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Weekly Technical Commentary

Mon, Jun 8 2009, 14:38 GMT
by Nicole Elliott

Mizuho Corporate Bank

USD/JPY

Chart Levels:

Support 96.60..95.50..94.40..93.55.

Resistance 99.00..99.80..100.75..101.45

Last week’s strong rally from support at the 26-week moving average (which held for four consecutive weeks) has forced us to adjust our view. It signals a failed downside push and heralds yet more sideways trading in the broad band that has held since March (roughly between 94.00 and 100.50). Because the Ichimoku ‘cloud’ has become relatively narrow, and more importantly because it is now moving across the page rather than lower, it is unlikely to limit moves this summer. Note also that moving averages suggest a long dollar position so very mixed signals and maybe it might be better to leave this currency pair alone if possible. Implied volatility has not picked up as much as we had hoped.

EUR/USD

Chart Levels:

Support 1.3800..1.3750..1.3600..1.3425.

Resistance 1.4000..1.4200..1.4339..1.4363.

The Euro reached a high at 1.4339 Thursday, its best level since January’s high at 1.4363 and on the ECB’s Effective Exchange rate it is not too far off the all-time high of 2008. The 1.4200 area is the 50% retracement of last year’s losses and coincides with a large, flat-topped Ichimoku ‘cloud’ so we feel prices will thrash excitedly either side of here for another fortnight, maybe until month-end; this should lift implied volatility. Friday’s sell-off has corrected the overbought situation while keeping momentum bullish. We feel the Euro should form another new interim base between 1.3800 and 1.3600, setting up for another strong rally in thin summer conditions.

EUR/JPY

Chart Levels:

Support 135.30..134.25..133.85..133.00.

Resistance 137.50..138.00..139.26..140.00

Because our outlook for dollar/Yen has changed somewhat, so has our medium term view on Yen crosses. We feel these will continue to trade broadly sideways and at the higher half of the ranges so far this year. 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. Friday’s sudden squeeze to a high at 139.26 looks, for now, like a small ‘extension’ and prices should hold below 138.00 for much of the coming week. If the range since March has been roughly 126.00 to 138.00, then its mid-point is 132.00 and prices should hold above here, possibly until the end of the month.

GBP/JPY

Chart Levels:

Support 155.50..153.45..149.50..143.00.

Resistance 157.75..160.50..163.35..165.00.

With the pound fairly well supported despite its politicians, GBP/JPY rallied to a new high for the year at 160.50. 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. Because it is not overbought this week it should continue to trade either side of 155.50, probably between 153.00 and 160.00. Interestingly one-month at-the-money implied volatility appears to be trying to base against the 16.00% area. From 1995 to 2007 this traded between 6.00% and 16.00% most of the time suggesting we will form a new higher price for vol between 16.00% and 26.00%.

GBP/USD

Chart Levels:

Support 1.5800..1.5600..1.5450..1.4350.

Resistance 1.6100..1.6235..1.6664..1.6800.

Dropping from a high at 1.6664 last week, in part because many look on in disbelief at cabinet resignations. Technically it was stopped dead in its by tracks retracement and weekly Ichimoku ‘cloud’ resistance. The dramatic-looking ‘shooting star’ candle looks impressive and might just limit the upside until the end of this month, but we remind that on the 21st May Cable managed to drop and recover 4 cents within a day. Open interest in the futures contract is still roughly half that of the peaks in 2007 and 2008. One-month at the money implied volatility is moving smartly towards our target at 18.00% (with the possibility of a massive overshoot to 22.00%). The long term trend to a higher Cable is bruised but intact.

EUR/GBP

Chart Levels:

Support 0.8700..0.8635..0.8576..0.8500.

Resistance 0.88000..0.8870..0.8925..0.9050.

Dipping briefly to a new low for the year at 0.8576, then bouncing ahead of a widening Ichimoku ‘cloud’ and retracement support, to end the week as a ‘doji’ candle. This suggests prices will hold above here again this week, maybe longer, with slow cautious sideways moves dominating. A sustained break below 0.8600 very late in Q2 2009 should see the pair move slowly lower towards 0.8250, a move currently suggested by moving averages. 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 has based and should move back up to 16.00%.

• 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, Jun 8 2009, 14:48 GMT