USD/JPY
Support 115.40..115.00..114.40..114.00.
Resistance 117.00..118.00..118.60..119.88.
Last week’s move feels very big only because we had spent the previous three in such a little range. It also is a reminder of what can happen in holiday-thin and year-end markets. We shall continue to allow for a sharp drop to 114.00 very late this month. More interesting will be where this pair closes at the end of November. If the monthly close is clearly below 114.50 bearish momentum should increase significantly allowing for another sudden drop in December. This targets 112.00 and maybe even May’s low at 109.00. Implied at-the-money volatility has increased from record lows on the break below 116.50, and is likely to edge up a little again over the next two weeks.
EUR/USD
Support 1.3100..1.3000..1.2900..1.2760.
Resistance 1.3200..1.3300..1.3480..1.3670.
Just when we were giving up the will to live, complaining about watching paint dry, things have bounded into life. The Euro has at last broken above the ‘flag’ formation and might get as high as 1.3400/1.3500 before the end of the year. Note that its all-time high was 1.3670 on the 30th December 2004. In order to manage a rally as high as this it is imperative that prices close well above 1.3000 this Thursday. Implied at-the-money volatility has, not surprisingly, increased sharply from record lows and futures positions are being re-built. A similar effect with similar price action is evident in a whole raft of other currencies, underlining the fact that the problem is the US dollar. Other currencies will also back each other up and one by one strengthen.
EUR/JPY
Support 151.80..151.00..150.37..150.00.
Resistance 152.50..153.00..154.00..155.00.
The strongest weekly close ever, coupled with last week’s sudden bounce ahead of 150.00, suggests a new interim low is in place. Most other Yen crosses are doing something similar, so we expect another round of Yen weakness relative to many other currencies. This is a continuation of a well-established theme where there are very few currencies which have lost out to the Yen. Note that the Euro is now overbought against the Yen so care is needed. Our targets remain at 155.00 medium term and probably 164.00 (equivalent to its 1998 weakest point against the Deutschemark). 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 bounced from new record lows.
GBP/JPY
Support 223.80..222.40..221.20..220.40.
Resistance 225.00..225.65..227.00..228.75.
As with other Yen crosses, we appear to be trying to establish a new interim low allowing pairs to squeeze up higher at the end of the year. As always thin markets will exacerbate price swings an extend moves. Last week’s pullback held neatly above retracement support and the Ichimoku ‘cloud’ is now rising steadily. Note that the pound is not overbought against the Yen and that momentum is steadily but not spectacularly bullish, so plenty of room for a strong rally. At-the-money implied volatility is still low but a little higher than last week’s 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.
GBP/USD
Support 1.9300..1.9200..1.9140..1.9000.
Resistance 1.9400..1.9475..1.9500..1.9550.
Grabbing headlines as we squeeze to a high of $1.9350 on Friday and $1.9475 today. Just how many are toying with the $2.0000 concept? Not many it would seem as Reuters median forecasts are for $1.8900 in 12 months’ time. Note that the pound is only marginally overbought and that bullish momentum is at its strongest since July 2004. Having wasted so much time guttering around this year there is a strong chance that we will have some very big moves over the next five weeks. Generally, while above 1.9000 the risk is very much to the upside, even at these scary historically high levels. Get used to lots of media coverage. Our upside target remains at 1.9550 (high December 2004).
EUR/GBP
Support 0.6720..0.6685..0.6666..0.6600.
Resistance 0.6800..0.6820..0.6850..0.6900.
Prices are merely consolidating in a narrow range between 0.6750 and 0.6800. We continue to watch for signs of topping between 0.6800 and 0.6850. This is likely to be a slow process so no need to rush right in. Note that the Euro is slightly overbought against Sterling and that momentum is neutral. At-the-money implied volatility is still at extremely low levels and while it may increase a little, it is unlikely to revert to pre-2004 levels. 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.
