Monthly Technical Outlook
Nicole Elliott from Mizuho Corporate Bank at 12/01/09
Monthly Outlook for EUR
Comment: The Euro held up better than expected last month, the US dollar under constant pressure, and has just managed weekly and monthly closes above the psychological 1.5000 level. This might add some bullish momentum for a short-squeeze into year-end, so allow for a rally to an area of poorly defined resistance between 1.5145 and 1.5465. During Q1 2010 prices should retreat a little and consolidate but note that we consider the long term trend to be one of generalised US dollar weakness with a re-test of the all-time high at 1.6040 in sight.
A weekly close below 1.4800 would force us to adjust and one below 1.4550 to review.
Comment: Cable remains trapped between first Fibonacci support and the top of a massive Ichimoku ‘cloud’, losing bullish momentum in the process. This situation is unlikely to persist for much longer and we favour a break higher in thin December markets. Allow for a break above this year’s high at 1.7044 for a squeeze to 1.7500, before pulling back again and consolidating early in Q1 2010. Only when it can comfortably hold above 1.7500 is the next leg higher due, for a push to the next target around 1.8000.
A weekly close below 1.5600 would force us to adjust and below 1.5200 to review.
Comment: In the last week of November we got the first test of critical support between 87.00 and 85.00 (low 84.82), followed by a sizeable bounce. This process should continue this month, as always coupled with the threat of interference by the authorities. Today’s Bank of Japan emergency meeting and increased Quantative Easing a case in point, which unfortunately merely showed just how empty the tool cupboard is and how disappointing the results twenty years after the asset bubble ‘burst’ (deflated really). Through to year-end, amid generalised US dollar weakness, the Yen is expected to outperform other currencies so that Yen crosses drop towards January’s lows. If we are correct then USD/JPY will see a series of lower highs between now and March 2010, and lower lows, taking it down to 83.00 and probably the all-time low of 79.75 some time in Q1.
A weekly close above 90.00 would force us to adjust while one above 92.35 forces a review.
Comment: The bounce from November’s low at 0.8833 has seen bearish pressure ease significantly but has not altered the Technical picture. It does however suggest that during much of December prices will consolidate between 0.8800/0.8750 and 0.9150/0.9200. Because the horizontal base of the weekly Ichimoku ‘cloud’ becomes very thin in February, a break below it is more likely then, for a drop back down to re-test pivotal ultra-long term support at 0.8400.
A weekly close above 0.9300 would force us to review.
Comment: Moves in the Yen crosses have been incredibly slow this year, partly as a result of stimulus packages. EUR/JPY formed a ‘quadruple top’ against important resistance around 138.00 but has yet to break decisively lower, completing this formation. A weekly close below 127.50 this month should trigger a sharp slide to 118.00, at which point we would expect lengthy consolidation throughout Q1 2010.
A weekly close clearly above 135.00 forces us to review.
Comment: Leading the way down, this Yen cross has been better behaved than most, re-testing the 139.00 area as expected. This month we continue to favour a break to new recent lows so that the cross moves towards 130.00 around year-end. After that, unlike others which should move broadly sideways, this one could bounce quite considerably as it pulls away from this year’s all-time low at 118.80, up towards 145.00.
A weekly close above 150.00 forces us to review.
