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Weekly Technical Commentary

Mon, Sep 14 2009, 12:10 GMT
by Nicole Elliott

Mizuho Corporate Bank

USD/JPY

Chart Levels:

Support 90.00..89.70..88.00..87.10.

Resistance 91.00..92.50..93.55..94.65

Almost the lowest weekly close of 2009, and well below the mid-point of the very broad sideways band that has held all year, suggests a series of repeated downside tests for the rest of this month and maybe the rest of this year. A baptism by fire for the new DJP government that has had to wait 50 years to be elected into power. Verbal intervention has started already, the MOF’s Tango saying today he is watching currency moves closely. Key support between 87.00 and 1995’s 85.00 may not be defended quite as rigorously by new politicians whose focus is more on the individual and less on corporations. The US dollar is not as oversold against the Yen as we had thought and most Yen crosses are looking top-heavy.

EUR/USD

Chart Levels:

Support 1.4500..1.4400..1.4290..1.4177.

Resistance 1.4636..1.4720..1.4815..1.4900.

Mocking the consensus view, the Euro has retraced 61.8% of last year’s losses. Using a flat-topped Ichimoku ‘cloud’ as a springboard it has moved above the consolidation area that we have been trapped in for weeks. Best volume so far this year in the futures contracts suggests many are rushing to catch up, reviewing their FX outlook as necessary. One-month at-the-money implied volatility based against the 10.00% level, and should 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, yet what we are seeing is generalised US dollar weakness with the best performers so far this year the ZAR, BRL, AUD and NZD.

EUR/JPY

Chart Levels:

Support 131.00..129.00..128.00..127.00.

Resistance 132.50..134.50..136.00..137.40

The lowest weekly close since mid-July might add a little more bearish pressure for 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. Surprisingly 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. All Yen crosses look similar, suggesting a Yen move the cause.

GBP/JPY

Chart Levels:

Support 149.00..146.70..143.00..139.00.

Resistance 153.25..155.85..156.00..157.50.

The ‘double top’ against the 162.50 should lead to a re-test of June’s low at 146.70, with a sustained break below here setting off a (probably sharp) drop to a measured target at 130.00. This would of course involve a break below the bottom of the very large Ichimoku ‘cloud’ (144.65) which should then turn moving averages bearish. One-month at-the-money implied volatility is still trying to base against 16.40%, one standard deviation from the mean since January 1995, and should eventually increase towards 21.00%. Note that so far this month the Yen has gained against all major currencies, a move which we feel will gather momentum over the next six weeks or so, Asian ones the weakest.

GBP/USD

Chart Levels:

Support 1.6500..1.6275..1.6100..1.6000.

Resistance 1.6745..1.6800..1.7045..1.7250.

Cable continues to consolidate above the Fibonacci 38% retracement of the drop since 2007’s high and below the flat top of a massive Ichimoku ‘cloud’. A pity it didn’t manage a weekly close above 1.6750 as this might have added some much-needed bullish momentum. Cable is not overbought and moving averages have been suggesting a long position since May, the 26-week one starting at last to move higher. Measured targets from current consolidation lie at 1.7000 and then 1.7500. Futures volume remains excellent and possibly, like the Canadian and Eurodollar futures, have been embraced by US speculators. One-month at-the-money implied volatility should hold above 10.65% for quite some time to come.

EUR/GBP

Chart Levels:

Support 0.8645..0.8500..0.8400..0.8200.

Resistance 0.8840..0.8870..0.8915..0.8945.

We continue to favour very slow topping activity around the 0.8800 area, and probably no higher than the 26-week moving average which currently lies at 0.8925, also the area of the top of a good-sized Ichimoku weekly ‘cloud’. This should eventually push the Euro lower, through trendline and Fibonacci support, but this is several weeks off, at best, and possibly unlikely until year-end. 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 a very long time, 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  Mon, Sep 14 2009, 12:19 GMT