USD/JPY
Chart Levels:
Support 105.65..105.00..103.70..102.50.
Resistance 107.75..108.59..109.00..111.60
Surprisingly unaffected by the storm clouds gathering all round. The corrective rally continues to hold in a very neat channel and at-the-money implied volatility has stabilised around 11.00%. The Technical picture is still very inconclusive and chart levels poor but we feel that shortly signs of forming an interim top will emerge. Here and on generalised US dollar weakness, thin summer markets and institutions teetering on the edge of bankruptcy could set off a huge downward spiral. As is so often the case, when things unravel they unravel faster in the Yen dragging Yen crosses lower quickly. The US dollar is no longer overbought and bullish momentum has eased significantly.
EUR/USD
Chart Levels:
Support 1.5800..1.5600..1.5460..1.5285.
Resistance 1.5972..1.6020..1.6100..1.6200.
The strongest weekly close ever hints that the Euro is setting up for an imminent re-test of the all-time high at 1.6020. Allow for some hesitation this week, here and in equity indices, as investors hope Fed actions will stop the rot. Of course they won’t, just as Northern Rock has not drawn a line in the sand yet (twelve months on). One-month at-the-money implied volatility appears to be trying to base against 9.00% and might rush higher in August. Then more of what has been building all year which leads to another bout of US dollar weakness. This will take many by surprise as consensus opinion is still very much the recovery story (dollar and the economy) later this year.
EUR/JPY
Chart Levels:
Support 167.00..166.00..165.00..161.70.
Resistance 169.69..170.00..171.00..172.00.
Horribly difficult and nasty as we inch up to a new all-time high at 169.69. The Euro is more overbought than it has been in a year and bullish momentum has evaporated completely. Extreme caution is warranted short and medium term and we continue to watch for topping activity. Possibly too many are hoping for the return of the ‘carry trade’, something we will not be holding our breath for. A weekly close below 165.50 is the absolute minimum needed to hint that a top is already in place. Note that as has been the case several times over the last twelve months, as and when a top is established the drop from there is often very steep and sudden. At the risk of crying ‘wolf’ yet again, the rally since March looks unsustainable.
GBP/JPY
Chart Levels:
Support 209.35..207.00..205.75..204.00.
Resistance 212.50..213.90..215.00..217.00.
Amazing! This pair has been stopped completely in its tracks. Nothing to add as we trade sideways in a minuscule range in what will hopefully be the end of a corrective bounce that started in March. Small signs of instability (a ‘spike high’ followed by a small ‘spike low’) hint that we may have found an intermediate top but a weekly close below 208.75 is needed to add a little weight to this view. Further out a break below 202.50 should turn momentum bearish. We continue to urge caution as other Yen crosses do not confirm this. Rallies, where a break above 215.00 is considered highly unlikely, are seen as good medium term selling opportunities for another big move lower later this year and in 2009.
GBP/USD
Chart Levels:
Support 1.9735..1.9650..1.9450..1.9260.
Resistance 1.9888..2.0000..2.0050..2.0200.
Nothing to add as we continue to struggle under the psychological level at 2.0000. Last week’s ‘spike low’ at 1.9650 might see bullish pressure increase fractionally. We remind that consensus opinion is heavily stacked against the pound (and against UK plc generally) the median forecast for Cable in twelve months time being 1.8700 (and the lowest 1.6800). Interestingly open interest is still running at about half this year’s and last year’s peaks, suggesting many have given up on this very difficult pair and it is only economists (rather than traders and investors) who have a strong view. One-month at-the-money implied volatility appears to be trying to base at its long term mean of 8.00%. Above 2.0050 gets interesting.
EUR/GBP
Chart Levels:
Support 0.7900..0.7830..0.7766..0.7700.
Resistance 0.8025..0.8050..0.80985..0.8150.
Still not really going according to plan and narrow ranges over the last thirteen weeks make one wonder whether there is really much point writing this one up. We continue to look (hope) for signs of topping where sell-stops are likely to lurk under 0.7850. One-month at-the-money implied volatility should hold between 7.50% and 10.50% for many months, and is more likely to revert to the mean at 5.70% than trade above 11.00%. We remind that sterling has been hit exceptionally hard by the credit crunch so we are starting from a position of extreme weakness. We may also have to allow for up to a year’s worth of sideways trading in a much broader band than that of Q2 2008.
