USD/JPY
Chart Levels:
Support 94.48..93.53..92.48..91.88.
Resistance 97.00..98.50..99.50..100.55
Little to add as we continue in a holding pattern, ‘triangle’ consolidation below retracement resistance. We continue to feel there is another downside move due by the end of this year as the ‘carry trade’ unwinds further and the credit crunch affects more areas of business. As for rallies, these now will hopefully be capped between 98.00 and 100.00, although a brief but dramatic squeeze to 103.00 still cannot be ruled out completely. These are seen as good selling opportunities for a subsequent drop back down to 92.00 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 20.00% and 32.00% for another few weeks.
EUR/USD
Chart Levels:
Support 1.2400..1.2329..1.2225..1.2000.
Resistance 1.2700..1.2860..1.29251.3100.
A most extraordinary chart pattern as the Euro clings to the lower edge of the ‘triangle’ above October’s low at 1.2329. It is almost too neat, possibly hinting at an attempt to manipulate its value. Nevertheless we still favour a slow rally back up to 1.3000 and then through here to the 1.3300 area where more consolidation should take place. The Euro is likely to continue to strengthen against a whole series of other European currencies. Before that though we may have to live through a series of ‘false breaks’ as the market looks for direction. One-month at-the-money implied volatility has eased from the record high at 28.50% yet at 20.00% it is still more double the long run mean of 9.75% (which should put off some speculators).
EUR/JPY
Chart Levels:
Support 117.65..116.45..114.45..113.62.
Resistance 122.25..126.00..128.50..131.05.
Like dollar/Yen this currency pair is holding in a consolidation pattern and there is little to add since last week. This should eventually lead to another sell-off, a continuation of the unwinding of the ‘carry trade’. The move might start in holiday-thin markets this week, and should have got going in earnest by mid-December. In the meantime we still cannot rule out another initial upside probe, probably no higher than the 127.00 area, something which is seen as a good selling opportunity. Note that all Yen crosses are seeing similar moves and patterns, BRL/JPY, CHF/JPY and IDR/JPY having dipped to new recent lows already last week. These are seen to be leading the way to Yen strength and other Yen crosses should follow.
GBP/JPY
Chart Levels:
Support 139.00..137.65..134.50..132.60.
Resistance 143.70..144.75..148.00..152.75.
Dipping to a new recent low at 137.65, just below October’s low at 139.00, and it should try and hold above here early this week. A monthly close below 150.00 should signal a renewed downside attack which should take us down to the 1995 all-time low at 128.20, possibly even further, in what would then be catastrophic financial conditions. In this case volatility here, and in a whole raft of other instruments and currencies, might hit new record highs. As has been the case since July 2007, we feel that GBP/JPY is leading the way lower, the unwinding of the ‘carry trade’ coupled with the peculiarities of non-core currencies. Interest rate differentials will matter less and less as many countries consider zero interest rates.
GBP/USD
Chart Levels:
Support 1.4700..1.4645..1.4560..1.4470.
Resistance 1.5100..1.5250..1.5600..1.6000.
Still working in a downward-sloping ‘wedge’ formation, a mirror image of the Dollar Index futures contract. This highly unstable pattern, following the catastrophic collapse of the last four months, suggests a reversal is imminent. Possibly in holiday-thin markets this week, and probably in even thinner markets by mid-December, Cable should attempt a rally back up to 1.6000, maybe 1.6500. All well and good but seeing as we were trading over 2.0000 in July, this would represent just a 38% corrective bounce. Interesting to note how some Eurozone currencies have been sold heavily, while the Treasury bonds of some EZ15 countries have been sold instead.
EUR/GBP
Chart Levels:
Support 0.8400..0.8333..0.8300..0.8200.
Resistance 0.8500..0.8600..0.8675..0.8750.
Consolidating slightly unsteadily below the record high at 0.8675. Similarly one-month at-the-money implied volatility has eased from a record high at 23.90%, over three times the mean at 7.00%, to 18.50%. We continue to work in Plan C, where we shall allow for massive swings roughly between 0.7800 and 0.9000 (equivalent to the all-time low GBP/DEM at 2.1750 of May 1995) for the next six months at least, possibly a whole year. Note that while serious, it is not only the pound that has been singled out. Eastern European and some Scandinavian currencies have also been hard hit as money is moved out of ‘riskier’ or peripheral assets to prop up rotting core business models.
