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Weekly Technical Commentary

Mon, Aug 10 2009, 10:34 GMT
by Nicole Elliott

Mizuho Corporate Bank

USD/JPY 

Chart Levels: 

Support 96.60..95.60..94.00..93.55.

Resistance 97.80..99.00..99.80..100.00

Not going according to plan as the Yen bursts higher on buy stops in thin market conditions, keeping to the upper half of this year’s broad trading band. Hopefully the good-sized flat-topped weekly Ichimoku ‘cloud’ (99.00) and retracement resistance at 97.80 will exert downward pressure and will eventually grind prices lower, here and in a series of Yen crosses. We shall allow for plenty more work between 93.50 and 99.00 over the next month or two. One-month at-the-money implied volatility has based against the 12.00% area and should rally by month-end. Open interest has dropped significantly over the last three weeks and is roughly a quarter of 2007’s peak - ‘carry trades’ out of fashion.

EUR/USD 

Chart Levels: 

Support 1.4150..1.4100..1.4000..1.3900.

Resistance 1.4339..1.4448..1.4545..1.4635.

EUR/JPY

Chart Levels: 

Support 136.50..135.75..134.00..132.80.

Resistance 138.75..139.26..140.00..141.00

Hovering quite calmly at the upper edge of this year’s very broad trading band, though some other Yen crosses have squeezed to new highs for the year. However, the Euro is as overbought as it was in March 2009. Hopefully the massive weekly Ichimoku ‘cloud’ and Fibonacci resistance, here and in all other Yen crosses, will eventually exert downward pressure leading to a re-test of increasingly pivotal support around 128.00. One-month at-the-money implied volatility is still trying to base against 14.00% and should eventually manage a sustained move through 18.00%. Note that longer term prices are expected to trade broadly sideways for another six months, picking interim highs and lows a tough, thankless task.

GBP/JPY

Chart Levels: 

Support 159.00..156.40..154.50..152.25.

Resistance 163.05..167.30..170.00..173.00.

Sneaking just above June’s peak to a new high for the year at 163.05. However, we remain well below first Fibonacci resistance at 170.00 and below the top of a very large flat-topped Ichimoku ‘cloud’ at 167.30. While we expect the latest rally to stall this might be a slow process that continues through until the end of August, involving several cautious upside probes because the cross is currently not as overbought as some might imagine. During this time prices will probably hold between 154.00 and 162.00 most but not all of the time. 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 1.6600..1.6500..1.6300..1.6000.

Resistance 1.6760..1.6855..1.7044..1.7500.

Glee in the bear camp as Cable retreats from a new high for the year at 1.7044 forming an ‘evening star’ weekly candle. We feel that the combination of the psychological level at 1.7000, the top of a massive Ichimoku ‘cloud’, and Fibonacci retracement resistance means that prices will have to consolidate under here for another week at least. Futures volume has been good and open interest is picking up (though still well below last year’s peak). Note that on the Bank of England’s Trade Weighted basis sterling has recovered less than 38% of the terrible losses of the last two years. One-month at-the-money implied volatility has snapped back up from a low at 10.65% and should hold above here for quite some time to come.

EUR/GBP 

Chart Levels: 

Support 0.8450..0.8400..0.8200..0.8100.

Resistance 0.8540..0.8600..0.8700..0.8750.

A slightly mixed picture but realistically we should probably allow for another week’s worth of consolidation above this year’s low at 0.8400. A monthly close below here completes a massive long term top, so that sterling would be unlikely to move above this area for many years to come. Further out the big Ichimoku ‘cloud’ should push the Euro lower, through trendline and Fibonacci support to 0.8100. Until then rallies, which will probably struggle to move significantly above 0.8600, are therefore selling opportunities. Note that Plan B, rather than a clean break lower, involves a series of swings either side of 0.8400, something which is currently seen as a very real possibility.

• 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 10 2009, 10:55 GMT