USD/JPY
Chart Levels:
Support 93.75..92.75..92.00..91.00.
Resistance 95.00..95.65..97.55..99.50
No doubt to the surprise of many, dollar/Yen has squeezed up through the Ichimoku ‘cloud’ and just now through January’s high at 94.65. This might turn out to be an ‘extension’ and later it will consolidate below here for a week or two. However, depending on how much momentum is generated by the other Yen crosses we shall have to allow for a sustained burst through here some time in March. Note that a brief squeeze up as high as 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. One or two exceptions as some emerging market currencies come under increasing pressure.
EUR/USD
Chart Levels:
Support 1.2700..1.2650..1.2500..1.2425.
Resistance 1.3000..1.3100..1.3200..1.3400.
Last week’s ‘hammer’ gives us hope that the five consecutive weeks’ worth of cautious downside probing of the downward-sloping ‘wedge’ formation might have ended. 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 18.50% and will probably trade around 20.00% for another month. Note that we currently favour the Swiss franc and Sterling over the Euro, while several emerging markets currencies are still very vulnerable to another onslaught of selling. FX markets very jittery.
EUR/JPY
Chart Levels:
Support 119.00..117.00..115.65..114.00.
Resistance 122.35..125.00..126.25..128.55
At last moving back towards the middle of the band that has been in place since October. Note the very thin Ichimoku ‘cloud’ should not pose too much of a problem so that late in March we should be closer to the top of the band around 130.00. The 9-day moving average has crossed above the 26-day one adding weight to our view. A break above the mid-point of the range since October, roughly at 122.35 might be too much to hope for this week, but in March this should see some short-covering taking up back up towards 130.00. Consensus opinion is not this way round and is likely to find many once again incorrectly positioned. The one exception is KRW/JPY which dropped to a new recent low.
GBP/JPY
Chart Levels:
Support 133.00..129.00..127.00..125.25.
Resistance 139.00..141.55..147.00..148.50.
Bursting through trendline resistance exactly at the point where the Ichimoku ‘cloud’ becomes very thin. Price action since mid-December might also be seen as an inverse ‘head-and-shoulders’ pattern the ‘head’ being the drop to the record low at 119.00. Momentum has turned bullish and a break above January’s high at 141.55 should set off another round of short-covering where we currently favour a squeeze to 147.00 in March. If anything though because declines in Q4 2008 were so very extreme this currency pair is likely to exceed expectations on the way up as well. Therefore one-month at-the-money implied volatility should remain above 20.00% for several more weeks.
GBP/USD
Chart Levels:
Support 1.4365..1.4140..1.4050..1.3620.
Resistance 1.4700..1.4900..1.5000..1.5375.
Holding up better than many currencies as some are coming round to the idea that this one is at least relatively ‘cheap’, if not ‘attractive’ in a realm of grim choices. Retracement support around 1.4050 held last week setting off today’s rally to trendline resistance and a rapidly thinning Ichimoku ‘cloud’. A break through here this week should allow follow-through to February’s high at 1.5000. Another clear-out is likely on a sustained break above 1.5500. One-month at-the-money implied volatility is still relatively high at 19.00% and as and when short-covering kicks in should edge back up to 25.00%. Note that this is the second month in a row that we have potential ‘dojis’ on the monthly candles suggesting extreme instability.
EUR/GBP
Chart Levels:
Support 0.8745..0.8635..0.8575..0.8500.
Resistance 0.8925..0.9085..0.9265..0.9520.
Some are now discussing Switzerland’s exposure to financial services and a downturn in these, thankfully taking the focus off the UK. Eastern Europe and its creditors look increasingly vulnerable too, ‘stones’ and ‘glasshouses’ springing to mind. We shall continue to allow for extreme volatility in the FX market especially in currency pairs that are trading at extremes. Price long-dated options accordingly, EUR/GBP one-month at-the-money implied volatility holding above 14.00% for several more months, possibly pushing above the record high at 21.50%. Price wise we feel this pair should drop back down to the February low at 0.8637 and then continue South towards 0.8500.
