Tuesday, September 29, 2009

Weekly Technical Commentary

USD/JPY

Chart Levels:

Support 88.60..88.00..87.00..86.65.
Resistance 89.75..90.00..91.35..92.55

This week: ↘
This month: ↘

One of the lowest weekly closes this year sent the dollar tumbling against the Yen in Asia this morning. This month we expect a test of the 87.00 area, a level that held miraculously in December and again in January. The bounce from today's low at 88.23 is impressive, but unlikely to stem the flow for more than a week (and maybe not even for the rest of the day). Over the coming month we continue to favour a series of cautious downside tests of key support between 87.00 and 1995's 85.00 (below which it spiked to a low 79.75 over a three month period). A baptism by fire for the incoming regime and an unwelcome headache to add to a long list of woes. Note this is a Yen move as crosses also look set for a drop.

EUR/USD

Chart Levels:

Support 1.4550..1.4500..1.4400..1.4290.
Resistance 1.4700..1.4768..1.4845..1.4900.

This week: →
This month:

Last week's 'doji' suggests some instability at current levels and the need for consolidation. Therefore allow for corrective work under 1.4845, possibly down to the nine-week moving average at 1.4443, this week and maybe the following one also. One-month at-the-money implied volatility is still trying to base against the 10.00% level, and should eventually pick up towards 16.00% over the coming month or two. A weekly close clearly above 1.4700 is needed to increase upside pressure resulting in another round of generalised US dollar weakness. Note that the weekly Ichimoku 'cloud' has a flat top until the end of this year so will not help the Euro higher. However, the nine-week moving average has nudged it up since May.

GBP/USD

Chart Levels:

Support 1.5770..1.5685..1.5500..1.5260.
Resistance 1.6000..1.6235..1.6400..1.6500.

This week: →
This month: ↗

Breaking below the 'neckline' of an irregular 'head-and-shoulders' top, dropping towards the 26-week moving average and 38% Fibonacci support. We shall continue to allow for a sudden sharp drop to the 1.5575 area, and no lower than 1.5275. The drop should end suddenly, probably with a 'spike low'. Note that this corrective move lower should will be difficult to trade and will eventually see a resumption of what we feel is the long term trend to a higher Cable. Because the weekly Ichimoku 'cloud' is so very large we could easily hold inside here until year-end. One-month at-the-money implied volatility rallied from 10.65% and should move on up to 14.50%. Good futures volume Thursday and Friday suggest much speculating.

EUR/GBP

Chart Levels:

Support 0.9190..0.9040..0.8955..0.8880.
Resistance 0.9304..0.9340..0.9430..0.9500.

This week: →
This month: →

Higher again, trading above the top of a good-sized weekly Ichimoku 'cloud' as moving averages cross to bullish. The highest close since March 2009 and above a potential enormous 'flag' – which is usually a continuation pattern. The implications are too awful to contemplate as conservative measured targets from this pattern would be 1.0300 and a squeeze to 1.1000 a possibility. Hard to swallow, yes, but when the central bank governor starts talking down his currency who knows what might happen next. The only ray of hope for those holding pounds is that the weekly Ichimoku 'cloud' drops from mid-November and becomes nothing early February 2010. Cold comfort, indeed.

EUR/JPY

Chart Levels:

Support 129.84..129.00..128.00..127.00.
Resistance 131.85..133.00..134.40..135.50

This week: ↘
This month: ↘

Over the last month all currencies have lost ground against the Yen. After trying the upside three times since April, failing in the 138.00 area, the EUR/JPY chart now has a potential 'triple top' or poor 'head-and-shoulders' pattern. Testing trendline/neckline support this morning, ahead of the pivotal 128.00 area. A weekly close below here targets the bottom of the very large flat-topped Ichimoku 'cloud' and then more. Investors should allow for a move back down to 115.00 and possibly the all-time low at 112.08 January this year. Note that very long term prices are expected to trade broadly sideways for another six months, so that a dip below 112.00 (if at all) should be brief; picking interim highs and lows still a difficult task.

GBP/JPY

Chart Levels:

Support 141.00..139.75..139.00..138.00.
Resistance 143.00..146.60..148.65..151.40

This week: ↘
This month: ↘

Sterling lost 6.7% against the Yen this month weakening across the board. Here, the 'double top' at 162.50 led to a break below the huge weekly Ichimoku 'cloud'. Moving averages have yet to turn bearish but should do so on a close below 140.00. Our measured target remains at 130.00. Below 129.00 on a first attempt is considered highly unlikely, though note that moves below here are likely to be complex and very sharp. We cannot rule out a re-test of the all-time low at 118.80 of January this year because we expect protracted and complex downside testing over many months. One-month at-the-money implied volatility has rallied strongly from a low at 12.85% suggesting short-covering by overly aggressive market makers.

Mizuho Corporate Bank

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