USD/JPY
Chart Levels:
Support 88.00..87.10..86.10..85.00.
Resistance 90.79..91.33..92.00..94.65
Hovering unsteadily between 88.00 and 91.00, above a potential ‘double bottom’ at 87.10, and below a fairly thick Ichimoku ‘cloud’. During February we shall continue to 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 some time in H1 2009 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 a few more weeks.
EUR/USD
Chart Levels:
Support 1.2700..1.2650..1.2550..1.2425.
Resistance 1.3000..1.3200..1.3300..1.3400.
Dipping below the 78.6% retracement support of December’s rally and one-month at-the-money implied volatility remains relatively high, and will probably trade around 20.00% for another month. During January the Euro has lost ground against all major currencies, the only exceptions being the New Zealand dollar and Eastern European currencies. Stock indices are testing key support and look set to break lower this month. Rigidities in the system will become ever more apparent as financial markets edge closer to meltdown. Faith in the authorities will be seriously tested and few will know what has hit them, let alone how to respond. ‘Each man for himself’ is our motto.
EUR/JPY
Chart Levels:
Support 113.00..112.00..111.30..110.00.
Resistance 115.25..116.75..119.60..121.00
Re-testing the lower edge of the band that has been in place since October, only the New Zealand dollar putting on a worse performance. We shall allow for cautious downside testing this week, and while we might get tiny and brief moves below 112.00, we expect the range to hold. Once back inside the 112.00 to 130.00 band, price swings could be big 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 113.00 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 126.00..124.75..122.00..119.00.
Resistance 130.70..133.00..135.85..139.25.
Back inside the downward-sloping ‘wedge’ formation so that the drop to a record low at 119.00 looks increasingly like an ‘extension’. Until we get a weekly close above 136.00 we are not out of the woods though, so expect a series of nervous price swings over the coming month or two. Therefore one-month at-the-money implied volatility should remain high, though still below last year’s record high at 44.25%. We expect this to stay above 20.00% for many more weeks. Sterling is no longer oversold and bearish momentum has totally disappeared. Having suffered the worst ever three consecutive monthly falls, there is plenty of scope to undo the damage done.
GBP/USD
Chart Levels:
Support 1.4185..1.4070..1.3550..1.3500.
Resistance 1.4530..1.4890..1.5000..1.5375.
Back inside the downward-sloping ‘wedge’ formation with precious little help from any other currencies. This adds weight to our view that the drop to 1.3500 was an ‘extension’ caused by over-excitable (probably novice) dealers. One-month at-the-money implied volatility is holding above 18.00% and should move towards the 28.00% area. Cable is no longer oversold though momentum remains decidedly bearish (if a little less extreme). Futures open interest is half of last year’s peak suggesting many have avoided speculating in this tarnished currency. Now we shall have to wait for a weekly close above 1.4500 to see momentum turn bullish and trigger a second round of short-covering.
EUR/GBP
Chart Levels:
Support 0.8840..0.8800..0.8725..0.8575.
Resistance 0.9050..0.9130..0.9200..0.9520.
After dropping for five consecutive days today’s bounce from retracement support at the lower edge of the Ichimoku ‘cloud’ should not come as a surprise. The ‘cloud’ is very thick at the moment but narrows considerably in March. Expect hesitation here today and probably all week, maybe longer, prior to a drop to the 0.8550 area. Note that on the Bank of England’s Trade Weighted index it is scraping along at the bottom after hitting its weakest ever in December. 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, possibly pushing above the record high at 20.55% established in November.
