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Weekly Technical Commentary

Mon, Aug 3 2009, 10:19 GMT
by Nicole Elliott

Mizuho Corporate Bank

USD/JPY 

Chart Levels: 

Support 94.00..93.00..92.35..91.73

Resistance 95.88..96.25..97.00..99.00

Little to add as prices continue to thrash around the ‘neckline’ of a potential ‘head-and-shoulders’ interim top where the ‘head’ marks the upper edge of this year’s broad trading band. Last week’s ‘doji’ candle denotes indecision and a market looking for direction. Hopefully the good-sized flat-topped weekly Ichimoku ‘cloud’ will grind prices lower for another weekly close below the pivotal 94.00 area, Fibonacci retracement support and this year’s mid-point. Downside pressure should increase for a rush towards critical support between 87.00 and 85.00. One-month at-the-money implied volatility has based and will rally strongly then. Open interest is roughly one quarter of 2007’s peak, ‘carry trades’ out of fashion.

EUR/USD 

Chart Levels: 

Support 1.4200..1.4040..1.4000..1.3900.

Resistance 1.4339..1.4363..1.4430..1.4545.

EUR/JPY

Chart Levels: 

Support 132.00..131.40..130.00..128.00.

Resistance 136.90..137.50..138.35..139.26

Yen crosses are trading at the upper edge of this year’s very broad trading band. Hopefully the massive weekly Ichimoku ‘clouds’, here and in all other Yen crosses, will eventually exert downward pressure leading to a re-test of increasingly pivotal support around 128.00. However, moving averages do not support this view and have been suggesting a long position since mid-April. One-month at-the-money implied volatility is trying to base against 14.00% and should eventually manage a sustained move through 18.00%. Note that longer term prices are expected to hold within this year’s ranges, trading in broad bands for another six months; picking interim highs and lows is unlikely to get any easier.

GBP/JPY

Chart Levels: 

Support 155.35..153.85..152.25..150.75.

Resistance 160.50..161.75..162.60..163.35.

Recent Cable strength appears to have taken many by surprise, pushing Sterling/Yen towards this year’s high at 162.60. While we expect the latest rally to stall this might be a slow process that continues through until the end of August. During this time prices will probably hold between 154.00 and 162.00 most but not all of the time. Later expect a drop to 150.75/150.00 where some consolidation is likely, followed by a slower leg down to 143.00. At the moment moving averages do not support this view. One-month at-the-money implied volatility is still trying to base against 16.40%, one standard deviation from the mean at 11.50% since January 1995, and should eventually increase towards 21.00%.

GBP/USD 

Chart Levels: 

Support 1.6700..1.6500..1.6300..1.6000.

Resistance 1.6850..1.7000..1.7100..1.7500.

After ten weeks of ‘triangle’ consolidation, at last! A weekly close higher than anything since October so that we have now retraced 50% of the losses since last summer. The measured targets from this breakout are 1.7100 and then 1.7500, part of the ultra-long term trend to generalised US dollar weakness. This may have come as a surprise to some but other currencies are also gaining against the US dollar so it’s a dollar problem rather than sterling in vogue. Futures volume has been good and though running about half of the 2007/2008 peak open interest is picking up. Note record volume in Canadian dollar futures suggest the US investor has grasped the threat of devaluation, at least against its northern neighbour.

EUR/GBP 

Chart Levels: 

Support 0.8400..0.8250..0.8200..0.8000.

Resistance 0.8535..0.8600..0.8700..0.8750.

After consolidating in a neat tiny range under 0.8700 for six weeks the large weekly Ichimoku ‘cloud’ looks set to push the cross lower. A re-test of this year’s low at 0.8400 looks imminent and a weekly close below here should add to current strong bearish momentum. A monthly close below it completes a massive long term top, so that sterling would be unlikely to move above this area for many years to come. This pivotal area for the currency pair, two standard deviations from the very long term mean is so important that we may hover around here for a whole month or more before we see a decisive downside break. Until then rallies, which will probably struggle to move significantly above 0.8600, are therefore selling opportunities.

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

Published on  Mon, Aug 3 2009, 10:22 GMT