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Weekly Technical Commentary

Mon, Mar 9 2009, 12:07 GMT
by Nicole Elliott

Mizuho Corporate Bank  |  View company's profile

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USD/JPY

Chart Levels:

Support 97.30..96.55..95.25..94.00.

Resistance 98.75..99.69..100.00..100.55

The outlook for dollar/Yen has just become an awful lot harder although many economists are glibly talking as though a rally through the psychological 100.00 mark to 110.00 was a done deal. Having retraced 50% of the previous decline, and formed a ‘doji’ candle on the weekly chart, and with the US dollar overbought, we shall allow for another week of instability probably between 96.00 and 99.00. The longer we hold below last week’s high at 99.69, the sooner we should drop back to the 93.00 area. We also cannot rule out a very brief ‘spike high’ at 100.55 before a slide to 93.00. In this case one-month at-the-money implied volatility should creep back up to the 25.00% area.

EUR/USD

Chart Levels:

Support 1.2600..1.2450..1.2388..1.2329.

Resistance 1.2755..1.2885..1.3000..1.3100.

Truly nasty as we cling to support in the 1.2400 area, still within the downward-sloping ‘wedge’ formation. The FX market currently feels like something to be avoided, or rather, which currencies to avoid at all costs, rather than currency of choice. The US dollar continues to attract inflows as banks and corporates desperately try to recapitalise ailing core operations. Yet still the Euro is not in a proper downtrend. Emerging markets are increasingly out of favour though we are beginning to distinguish between the various Eastern European and Baltic states. Note that we have a small bias towards the Swiss franc and Sterling over the Euro.

EUR/JPY

Chart Levels:

Support 123.90..122.00..121.70..119.50.

Resistance 125.75..126.25..127.30..128.55

Yen crosses are going to plan, rallying towards the upper edges of bands that have held since October, the USD and NOK leading, KRW and SEK lagging. Though probably not this week, maybe some time this month we continue to target the top of the band around 130.00. The 9-day moving average limited the downside for most of last week and might help push the cross up to new recent highs by Friday with a rally to 128.50 attainable. Note that we have broken and are consolidating neatly above the thin Ichimoku ‘cloud’, something that should also increase bullish momentum. We also feel that one-month at-the-money implied volatility should increase slightly, say to around 28.00%.

GBP/JPY

Chart Levels:

Support 135.50..133.70..130.00..127.00.

Resistance 141.80..146.45..148.55..150.00.

Consolidating neatly above a widening Ichimoku ‘cloud’. Price action since mid-December is seen as an inverse ‘head-and-shoulders’ pattern the ‘head’ being the drop to the record low at 119.00, and now we are holding above the ‘neckline’. Momentum has turned bullish and a sustained break above January’s high at 141.55 should set off another round of short-covering where we currently favour a squeeze to 147.00 in March. If anything though because declines in Q4 2008 were so very extreme this currency pair is likely to exceed expectations on the way up as well. Therefore one-month at-the-money implied volatility should increase towards 30.00% this month.

GBP/USD

Chart Levels:

Support 1.3700..1.3620..1.3500..1.3380.

Resistance 1.4300..1.4660..1.5000..1.5375.

Still working in an interminable, horrid, downward-sloping ‘wedge’ formation and looking set for another downside probe this week. The low could be anywhere, and we would point out that rarely has Cable traded below 1.3500 (1.6 Standard Deviations from the mean since 1982). One-month at-the-money implied volatility is still relatively high at 17.00% and is likely to edge back up to 25.00% whether we trade below 1.3400 or above 1.5000. Note that spreads between US dollar Libor and TBills have widened again over the last three weeks suggesting another round of bank problems looming. Selling peripherals to prop up core business is far from over.

EUR/GBP

Chart Levels:

Support 0.8745..0.8635..0.8575..0.8500.

Resistance 0.9100..0.9200..0.9265..0.9520.

Consolidating fairly neatly in a ‘triangle’ following a pair of sharp declines over year-end. Things are likely to get a bit messier over the coming month, with chart levels less likely to hold, ‘extensions’ and ‘false breaks’ a very real possibility. Price options accordingly, EUR/GBP one-month at-the-money implied volatility holding above 14.00% for several more months. This week we think this cross should establish another interim top between 0.9100 and probably 0.9200. A sustained break below 0.8600 later in Q2 2009 should see the pair move slowly lower towards 0.8250. Readers should note that the pound is not considered particularly attractive, just that many other currencies look so flaky.

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Published on  Mon, Mar 9 2009, 12:12 GMT

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