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The EURJPY is moving above 136.10 resistance

Per-Erik Karlsson from Avantage Financial GMBH at 10/23/09


Market comment

Several stocks made reversal type of price action yesterday, making a new highs early in the session and falling back heavily in late trading to close below the previous day’s low. This is certainly not bullish looking price action and S&P 500 futures are below 1075 (former break out level) this morning. A daily close below this 1075 level would open for a correction lower, so we are monitoring the S&P closely over the next few sessions to see the response towards 1070 to 1075 support area.
What has been the characteristics of the last 3 months or so is that all weakness have been very short lived and at some stage the correction will be stronger than the mini corrections so far seen, but will it happens this time, we have no clue, watc Beige Book out yesterday was quite negative in our eyes and did not paint the same positive picture that the stock market is pricing in. Seems to be a wide range of opinions on the recovery prospects, but to us the most optimistic view is the stocks market pricing. We think the recovery will be much slower than what is priced in at the moment. We have spotted several weakness signals in Gold chart over the last week and it is trading within a tight range, so we are looking for a break to the downside to go short. JPY continues to be sold off as the yields on the treasuries have been rising and widening the gap towards Japan, meaning that JPY is getting more attractive as a funding currency. We have been looking for JPY weakness for some time and finally, our risk appetite parameter, the EURJPY is moving above 136.10 resistance, which is opening up for a test of 139 to 140 area. GBP has been all over the board last few days, with bullish BoE minutes sending the GBP through the roof yesterday, but weaker than expected UK retail sales this morning saw GBP fall quite a bit on the release. While above the 1.6470 support level in GBPUSD, the outlook for GBP remains positive. EURUSD above 1.50 overnight, but no real follow through so far and the reported stops was either just rumors or they were absorbed by “smart money”, meaning “smart money” went short EURUSD when the buy stops got triggered. Price action over the next few days will give us the answer. A note of caution on EURUSD though, the trade starts to look very crowded and we would not be surprised to see a correction at some stage over the next week to shake out weak longs, which would most likely pressure Gold as well. Crude showing some weakness as well over the last few sessions and we are not looking for a short setup in Crude. The DOE inventory numbers were not really that bullish yesterday and the move looks overdone and very much based on the Euro strength and cannot be demand driven as there is more than enough supply of Crude in the market at the moment. NAT Gas looks very strong in our opinion after the successful test of 4.33 support last week and back above 5 level this morning. As noted yesterday Nat Gas looks positive for another run at the 5.10 level and a break above 5.10 would target 5.20 (Dec 08 low).
Looking at the chart the key resistance area in Nat Gas futures is now all the way up at 6.24 (Jan 09 high). Wheat is approaching the level that we are interested to start looking for a potential short position, namely 558 (50% retracement of the recent decline). Still uncertainties about how much damage the recent cold weather have done to the crops, but would not be surprised if the damage is much less than feared. What is clear though is that the harvest is way behind schedule, which is giving fuel to the rally. NZD continues to perform strongly, but we think NZD is overvalued compared to the out and we are favoring shorts vs. a basket of currencies, but maybe not USD just yet as the pace of the selloff in USD still looks strong.

Some interesting news stories:


Euro: No clear break out above 1.50 as we were looking for, still bullish above 1.4920 with next resistance level now up at 1.5284.

Cable: Bullish reversal after hitting 1.5720 (Dec 08 high) support Tuesday last week, which is basically very bullish development. Next target is now for a run back towards the top of the recent range up at 1.6740.

USDJPY: 88.00 is key support and while above this level we are looking for a move back toward the 93 level and. The rising treasury yield is leading to a selloff in JPY as it becomes more attractive as a funding currency. We expect this to continue and looking for weaker JPY throughout the rest of 2009.

Swissy: Broke below 1.02, looking for parity next.

AUDUSD: Been trading inside a well defined trend channel since start of July and now testing the very top of this channel with resistance at 0.93, with more at 0.9328 (June 08 low) and key resistance is 0.95. Bullish momentum intact above 0.9180 support.

USDCAD: Crazy price action over the last 48 hours, with BoC interest rate statement sending CAD into a freefall, but then the rally in Crude saw it make a big comeback yesterday. Still we expect the signal from BoC out yesterday to be dominant going forward and we have now stepped away from our bullish view on CAD to a more neutral stance.

EURJPY: Break above 136.09 opens for a test of key resistance up at 138.72 and we look for a test of this level over the next weeks.

GBPJPY: Huge rally last few days and break above the 144.54 key resistance last week have now turned this pair bullish. The next resistance level is 152 followed by 153.26 (September 09 high).

AUDJPY: Looking for a test of 85 next.


Our outlook
PairOur strategy TodayOur medium term forecast
EUROLooking for a test of 1.50Our 1.50 year-end target reached
CableBullish above 1.6470 and looking for 1.6750Negative on both GBP and USD
USDJPYBullish above 88 and looking for test of 92.50 resistance near termweaker JPY, 100 or higher by year end
USDCADStand asideReached our target of 1.0350
EURJPYLooking for a test of 138.72140 level within 3 months
AUDJPYLooking for 85 after break of 84 FridayLooking for a test of 85 within 2 months
GBPJPYBullish above 150.30 and next target is 153Target reached, increasing target to 153 within 1 month
AUDUSDKey resistance at 93, expect it to break above this level this week95 within 4 weeks

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