226.00, and above key support at 220.00, but rather worryingly this has not added any serious bullish momentum yet. If anything resistance at 240.00 looks even stronger than it did and we might be forming a massive ‘head-and-shoulders’ top. We continue to favour another month of random swings roughly between 225.00 and 235.00, obviously with potential ‘spike lows’ and ‘spike highs’ at either end. Intra-day moves are likely to be sudden and sharp keeping at-the-money implied-volatility at the higher end of the range of the last ten years. Consolidating either side of 2.0000 and likely to continue to do so for another few weeks. Last week Sterling lost ground against every currency – bar none – with Brazil, Canada, South Korea and Norway leading the pack. It is also at its weakest (102.1) on the Bank of England’s index since October 2006. Cable is not yet oversold so more downside probing is likely this week. All dips are seen as long term buying opportunities for protracted and potentially extreme US dollar weakness late this year. Futures positions are being re-built, a process that is likely to slow the longer we move sideways across the page. One-month at-the-money implied volatility should hold around 7.50%.


GBP/USD

Chart Levels:
Support 1.9950..1.9740..1.9650..1.9600.
Resistance 2.0200..2.0366..2.0500..2.0656.

Consolidating either side of 2.0000 and likely to continue to do so for another few weeks. Last week Sterling lost ground against every currency – bar none – with Brazil, Canada, South Korea and Norway leading the pack. It is also at its weakest (102.1) on the Bank of England’s index since October 2006. Cable is not yet oversold so more downside probing is likely this week. All dips are seen as long term buying opportunities for protracted and potentially extreme US dollar weakness late this year. Futures positions are being re-built, a process that is likely to slow the longer we move sideways across the page. One-month at-the-money implied volatility should hold around 7.50%.


EUR/GBP

Chart Levels:
Support 0.6900..0.6850..0.6780..0.6700.
Resistance 0.6950..0.6970..0.7000..0.7025.

Typical! In the week we almost gave up covering this currency pair it springs to life. One-month at-the-money implied volatility is higher than it has been in two years and queues of depositors are snaking round the block trying to get their savings. This is obviously a temporary problem but no one can say how long it might persist and whether it may spread. Confidence and trust take ages to build but can evaporate in an instant. Sterling is probably best avoided until the dust settles and in the meantime watch for topping activity just ahead of the 0.7000 area. Then back down to 0.6850, the mean price of the last four years. A monthly close above 0.7065 would force a complete re-think.

Published on  Mon, Sep 17 2007, 13:41 GMT

0

0

Weekly Technical Commentary

Mon, Sep 10 2007, 11:45 GMT
by Nicole Elliott

Mizuho Corporate Bank


USD/JPY

Chart Levels:
Support113.00..112.60..111.60..110.00.
Resistance 114.00..115.00..115.50..116.50

August’s collapse came sooner and was deeper than we could have imagined and is so typical of the Yen: dreary for months and then sliding all of a sudden. We shall allow for several weeks’ worth of consolidation either side of 115.00. This should keep at-the-money implied volatility at the higher end of the 7.00% to 14.00% range of the last decade. It should also ease the slightly oversold situation. The question therefore will be how large will the price swings be? At the moment we favour two Yen swings either side of 115.00, so 113.00 to 117.00. If anything the downside is more vulnerable, but a drop below 110.00 before month-end is considered highly unlikely.


EUR/USD

Chart Levels:
Support 1.3700..1.3650..1.3600..1.3550.
Resistance 1.3800..1.3853..1.3900..1.4025.

Looking set to re-test the all-time high at 1.3853. The US Dollar index future (where the Euro is the biggest component) closed just below 80.00 on Friday, a key level and the lowest weekly close since 1992. Note that the all-time low was 78.43 in September 1992. Upside pressure on the Euro is maintained while above last week’s low at 1.3550 and increases if we can start holding above 1.3650 this week. Note that the move is due to generalised US dollar weakness as the Euro is moving in tandem with the pound and Swiss franc. Interestingly the Euro is not at all overbought and at-the-money implied volatility should hold around the 7.50% area.


EUR/JPY

Chart Levels:
Support 155.00..153.35..152.65..150.00.
Resistance 158.65..159.65..161.50..164.00.

Hovering rather precariously between July’s high and August’s dramatic low, just like many stock indices. At-the-money one-month implied volatility is higher than it has been since June 2001, over two standard deviations from the mean since then, and closer to what had been the norm between 1999 and 2001. The outlook for all Yen crosses is very mixed indeed, both short term and medium term, and therefore we shall continue to keep trading strategies flexible and a willingness to change our view if necessary. This week, and maybe throughout September, prices should swing randomly roughly between 153.00 and 159.00. A sustained break either side of here should see a move of 4 yen.


GBP/JPY

Chart Levels:
Support 228.00..225.50..221.00..219.25.
Resistance 234.00..235.50..239.00..241.50.

Just like EUR/JPY: still holding rather precariously around the 232.00 area, above key support at 220.00. At the moment we favour a good bout of consolidation between here and under the psychological level at 250.00, a process that might last several months. This may be subject to very sudden intra-day swings and should therefore keep at-the-money implied volatility at the higher end of the historic range. Sterling is slightly oversold against the Yen, something a few weeks of sideways work would sort out. Therefore we favour another month of random swings roughly between 225.00 and 235.00, obviously with potential ‘spike lows’ and ‘spike highs’ at either end.


GBP/USD

Chart Levels:
Support 2.0140..2.0040..1.9960..1.9750.
Resistance 2.0375..2.0400..2.0500..2.0656.

Price action since this year’s high at 2.0656 is seen as normal correction and consolidation as the market gets used to these historically very high levels. At-the-money implied volatility has picked up significantly from June’s extreme low levels and should now hold around 7.50%. Cable is not in the least bit overbought and futures positions are still well below last year’s record. These will probably get re-built if we start holding consistently above 2.0500. This might be too much to hope for this month, so we currently are allowing for yet more random swings roughly between here and 1.9800. All dips are seen as long term buying opportunities for protracted and potentially extreme US dollar weakness late this year.


EUR/GBP

Chart Levels:
Support 0.6755..0.6700..0.6680..0.6666.
Resistance 0.6800..0.6825..0.6870..0.6900.

Moving sideways across the page in a tiny little range and one wonders whether this is worth covering at all. No doubt the day we give up bothering with