USD/JPY
Support 117.00..116.50..115.50..115.00.
Resistance 118.50..119.00..119.30..119.88.
Friday’s sharp rally suggests this pair will hold above 116.50 this week and maybe for the following two as well. The US dollar is no longer slightly oversold. 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 very sharp drop to 114.00 later this month. The weekly Ichimoku ‘cloud’ has become extremely thin after being very fat since June and we formed a ‘shooting star’ candle during the month of October. At-the-money implied volatility continues very low, bumping along just above the record low at 6.00% of 1996.
EUR/USD
Support 1.2665..1.2600..1.2525..1.2485.
Resistance 1.2800..1.2830..1.2885..1.2940.
The Euro is looking for direction as it trades in the centre of a very large holding pattern which has kept prices trapped for almost six months. It is also struggling with a very thin Ichimoku ‘cloud’. Implied volatility remains at record lows and could drop a little further as we are unlikely to break out of the big pattern until mid-November. Then, thin year-end markets and pent-up frustration may get things moving at last, and as moves try and make up for the inordinate amount of time wasted so far this year, they could be very dramatic indeed. Prices should hold below 1.2800 again this week, seeing fairly random swings, with dips likely to be contained at the 1.2600 area.
EUR/JPY
Support 149.00..148.40..148.00..147.50.
Resistance 150.34..150.50..150.80..151.50.
Several Yen crosses ended the week at multi-month highs (AUD, GBP, KRW and THB). This was not the case against the Euro but illustrates the underlying long term trend to Yen weakness. We shall continue to allow for more consolidation around the 150.00 area this week with bullish pressure increasing the longer we hold above 149.00. A daily close above 150.50 should also increase upside momentum. By the end of this month we expect a sustained break to a new all-time high. Our targets remain at 155.00 medium term and probably 164.00, equivalent to its 1998 weakest point against the Deutschemark. Note that three-month implied volatility set a new record low today.
GBP/JPY
Support 224.00..222.50..221.50..220.80.
Resistance 224.75..225.65..227.00..228.75.
A daily and weekly close above the top of the ‘right-angled triangle’ should increase upside pressure, yet implied volatility is at record lows. We may have to allow for a brief consolidation spell this week as Sterling is slightly overbought against the Yen. Very long term the trend to a weaker Yen against a whole series of major currencies is very much intact, and where Sterling and some of the Asian currencies are leading the way. We continue to target a squeeze, possibly an increasingly sharp one, to 230.00 and maybe the 1998 high at 240.00. Note that this cross has not traded above the psychological level of 250.00 since March 1991 so a squeeze through here is unlikely on a first attempt.
GBP/USD
Support 1.8950..1.8830..1.8700..1.8600.
Resistance 1.9050..1.9100..1.9145..1.9325.
Struggling with very long term resistance which lies in a series of poorly defined levels between 1.9100 and 1.9500. It is no longer overbought and momentum remains bullish. At-the-money implied volatility bounced a little last week but remains at historically very low levels. The small ‘spike high’ on the weekly chart suggests Cable will hold below 1.9145 (the August high) for another week or two. This should allow other currencies to catch up with gains made by the pound over the last three weeks. Note that on the Bank of England’s trade weighted basis the pound is a lot stronger than what they had originally been predicting (currently 103.6 versus a target of 99.6 for Q4 2006).
EUR/GBP
Support 0.6670..0.6650..0.6620..0.6600.
Resistance 0.6725..0.6770..0.6820..0.6900.
The lowest weekly close since June 2005 and the lowest monthly one since July 2004 underline the pressure currently on this pair. This brings with it the potential for a mad rush and scramble as many review Sterling’s role and interest rate differentials. Within the next two months, exacerbated by thin year-end conditions, there is a good chance that it will drop to critical support between 0.6600 and 0.6550. One-month at-the-money implied volatility bounced from a new record low at 3.30% and might well move back upto 4.00%. Surprisingly the Euro is not oversold against the pound and momentum is only fractionally bearish, despite the relentless move of the last seven months.
