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Weekly Technical Commentary

Mon, Apr 27 2009, 10:20 GMT
by Nicole Elliott

Mizuho Corporate Bank

USD/JPY

Chart Levels:

Support 96.45..95.45..94.00..93.55.

Resistance 97.50..98.00..99.00..99.69

Today’s brief dip below 96.50, and last week’s close below 97.00, has forced us to adjust our view and we now see April’s high at 101.45 as an interim top. It is an ‘extension’ above March’s high at 99.69 (and the 50% retracement area) which was stopped by the Ichimoku ‘cloud’ and the Fibonacci 61% level. Now prices should turn their focus to cautious downside probing, in what is expected to be generalised US dollar selling, where a drop below 92.00 on a first attempt is considered unlikely. We remind that the faster we move towards, and the closer we get to this year’s low at 87.10, the greater the chance of some form of intervention. Volatility should pick up over the coming month.

EUR/USD

Chart Levels:

Support 1.3000..1.2885..1.2775..1.2600.

Resistance 1.3300..1.3400..1.3585..1.3739.

The Euro bounced from the bottom of a fairly large ‘flag’ formation and is consolidating between the 9 and 26-week moving averages. The Euro is no longer oversold but neither is momentum bullish. We favour an upside test this week but we remind that only when the Euro starts holding consistently above the 1.3500 area will something more like a proper rally emerge. Until then prepare to remain flexible with relatively small positions, with a tendency towards generalised US dollar weakness against major currencies and increased risk aversion – so that some Eastern European ones suffer. Note also that one-month at-the-money implied volatility is expected to rally.

EUR/JPY

Chart Levels:

Support 126.50..126.00..125.00..121.75.

Resistance 130.00..131.00..134.50..137.40

Still difficult and inconclusive as prices consolidate close to the upper edge of the broad trading band that held from October until March, roughly between 115.00 and 130.00. A second consecutive weekly close below 130.00 hints that perhaps an interim high is already in place. Note that over the next nine months or more we favour EUR/JPY, and other Yen crosses, to move broadly sideways in very wide ranges. At the moment we still see the pullback of the last three weeks as corrective, and therefore prices should base around the 126.00 area. This would then set up for another cautious upside probe next month, where rallies will probably be capped by resistance around 142.00. Implied volatility should pick up too.

GBP/JPY

Chart Levels:

Support 140.00..139.00..137.65..135.00.

Resistance 147.00..148.50..150.00..151.50.

Retreating from the psychological level at 150.00 in a corrective move which should base this week against the 61% Fibonacci level and the top of the Ichimoku ‘cloud’. Momentum however is no longer bullish and the pound is almost oversold against the Yen. One-month implied volatility is expected to base from the 22.00% area and eventually rally sharply. If this cross was to start holding consistently below 140.00 we would have to review as it hints that an interim high is already in place and the next step ought to be downside probing before a new interim low is established. We remind that the Yen and Yen crosses are expected to be very difficult this year as they trade broadly sideways in very broad bands.

GBP/USD

Chart Levels:

Support 1.4500..1.4435..1.4395..1.4200.

Resistance 1.4700..1.4780..1.4960..1.5070.

Consolidating fairly neatly around 1.4600, despite some sharp intra-day moves, and above the top of the Ichimoku ‘cloud’. Expect more of the same this week noting that Sterling is no longer overbought and momentum remains bullish so that longer term we continue to feel Cable should trade higher. What it needs is a little help from rallies in other major currencies and a weekly close above 1.5000. This should send many off to re-think this currency pair in particular (and the value of the US dollar) and UK plc generally. On the Bank of England’s Trade Weighted basis the pound is still very close to its cheapest ever levels; even against a laggard like the Canadian dollar it is almost as low as it has ever been.

EUR/GBP

Chart Levels:

Support 0.8900..0.8800..0.8725..0.8635.

Resistance 0.9050..0.9100..0.9200..0.9320.

Bouncing slowly from the lower edge of the broad trading band that has dominated since December. For the next week or two we shall allow for a series of random messy moves roughly between 0.8750 and 0.9100. Over the next six weeks expect a re-test of February’s low at 0.8635. A sustained break below 0.8600 very late in Q2 2009 should see the pair move slowly lower towards 0.8250. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. One-month at-the-money implied volatility, which collapsed from 21.00% to 12.00% over the last two months, should form an interim base.

• Download Full Weekly USD/ JPY and EUR/USD Technical Commentary
• Download Full Weekly EUR/JPY and GBP/JPY Technical Commentary
• Download Full Weekly GBP/USD and EUR/GBP Technical Commentary

Published on  Mon, Apr 27 2009, 10:27 GMT