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Monthly Technical Outlook

Nicole Elliott from Mizuho Corporate Bank at 10/12/09


Monthly Outlook for EUR

Comment: Last month the Euro squeezed higher, as expected, and is now due a short period of consolidation in the 1.4600/1.4800 area, though an extension to the psychological 1.5000 level cannot be ruled out. More importantly, declines are seen as medium and long term buying opportunities for an even weaker US dollar later this year. Dips might be limited to the nine-week moving average at 1.4443 which also happens to be the first Fibonacci support.

A weekly close below 1.4200 would force us to adjust.

Monthly Outlook for GBP

Comment: Cable continues to struggle under the top of the most enormous weekly Ichimoku ‘cloud’ and has now dropped below the ‘neckline’ of a potential ‘head-and-shoulders’ top. The Technical picture is very mixed indeed and the most likely scenario is that prices muddle through to form a very large ‘rectangle’ over the next month or two. Therefore the measured downside target from the topping pattern may not be reached as long term Fibonacci support stems declines. We favour at least a month’s worth of erratic moves with dips unlikely below 1.5275 and rallies probably capped at 1.6255.

A weekly close below 1.5200 forces us to review.

Monthly Outlook for JPY

Comment: The very long, medium and short term trends are to a lower dollar/yen exchange rate. The question now is whether we will re-test this year’s low at 87.10 this month or later this quarter and, after that, how much lower might we go. The pace of the move is likely to determine how low and for how long the move persists. The faster the move, the sooner we meet target, and the greater the subsequent bounce. At the moment we estimate that chances of a test of the critical the 87.00/85.00 watershed this month are 50:50 or less; the chance of a break below 85.00 within the month at negligible. Therefore the most likely scenario this month is for a series of random moves between 87.00 and 92.00. Then down again next month.

A weekly close above 92.55 would force us to review.

Monthly Outlook for EUR/GBP

Comment: Not going according to plan as Sterling loses up to 9.00% of its value in just one month, weakening against every single major currency on central bankers’ comments. The jury is still out as to whether the rally to 0.9305, above the top of the large potential ‘flag’ formation, is a ‘spike high’ and ‘extension’ or whether this is the start of something much bigger. Being eternal optimists we are currently hoping that it will be the former, and that we are now due a broad sideways move roughly between 0.8800 and 0.9200. However, note that the longer we hold above the top of the ‘channel’ the greater the risk for a serious rally where the minimum measured target of the extremely large continuation ‘flag’ is 1.0300.

A weekly close above 0.9400 suggests a burst through parity is imminent.

Monthly Outlook for EUR/JPY

Comment: Many yen crosses have retreated from this year’s highs while still holding inside the very broad bands that have dominated since November. EUR/JPY is currently testing the ‘neckline’ of a slightly irregular ‘head-and-shoulders’ top that has defined the upper half and has held since April (roughly 126.00 to 138.00). It could hover unsteadily around here for up to three weeks. A weekly close below this line, or better a weekly close below 127.50, should add to bearish momentum and turn the moving averages bearish. Later this year it should slide sharply to 118.00.

A weekly close clearly above 135.00 forces us to review.

Monthly Outlook for GBP/JPY

Comment: This Yen cross declined slightly faster than we had expected and last week formed a little ‘doji’ candle just under the very large, flat-topped Ichimoku ‘cloud’. This hints at indecision, something supported by the moving averages which have yet to cross over. Expect a little sideways work for at least a week. Further out we favour a break to new recent lows so that the cross moves towards 130.00.

A weekly close above 150.00 forces us to review.

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