USD/JPY
Support 117.00..116.50..115.50..115.00.
Resistance 118.60..119.00..119.66..119.88.
Still clinging to weekly trendline support which lies at 116.95 this week. This may hold again for most if not all of the next five days, but the longer we hold below 119.00 the more top-heavy the chart will look. 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 another ‘shooting star’ candle against 118.60 on Thursday. At-the-money implied volatility should increase on a break below 116.50.
EUR/USD
Support 1.2800..1.2700..1.2630..1.2485.
Resistance 1.2900..1.2940..1.2980..1.3020.
The strongest weekly close in some time but still within the very large holding pattern (‘flag’) which has kept prices trapped for almost six months. Implied volatility has bounced strongly from a record low as open interest in the futures contract remains well below the record high of December 2004. Because the Euro is slightly overbought it may not manage a sustained break above the top of the formation this week, just cautious upside probing. However, by the end of the month we favour an important break higher and test of the key 1.3000 area. Median forecasts for the Euro at 1.2800 in one month and 1.3000 in three months may have to be revised imminently.
EUR/JPY
Support 150.50..150.00..149.50..149.00.
Resistance 151.50..152.00..154.00..155.00.
The strongest weekly close ever and well above the top of the right-angled ‘triangle’; such a pity other Yen crosses did not confirm the break. We shall continue to allow for more consolidation around the 150.00 area this week with bullish pressure maintained the longer we hold above 149.50. Holding above 150.50 should increase upside momentum for 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) 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.
GBP/JPY
Support 223.90..222.40..221.20..220.40.
Resistance 225.65..227.00..228.75..230.00.
Merrill Lynch and Lehman’s forecasts for this pair in 12 months time, 171.00 and 174.00 respectively, are some of the most extreme views for a cross that has been moving steadily higher for six years. A second consecutive weekly close above the top of the right-angled ‘triangle’ formation suggests another squeeze higher by the end of this month. Allow other Yen crosses to catch up, then one by one the pairs should propel each other higher. Note that Sterling is only slightly overbought here and that momentum is steadily but not spectacularly bullish. At-the-money implied volatility is still exceptionally low. A squeeze to 226.00/227.50 is a very real possibility towards month-end.
GBP/USD
Support 1.8950..1.8800..1.8700..1.8600.
Resistance 1.9100..1.9150..1.9325..1.9550.
Still struggling with resistance between 1.9100 and 1.9150. 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. The longer this pair holds above 1.8900, the sooner it should get moving; below 1.8800 postpones everything very significantly. Note that the pound is not in the least bit overbought and that there is plenty of room for bullish momentum to increase. At-the-money implied volatility has bounced from very low levels and should move up towards the 7.50% area. Our upside targets remain at 1.9325 (high March 2005) and 1.9550 (high December 2004).
EUR/GBP
Support 0.6690..0.6666..0.6650..0.6600.
Resistance 0.6770..0.6800..0.6820..0.6900.
Immediate downside probing ended suddenly last week and we currently expect this pair to hold above 0.6666 for at least a week if not a month. One-month at-the-money implied volatility has rebounded strongly from a record low and should move back up to the 4.50% area. 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.
