USD/JPY
Chart Levels:
Support 97.00..96.55..95.65..94.45.
Resistance 98.75..99.69..100.00..100.55.
It might just be possible that we have formed an interim high at 99.69, but until we start holding consistently below the 97.00 area this has yet to be confirmed. Therefore the outlook for this week and possibly for the rest of this month is unclear. As we predict a series of broadly sideways moves for the bulk of this year, it will be the sort of problem we will have to face again and again, making work tedious. We also cannot rule out a very brief ‘spike high’ this month at 100.55 before a slide to 93.00. In this case one-month at-the-money implied volatility should creep back up to the 25.00% area. Note that open interest in the futures contract is running at about one quarter of the 2007 peak, evidence of unwinding the ‘carry trade’.
EUR/USD
Chart Levels:
Support 1.2835..1.2775..1.2700..1.2600.
Resistance 1.3000..1.3100..1.3385..1.3600.
Breaking above the top of the downward-sloping ‘wedge’ formation and momentum is now bullish. Hopeful signs that we are about to start trending higher but note the raft of resistance levels we shall have to overcome allthe way up. Therefore rallies will probably be a surprise to many, bringing with it the possibility of slightly higher implied volatility. Note that volume in the futures contract picked up steadily this year, suggesting a shift out of trading Yen crosses and into/against the US dollar versus the majors. Note that as is so often the case the currencies that were hardest hit in January and February are the ones that have performed best this month, South Korea and Sweden leading.
EUR/JPY
Chart Levels:
Support 125.50..121.70..120.00..119.50.
Resistance 127.65..128.55..129.70..131.00
Yen crosses are rallying towards the upper edges of bands that have held since October, as expected. Though maybe not this week some time this month we continue to target the top of the band around 130.00. Many are probably still wrongly positioned for this move as it is quite rare for a drop on the scale of the move of 2008 to come to such a sudden, unexpected, complete halt. While not exactly comparable currency moves during the Asia crisis of 1997/1998 were similar, with massive one-off moves and exchange rates not seen again subsequently. Though not our current favoured view, we shall also have to consider whether a serious retracement of last year’s drop is possible.GBP/JPY
Chart Levels:
Support 135.50..133.80..131.55..130.00.
Resistance 141.80..146.45..148.55..150.00.
Consolidating neatly above the Ichimoku ‘cloud’ and the ‘neckline’ of an inverted ‘head-and-shoulders’ pattern. Over the next three weeks we cannot rule out a re-test of the 130.00 area, followed by a slow move back up to increasingly important resistance around 141.50. Momentum is bullish and one-month at-the-money implied volatility should increase towards 30.00% this month. As and when this pair manages a weekly close above 141.50 we then favour another short-covering squeeze where the measured target is 165.00. A move on this scale is easily possible because of the massive declines last year, taking sterling to a record low at 119.00, as it came under extreme pressure against a series of other currencies.
GBP/USD
Chart Levels:
Support 1.3895..1.3655..1.3500..1.3380.
Resistance 1.4300..1.4660..1.5000..1.5375.
Slow work as we consolidate in an interminable, horrid, downward-sloping ‘wedge’ formation. Sterling bears may be disappointed that super long term support around 1.3500 held again and are probably confidently predicting an imminent break below here. We disagree and feel that this area will probably hold this year and that the danger is to the upside and a vicious short squeeze. Futures volume last week was better than of late, closer to the average for 2007 and 2008, suggesting at least some are maybe becoming overconfident in trading this currency pair. Note that on the Bank of England’s Trade Weighted basis sterling is still close to its weakest ever, having lost around 30% of its value over the last 18 months.
EUR/GBP
Chart Levels:
Support 0.9100..0.8860..0.8725..0.8635.
Resistance 0.9200..0.9320..0.9400..0.9520.
The latest corrective bounce extended beyond what we had thought, to a high at 0.9320 and the Euro to overbought levels, in a market that will probably be dominated by this sort of move (‘extensions’ and ‘spikes’) for the coming month or more. Ideally this week this currency pair should drift slowly lower, back down through 0.9100 and maybe as low as 0.9000 where more messy consolidation is likely. A sustained break below 0.8600 later in Q2 2009 should see the pair move slowly lower towards 0.8250. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. One-month at-the-money implied volatility should hold around 18.00%.
