USD/JPY
Chart Levels:
Support 90.87..90.00..89.00..88.50.
Resistance 92.00..92.50..93.10..94.65
Support around 88.50 has given the dollar a boost, turning momentum bullish and pushing prices above the 26-day moving average at 90.87. If we can hold above here today upside pressure should increase further for a squeeze up towards 94.00 around month-end. Note that a brief squeeze to 98.00 some time in H1 2009 cannot be ruled out. While this takes place the tendency will be for the Yen to loose ground against a host of other major currencies, taking Yen crosses higher, probably to the surprise of many who are still calling for de-leveraging causing a stronger Yen. One-month at-the-money implied volatility remains relatively high at 17.50% and should hold between 14.00% and 22.00% for a few more weeks.
EUR/USD
Chart Levels:
Support 1.2800..1.2700..1.2650..1.2550.
Resistance 1.3000..1.3100..1.3200..1.3400.
Such slow work but we still view price action as an attempt to try and base around 1.2800 and Fibonacci 78.6% retracement support. Since early January we also have a potential downward-sloping ‘wedge’ formation which is a difficult reversal pattern. A sustained break above the top of this, around 1.3100, would add some much-needed weight to our argument. This would mean that the Euro may catch up a little with what Cable has already done and would help lift Yen crosses too. One-month at-the-money implied volatility remains relatively high at 18.00% and will probably trade around 20.00% for another month. In fact FX volatility is likely to remain relatively high in many currencies for another three months.
EUR/JPY
Chart Levels:
Support 117.00..114.00..113.60..112.00.
Resistance 120.30..121.00..122.35..125.00
Hauling itself off the lower edge of the band that has been in place since October, in turn the lowest level since 2002. The latest bounce has been limited by the 26-day average at 120.32 and possibly the cross will hold below here all week. Later this month we expect it to move to new recent highs. Remember: 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%. A break above the mid-point of the range since October at 122.35 within a fortnight remains doubtful, but this should see some short-covering taking up back up towards 130.00. Consensus opinion is not this way round.
GBP/JPY
Chart Levels:
Support 133.50..130.00..126.50..119.00.
Resistance 137.35..139.25..141.55..146.50.
Leading Yen crosses higher, now trading above the top of the downward-sloping ‘wedge’ formation, so that the drop to a record low at 119.00 looks increasingly like an ‘extension’. The large Ichimoku ‘cloud’ prevented a weekly close above 136.00, and until then we are not out of the woods. A break above January’s high at 141.55 should also set off another round of short-covering. Therefore one-month at-the-money implied volatility should remain above 20.00% for many more weeks. Having suffered the worst ever three consecutive monthly falls, there is plenty of scope to undo the damage done, leading many to re-think the relative merits of the two countries. Few will be tempted back into the ‘carry trade’ though.
GBP/USD
Chart Levels:
Support 1.4550..1.4350..1.4050..1.3500.
Resistance 1.4890..1.5000..1.5375..1.5500.
Back up to the top of the downward-sloping ‘wedge’ formation, stalling at a relatively large Ichimoku ‘cloud’, 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. Cable is no longer oversold, bearish momentum is now zero, and should turn bullish on last week’s close above 1.4500. Another clear-out is likely on a sustained break above 1.5500. Because volatility has been so extreme over the last month a squeeze up to here by the end of February is a distinct possibility. Note that open interest is still half of last year’s peak suggesting many have given up speculating in this pair.
EUR/GBP
Chart Levels:
Support 0.8663..0.8575..0.8500..0.8333.
Resistance 0.8800..0.8850..0.8930..0.9100.
Dropping below retracement support and the lower edge of the Ichimoku ‘cloud’ rather sooner than expected. This suggests more unwinding this week and were we to hold below the ‘cloud’ and the 0.8850 area bearish momentum should match January’s record even though the Euro is already very oversold. Note that on the Bank of England’s Trade Weighted index it is hauling itself up from December’s record low and still has masses of room for improvement. 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 21.50%.
