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Weekly Technical Commentary

Mon, Sep 21 2009, 12:48 GMT
by Nicole Elliott

Mizuho Corporate Bank

USD/JPY

Chart Levels:

Support 91.00..90.12..88.00..87.10.

Resistance 92.30..93.00..93.55..94.65

Bouncing from 78.6% Fibonacci retracement support, quickly correcting the oversold situation. Hopefully the rally will run out of steam here, first resistance around 92.00. However, holiday-thin conditions this week mean we cannot rule out a fairly large ‘extension’ higher. Worryingly, at-the-money implied volatility has not increased, holding around the average since April at 14.00%, this despite the US dollar trading close to the lowest levels against the Yen in post-war history. Some time over the coming month we continue to favour a series of cautious downside tests of key support between 87.00 and 1995’s 85.00 (below which it spiked to a low 79.75 over a three month period).

EUR/USD

Chart Levels:

Support 1.4600..1.4500..1.4400..1.4290.

Resistance 1.4700..1.4768..1.4815..1.4900.

A weekly close above Fibonacci retracement of 61.8% of last year’s losses should add a little more bullish momentum. On the ECB’s Effective Exchange Rate it has retreated slightly from an all-time high and looks set to consolidate at current levels. One-month at-the-money implied volatility is still trying to base against the 10.00% level, and should eventually pick up towards 16.00% over the coming month or two. December 2008’s high was 1.4720, last week’s 1.4768 and November 2007’s 1.4700 so a weekly close clearly above these is the next step in the series of generalised US dollar weakness. With G20 leaders busy blaming bankers they have yet to wake to the implications of recent currency moves.

EUR/JPY

Chart Levels:

Support 132.00..131.00..129.00..128.00.

Resistance 135.25..136.00..137.40..138.75

Yen crosses did not see the downside follow-through we had predicted for last week and instead bounced fairly strongly from recent lows. Hopefully the rallies will fizzle out imminently and late this month and in October we will resume the cautious downside testing we still favour, with the 128.00 area pivotal. Surprisingly one-month at-the-money implied volatility has dropped to 12.75% (considerably lower than September 2008) suggesting option sellers are at their most aggressive in a while. The low for volatility was 9.00% in August 2008 and 5.00% in November 2006. Note that longer term prices are expected to trade broadly sideways for another six months, picking interim highs and lows a thankless task.

GBP/JPY

Chart Levels:

Support 148.00..146.70..143.00..139.00.

Resistance 151.75..153.25..156.00..157.50.

Dropping a little lower, unlike most Yen crosses, as the UK authorities giving sterling a pounding. Though weekly moving averages have been suggesting a long position since May, we view price action since June as a ‘double top’ which will be completed by a weekly close below July’s low at 146.70. A break below the bottom of the very large Ichimoku ‘cloud’ (144.65) would add bearish momentum leading to a drop to our measured target at 130.00. Below 129.00 on a first attempt is considered highly unlikely, though note that moves below here are expected to be complex and very sharp. One-month at-the-money implied volatility is at its lowest in just over a year (14.25%), suggesting aggressive selling by market makers.

GBP/USD

Chart Levels:

Support 1.6100..1.6000..1.5800..1.5700.

Resistance 1.6400..1.6600..1.6745..1.7045.

Dreary, messy and increasingly top-heavy as the pound lost ground against all major currencies last week. While below the flat top of a massive weekly Ichimoku ‘cloud’ we shall have to allow for a lot more consolidation inside it. While trendline support has limited declines for many weeks, the formation since June looks increasingly like an irregular ‘head-and-shoulders’ top. Therefore there is a strong chance first support will yield in thin markets this week setting off a sudden sharp drop to the 1.5575 area, and no lower than 1.5275. The drop should end suddenly, probably with a ‘spike low’. One-month at-the-money implied volatility should hold above 10.65% for quite some time to come.

EUR/GBP

Chart Levels:

Support 0.8900..0.8750..0.8635..0.8400.

Resistance 0.9085..0.9130..0.9340..0.9500.

Losing over three pence last week courtesy of bankers’ comments. Bursting above the top of a good-sized Ichimoku weekly ‘cloud’ and moving averages in the biggest weekly rally since March 2009. Not what we had expected, forcing us to review Sterling generally. There is a small chance that the top of the downward-sloping ‘channel’ will now limit this most recent rally. More worryingly the whole of the formation since October 2008 might be seen as a huge ‘flag’ –which is usually a continuation pattern. The implications are too awful to contemplate as a conservative measured target would be 1.0300 and a squeeze to 1.1000 a possibility. The authorities had better be very careful indeed for what they wish for.

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Published on  Mon, Sep 21 2009, 12:56 GMT