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Weekly Technical Commentary

Mon, Nov 20 2006, 14:54 GMT
by Nicole Elliott

Mizuho Corporate Bank  |  View company's profile

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USD/JPY

Support 117.00..116.50..115.50..115.00.

Resistance 118.60..119.00..119.66..119.88.

Little to add as prices remain trapped in a relatively tight range. They continue to hold above the Ichimoku ‘cloud’ and trendline support, but note that bullish momentum is negligible. Allow for several possibly sharp swings between 116.50 and 119.50, with prices holding between 117.00 and 119.00 most of the time. These are seen as selling opportunities for a potentially sharp drop to 114.00 very late this month. Record low at-the-money implied volatility should increase on a break below 116.50. Remember Japanese and US holidays on Thursday mean extremely thin market conditions where big moves are more likely to occur. December will get thinner too.

EUR/USD

Support 1.2800..1.2760..1.2700..1.2630.

Resistance 1.2900..1.2940..1.2980..1.3020.

Still trapped between the mid-point of the large range that has held for almost six months and the top of what we see as a ‘flag’ formation. Implied volatility is back at record lows as open interest in the futures contract remains well below the record high of December 2004. The Euro is no longer overbought so perhaps it will manage a sustained break above the top of the formation this week. By the end of this month we favour an important break higher and test of the key 1.3000 area. Note that the move we favour is due to generalised US dollar weakness rather than Euro strength, and we continue to favour high-yielders and Scandinavian currencies over the year-end.

EUR/JPY

Support 151.00..150.50..150.00..149.50.

Resistance 151.68..152.00..154.00..155.00.

Consolidating neatly last week at record highs, and squeezing marginally higher this morning to a new record high of 151.68. Holding above 150.50 should increase upside momentum for a sustained break to a new all-time high. Note that the Euro is not overbought against the Yen and that bullish momentum is at its strongest since late August. Our targets remain at 155.00 medium term and probably 164.00 (equivalent to its 1998 weakest point against the Deutschemark) long term. Median forecasts for this pair at 146.00 in 6 months look increasingly far-fetched, so many will have to re-position here. At-the-money implied volatility is at a new record low.

GBP/JPY

Support 223.00..222.40..221.20..220.40.

Resistance 224.75..225.65..227.00..228.75.

Last week’s pullback while sudden held neatly above retracement support and the 50-day moving average, and also tipped the pound from very overbought to oversold. Other Yen crosses have caught up a little, and one by one the pairs should propel each other higher. Note that the RSI is neutral now and that momentum is steadily but not spectacularly bullish. Plenty of room to allow for a strong rally. At-the-money implied volatility is at a new record low. A squeeze to 226.00/227.50 is a very real possibility towards month-end. Further out we favour a rally to the psychological 230.00 area and probably the 1998 high at 241.00 and the 1992 high at 249.50.

GBP/USD

Support 1.8900..1.8830..1.8700..1.8600.

Resistance 1.9000..1.9150..1.9325..1.9550.

The pullback from major resistance between 1.9100 and 1.9150 was stemmed by the Ichimoku ‘cloud’. Expect a rally back up to 1.9100 this week. For Cable to manage a sustained break above 1.9145 (the August high) it will need other currencies to catch up and break to new recent highs/lows. Scandinavian currencies should continue to lead the way. Note that the pound is not in the least bit overbought and that there is plenty of room for bullish momentum to increase. Our upside targets remain at 1.9325 (high March 2005) and 1.9550 (high December 2004). Note that the Reuters poll mean 12-month prediction is 1.8800 and the lowest is 1.7300.

EUR/GBP

Support 0.6720..0.6690..0.6666..0.6600.

Resistance 0.6800..0.6820..0.6850..0.6900.

Having bounced to 0.6800 as expected we shall now be watching for signs of topping between here and 0.6850. This is likely to be a slow process so no need to rush right in. Note that the Euro is overbought against Sterling and that momentum is actually bullish. Within the next two months, exacerbated by thin year-end conditions, there is a good chance that this pair will drop to critical support between 0.6600 and 0.6550. Rallies to the 0.6800/0.6850 area are therefore seen as selling opportunities for a subsequent, probably sharp, drop. Note that over the last month or three Sterling has been one of the best-performing currencies, with just the Kiwi and Scandinavians putting in marginally better gains.

• Weekly Technical Commentary USD/JPY & EUR/USD
• Weekly Technical Commentary EUR/JPY & GBP/JPY
• Weekly Technical Commentary USD/JPY & EUR/GBP

Published on  Mon, Nov 20 2006, 15:05 GMT

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