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Weekly Technical Commentary

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

Mizuho Corporate Bank  |  View company's profile

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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.

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Published on  Mon, Nov 3 2008, 11:23 GMT

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