USD/JPY
Chart Levels:
Support 88.00..87.10..86.10..85.00.
Resistance 90.00..91.33..92.00..94.65
A potential ‘double bottom’ at 87.10, complete with a massive ‘hammer’ on the 21st, yet momentum remains decidedly bearish. Therefore we shall during February allow for another cautious downside probe towards 85.00. Nervous authorities will probably be tempted to talk the Yen weaker as we approach this point. They might actually intervene as the Yen is very strong against a raft of other currencies. As for the upside, prices should initially be capped around 94.00 but a brief squeeze to 98.00 cannot be ruled out. One-month at-the-money implied volatility remains relatively high at 17.00% and should hold between 14.00% and 21.00% for another several weeks. Jitters in all financial markets could lead to ‘false breaks’.
EUR/USD
Chart Levels:
Support 1.2800..1.2764..1.2650..1.2550.
Resistance 1.3100..1.3200..1.3300..1.3400.
Hovering unsteadily against 75% retracement support of December’s rally. We had hoped for a break higher last week because of the very thin Ichimoku ‘cloud’. One-month at-the-money implied volatility remains relatively high and will probably trade around 20.00% for another month. Weak Eurozone countries are seeing their bonds shot to pieces, spreads on ‘PIGS’ ten-year government bonds at new records: Portugal 159 basis points over Bunds, Ireland 289, Greece 297 and Spain 124 – and Italy 171. EU27 countries outside the Eurozone, including sterling, have seen their currencies sold heavily against the Euro, the Hungarian forint at its weakest ever at 291.50 and the Polish zloty its weakest since August 2004.
EUR/JPY
Chart Levels:
Support 113.50..112.00..111.30..110.00.
Resistance 117.25..119.75..122.20..126.00
Over the next three months, while not being able to completely rule out a very brief dip to new recent lows, we favour a market that will move broadly sideways, here and in nearly all other Yen crosses. The ones that have been hardest hit most recently are the ones likely to bounce first, and furthest. Price swings could be big as we establish this new broad trading band and therefore one-month at-the-money implied volatility should remain relatively high, say between 18.00% and 32.00%. This week expect the Euro to try to base slowly against the 114.00 area, moving slowly higher over the coming month. A break above the mid-point of the range since October at 122.35 within a fortnight remains doubtful.
GBP/JPY
Chart Levels:
Support 121.00..119.00..117.50..115.00.
Resistance 125.00..126.00..130.00..135.8 5.
Dropping to a new record low at 119.00, well below the bottom of the downward-sloping ‘wedge’ formation. Not surprisingly one-month at-the-money implied volatility is on its way up again, at 35.00%, though still below last year’s record high at 44.25%. We expect this to stay above 20.00% for many more weeks. This suggests that over the next month, maybe the next three, we are in for a period of sharp swings in what might be a massive trading band. Therefore last week’s move might turn out to be an ‘extension’ and we feel that over the next two weeks prices should recover somewhat and try and start holding above the psychological level at 125.00. Note: 1985’s previous record low was 128.20.
GBP/USD
Chart Levels:
Support 1.3620..1.3500..1.3380..1.3000.
Resistance 1.4030..1.4440..1.5000..1.5375.
Plummeting to 1.3500, its lowest since the Plaza Accord of the 22nd September 1985. This is well below the long term mean at 1.6400 and below here Cable only traded for 12 months, a period of extreme FX volatility and extreme USD strength because of interest rate policy. One-month at-the-money implied volatility is holding above 18.00% and is moving towards the 28.00% area as expected. Similar moves, with a similar feel, can be seen in other currencies that were hard hit last year like the Australian and New Zealand dollars, and a version of this pattern can be seen on several Yen crosses. Cable open interest is half of last year’s peak suggesting many have avoided speculating in this tarnished currency.
EUR/GBP
Chart Levels:
Support 0.9250..0.9065..0.8960..0.8830.
Resistance 0.9520..0.9555..0.9650..0.9805.
Another big move last week, this time a rally caused by the pound’s weakness. Media and investors’ focus has been on Cable, but it is worth noting that month-to-date Sterling has neither been the worst nor the best performing currency, but just about in the middle of the range of most major currencies. However, on the Bank of England’s Trade Weighted index it is scraping along at the bottom after hitting its weakest ever in December. We expect the bounce to stop at or just ahead of 0.9600 so that we drop back towards 0.8800 in February. We shall continue to plan for extreme volatility and price long-dated options accordingly, one-month at-the-money implied volatility holding above 14.00% for several more months.
