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GBP: As feared in our last quarterly report, price action since Junemorphed into one huge ‘rectangle'

Nicole Elliott from Mizuho Corporate Bank at 01/06/10


Quarterly Outlook for EUR

Comment: Having spent Q4 in our predicted range roughly between 1.4400 and 1.5100, the Euro dropped to 1.4200 on almost record futures volume during the middle two weeks of December. This suggests stale longs bailing out and so it should now base against the 200-day moving average at 1.4250. While contained so far, until the end of this month the risk of a very large ‘spike low’ remains because of the rapidly narrowing Ichimoku ‘cloud’. During February and March the Euro should rally smartly, pushed up by the rising and very large weekly Ichimoku ‘cloud’, to re-test the psychological area at 1.5000 and last year’s high at 1.5145.

A weekly close below 1.3900 forces us to adjust and maybe review.

Quarterly Outlook for GBP

Comment: As feared in our last quarterly report, price action since Junemorphed into one huge ‘rectangle’. Record futures volume for the week of December’s expiry suggests very tired longs bailed out. Hopefully things will get a little more interesting as the massive weekly Ichimoku ‘cloud’ thins sharply by mid-February. This will hopefully free up the top side so that we eventually start holding above 1.6800 and re-test last year’s high at 1.7045.

A weekly close below 1.5700 forces us to adjust.

Quarterly Outlook for JPY

Comment: Q4 2009 has, at last, seen a test of key support between January 2009’s low at 87.10 and key 85.00 (low 84.82 in November), accompanied by the verbal intervention we had warned about. The subsequent bounce, while a lot bigger than we had allowed for, is still clearly corrective and all elements on the weekly Ichimoku chart point to a short position. Last week’s close just above channel resistance is seen as an ‘extension’ and ‘false break’ in terribly thin market conditions. Therefore we feel a new interim high should build early this month, followed by repeated if erratic downside probing until the end of March. We still favour generalised US dollar weakness, the Yen one of the best performers. A sudden slide to the all-time low at 79.75 of April 1995 should not be ruled out in Q2. As is always the case of the Yen when trading at extremes, the authorities will be only too ready to interfere.

A weekly close above 95.00 postpones all of the above and we would probably have to adjust significantly.

Quarterly Outlook for EUR/GBP

Comment: From a ‘spike high’ and ‘false break’ at 0.9413 in October, prices have edged neatly lower thus keeping inside a massive ‘flag’ formation (or possibly a ‘channel’). We continue to expect a slow drift back down to 0.8800 and the bottom of a very flat Ichimoku ‘cloud’ at 0.8750 this month. Very late this quarter we shall allow for another slow dip to pivotal support around 0.8400, though judging by the snail’s pace of the last three months this is more likely towards the end of Q2.

A weekly close above 0.9300 would force us to review.

Quarterly Outlook for EUR/JPY

Comment: At the risk of trying our readers’ patience even further, we shall repeat out view on Yen crosses. These are in a very slow topping process (though to many it may look more like a sideways creep) and we expect them to trade lower this year. A weekly close below 127.00 should set off a cautious downside test to 120.00 and maybe 116.00.

A weekly close above 138.00 would force us to review.

Quarterly Outlook for GBP/JPY

Comment: Moving at a glacial pace but at least it’s in the right direction. Over the last three months this cross consolidated at a slightly lower level, below Q3’s ‘double top’ at 163.00. The pair now looks set to trade below the lower edge of the weekly Ichimoku ‘cloud’, something which might increase bearish momentum, allowing it to drop to the next area of potential consolidation at 135.00 (Fibonacci 61% retracement) Though unlikely until Q2, we shall not rule out a move as low as 130.00 where a very lengthy and tortuous basing process ought to start.

A weekly close above 152.00 forces us to review and postpones any potential downside test significantly.

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