Monthly Technical Outlook
Nicole Elliott from Mizuho Corporate Bank at 02/01/10
Monthly Outlook for EUR
Comment: As feared, the Euro saw a second consecutive monthly decline as prices move into the gap which has opened up in the weekly Ichimoku ‘cloud’ chart. It has now retraced almost half of last year’s gains, in the process becoming as oversold as it was in September 2008, though bearish momentum is only half of October 2008’s record. We now expect it to try and stabilise this month, rallying back up to the 1.4200/1.4300 area by mid-March.
A weekly close below 1.3700 would force us to adjust and review.
Comment: Very difficult to get up any enthusiasm for Cable which has traded roughly between 1.5800 and 1.6800 for eight consecutive months. All this time it has held above 38% Fibonacci retracement support, though this week it has dropped below the bottom edge of the weekly Ichimoku ‘cloud’ because this has been rising at over a 45 degree angle since November. The ‘cloud’ has at last thinned dramatically, something we suggest might allow sterling to rally imminently. Watch for signs of forming another interim base this month prior to a rally back up to 1.6800 hopefully within eight weeks.
A weekly close below 1.5600 would force us to adjust and below 1.5200 to review.
Comment: As predicted the blip above Fibonacci 50% retracement resistance proved to be an ‘extension’ after the weekly close was well within channel resistance. Prices retreated from this point which now looks like another in the series of lower highs that has dominated since April. All aspects of the weekly Ichimoku ‘cloud’ chart suggest a short USD position against the Yen so we favour a drop to 88.50/88.00 this month. We remind that key support lies between 87.00 and 85.00 and that the authorities are likely to defend this area vigorously. We shall allow for repeated downside tests of this band through to the end of March at the very least.
A weekly close above 93.00 would cause us to review.
Comment: Moving a little faster than hoped as the cross drops below the flat bottom edge of a very thin weekly Ichimoku ‘cloud’. At the moment the dip below February 2009’s low at 0.8647 (to a low at 0.8603) is seen as an ‘extension/false break’ and prices should hold above here this month. We have corrected the oversold situation but note that bearish momentum remains surprisingly strong. Some time very late in Q1 or Q2 we favour a re-test of pivotal support at 0.8400.
A weekly close above 0.9100 would force us to review.
Comment: At last! The lowest weekly close since March, below 50% Fibonacci support and the psychological 125.00 level. Chart patterns in other yen crosses are not as clear but all show three consecutive weekly declines and some have broken decent support (BRL/JPY leading the way, down 10.65% last month). The Euro is oversold but then bearish momentum is at its strongest in a year. Over the coming month we expect all yen crosses to push each other lower, gathering momentum along the way, despite the authorities’ attempts at stemming the flow. The downside is probably more limited in EUR/JPY, probably around 118.00/116.00 towards the end of March; others have further to go.
A weekly close above 130.00 forces us to adjust.
Comment: Little to add as we continue to trade sideways in a broad band between 139.00 and the 26-week moving average at 151.00 – five months and counting. This is to be expected after the ‘double top’ at 163.00 last summer, and perhaps downside pressure will increase now that we are trading below the weekly Ichimoku ‘cloud’. This is another yen cross that probably has less downside potential as compared to some of last year’s favourite currencies. Expect a drop to 136.00 within the next six/eight weeks.
A weekly close above 151.00 forces us to review.
