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Weekly Technical Commentary

Tue, Sep 8 2009, 09:08 GMT
by Nicole Elliott

Mizuho Corporate Bank

USD/JPY

Chart Levels:
Support 92.00..91.70..90.70..89.70.
Resistance 93.55..95.10..96.00..97.79

Price action in August appears to have formed a new interim high at 97.79, with a decent reversal candle (shooting star?) on the monthly chart. Last week’s bounce ahead of July’s low at 91.73 suggests we shall hold above this increasingly important chart area (down to 91.50) for another week or two. Rallies towards 96.00 are seen as selling opportunities for another downside test, hopefully sooner rather than later. One-month at-the-money implied volatility should base against the 12.00% area again, then rally by month-end. If markets decide to test the new government’s resolve, as we fear, things might turn ugly. Open interest has picked up since mid-August but remains less than one third of the 2007 peak.

EUR/USD

Chart Levels:
Support 1.4300..1.4200..1.4100..1.4000.
Resistance 1.4400..1.4448..1.4545..1.4635.

Little to add as we consolidate in the same range for five consecutive weeks. We continue to hold above a flat-topped Ichimoku ‘cloud’ and 38% retracement of last year’s losses, moving averages confirming a bullish outlook and the nine-week one trying to limit the lows. Last week’s ‘doji’ candle suggests instability and a market that looks set for an imminent break above recent highs. Several other currencies are doing something similar, with AUD and NZD already trading at new recent highs. One-month at-the-money implied volatility should base this week against the 10.00% level, and pick up towards 16.00% over the coming month or two. Note that on the ECB’s effective exchange rate the Euro is at a record high.

EUR/JPY

Chart Levels:
Support 132.00..131.00..128.00..127.00.
Resistance 134.15..135.30..136.00..137.40

During August this cross formed another interim high at 138.72, the third in a series of highs very roughly in this area that started early April. We continue to favour a re-test of fairly pivotal support around 128.00. This marks the mid-point of the very broad band that has dominated trading so far this year. Though weekly moving averages still suggest a long, they have narrowed considerably and will probably turn to a sell on a break below 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 151.00..150.00..149.00..146.70.
Resistance 153.65..155.85..156.00..157.50.

A ‘double top’ against the 162.50 area formed last month and we now favour a re-test of June’s low at 146.70 some time within the next month or two. Downside pressure should increase if we hold below 155.85 (Fibonacci retracement resistance), with a break below the bottom of the very large Ichimoku ‘cloud’ (144.65) completing the double top formation and turning moving averages bearish. Note that the bounce from last week’s low at 149.00 has eased the oversold condition very considerably while postponing the break lower we continue to favour. 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 1.6275..1.6100..1.6000..1.5800.
Resistance 1.6550..1.6625..1.6665..1.6745.

Cable remains trapped between a rock and a hard place, trendline support and the flat top of a massive Ichimoku ‘cloud’, but mercifully giving up very little on the downside despite zero momentum. Cable is not overbought any more and moving averages have been suggesting a long position since May. Futures volume remains good and possibly, like the Canadian dollar future, have been embraced by US speculators. One-month at-the-money implied volatility should hold above 10.65% for quite some time to come. A weekly close above 1.6500 might add some much-needed bullish momentum but a close above the top of the weekly ‘cloud’ is needed to get things really kicking in.

EUR/GBP

Chart Levels:
Support 0.8645..0.8500..0.8400..0.8200.
Resistance 0.8840..0.8870..0.8915..0.8945.

Bouncing from what we see as a key level at 0.8400 and likely to hold above here this month and maybe all this quarter. We shall be looking for slow topping activity around the 0.8800 area, and probably no higher than the 26-week moving average which currently lies at 0.8945. Further out the big Ichimoku ‘cloud’ should push the Euro lower, through trendline and Fibonacci support. Only on a monthly close below 0.8400 can we say that the massive rally to an all-time high at 0.9805 as some sort of one-off ‘spike high’ and that the pound will gradually recover to pre-banking crisis levels. Note that Plan B, which could last until year-end, rather than a clean break lower involves a series of swings either side of 0.8400.

• 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  Tue, Sep 8 2009, 09:16 GMT