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Weekly Technical Commentary

Mon, May 11 2009, 10:39 GMT
by Nicole Elliott

Mizuho Corporate Bank

USD/JPY

Chart Levels:

Support 97.50..96.50..95.65..93.55.

Resistance 99.00..99.80..100.75..101.45

Retreating again from March’s high at 99.69 in what is a potential, irregular, oversized ‘head-and-shoulders’ top. Prices should now turn their focus to cautious downside probing, starting with this morning’s test of the top of the daily Ichimoku ‘cloud’. In what is expected to be generalised US dollar selling, this month the Yen may well outperform other major currencies dragging Yen crosses lower. Moving averages are already suggesting a short position in dollar/Yen and Pacific rim currencies are leading the way as they strengthen to some of the best levels of the last six months. A daily close below 97.00 will probably turn momentum bearish and note that the greenback is certainly not oversold here.

EUR/USD

Chart Levels:

Support 1.3550..1.3400..1.3200..1.2965.

Resistance 1.3670..1.3740..1.3965..1.4200.

The FX market, having wasted an awful lot of time so far this year, looks set to wake from its slumber. The Euro’s ‘flag’ formation has pushed it on to a weekly close above long term trendline resistance. Moving averages are still a way off crossing to a long position and many may be clutching to the fact we are still below March’s high at 1.3740. Vain hopes, we feel, as generalised US dollar weakness should be the dominant feature this month and maybe for the next six months. One-month at-the-money implied volatility appears to have based against the 13.30% area and should now rally (as should JPY volatility). On the ECB’s Effective Exchange rate it is well below last year’s December peak.

EUR/JPY

Chart Levels:

Support 132.00..130.90..130.00..126.45.

Resistance 134.00..134.80..135.50..137.45

Difficult and inconclusive as prices consolidate close to the upper edge of the broad trading band that held from October until March (roughly 114.00 to 134.00) with a ‘spike high’ at 137.42 in April. Re-testing resistance between 134.00 and 135.00 today and we feel it should stall again here. Note that a few Yen crosses have posted new recent highs but these are likely to turn into ‘extensions’. A daily close below 132.00 would add weight to our view while a weekly close below 130.00 hints that perhaps another interim high is 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, picking interim tops and bottoms very difficult indeed.

GBP/JPY

Chart Levels:

Support 147.00..145.50..144.00..139.00.

Resistance 150.50..151.00..151.50..153.25.

Struggling ahead of April’s high at 151.50 with signs that it will hold below here this week and maybe all month. Traders should allow for a drop back down to 139.00 while investors are reminded that our outlook for Yen crosses is for a broadly sideways move throughout this year. While not our favoured view just yet, 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 moves so far this year have been subdued relative to last year’s carnage and that the Yen is still trading not far off its strongest ever levels against several currencies.

GBP/USD

Chart Levels:

Support 1.5000..1.4835..1.4500..1.4350.

Resistance 1.5280..1.5375..1.5535..1.5725.

One of the leaders, probably to the surprise of many, as consensus opinion swerves 180 degrees so that the pound is now the most ‘undervalued’ currency in a recent poll. As for risk-aversion causing people to buy US dollars, the words ‘head’ and ‘examining’ spring to mind. The weekly close above 1.5000 and the moving averages ought to help but a shame Cable did not manage a weekly close above the highest close since October (1.5365). Maybe it will this week, causing the averages to turn bullish. Note that open interest while rising, is still roughly half of the peaks in 2007 and 2008. One-month at the money implied volatility appears to have based against the 12.00% area and our target is now18.00%.

EUR/GBP

Chart Levels:

Support 0.8880..0.8785..0.8750..0.8635.

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

Bouncing 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 we continue to pencil in 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%, 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, May 11 2009, 12:17 GMT