Weekly Technical Commentary

Nicole Elliott from Mizuho Corporate Bank at 01/25/10

Chart Levels:

Support 90.00..89.70..89.30..88.00.

Resistance 91.00..91.90..92.35..93.78.

Retreating from ‘channel’ resistance, as expected, closing on Friday just under the first Fibonacci retracement support. Prices are holding between the 9-week and 26-week moving averages and might do so again this week as other currencies get to grips with changes in the first three weeks of this year. All other elements of the weekly ‘cloud’ chart suggest a short position, downside pressure probably increasing if we now hold below the 91.90 area. Allow for hesitation either side of 90.00 perhaps until month-end, prior to another concerted downside test of key support at 85.00 some time this quarter. Note that the US dollar is a very long way off being oversold having been overbought at the beginning of this month.

Chart Levels:

Support 1.4100..1.4000..1.3900..1.3800.

Resistance 1.4200..1.4300..1.4340..1.4400.

A ‘spike low’ against medium term Fibonacci retracement support and the top of the weekly Ichimoku ‘cloud’ gives us a little hope that the Euro will try and form a new interim low around here. Slightly worrying that the moving averages look set to cross to bearish though, so still a mixed picture. The other potential problem looming is that the ‘cloud’ becomes very thin this week which may explain this second step lower after having tried to base against the 1.4200 area. Note how the ‘cloud’ rises and broadens quickly from February until late May. Market opinion is very much against the Euro at the moment, many saying it will continue to be dragged down by the weaker EU members.

Chart Levels:

Support 127.00..126.50..126.00..124.35.

Resistance 128.25..129.00..129.50..130.50

Another bearish weekly candle following on from the previous week’s ‘bearish engulfing’ one, plus the first weekly close below the Ichimoku ‘cloud’ for a very long time. Pity the weekly close was not clearly below trendline support and the series of ‘spike lows’ that were last year’s feature. Though the Euro is oversold bearish momentum is stronger than it has been since April. Later this quarter we favour a drop below 127.00, support that limited the downside most of the period since April. This contrarian view is in stark contrast to consensus opinion where the mean forecast is for this pair to rally to 139.00 in twelve months’ time. One-month at-the-money implied volatility appears to have based against its long term mean at 11.00%.

Chart Levels:

Support 144.35..143.00..141.00..139.25.

Resistance 147.00..148.25..149.25..150.75.

Dropping and closing clearly below the bottom of a thinning Ichimoku ‘cloud’, still trying to hold between the 9 and 26-week moving averages. Note that as of last week the upper edge of the ‘cloud’ collapses and continues to do so until mid-April, something that in theory ought to increase downside pressure a little. Momentum has just turned bearish though sterling is oversold. Note the Lagging Span is finding some resistance from last year’s massive Ichimoku ‘cloud’ which dips again over the next three weeks. All aspects of this chart point to holding a short position. Interestingly one-month at-the-money implied volatility at 13.75% is still above the long term mean of 11.65%, though a fraction of October’s peak.

Chart Levels:

Support 1.6077..1.6035..1.5925..1.5830.

Resistance 1.6245..1.6355..1.6400..1.6600.

Though stuck in the middle of the sideways band that dominated most of last year, the chart has changed considerably. Most notably the upper edge of what had been a massive Ichimoku ‘cloud’ thins sharply while the lower edge has ground its way higher since November. Moving averages are mixed and the Lagging Span has resistance from the previous candles. A weekly close above 1.6400 might turn momentum bullish as it would put Cable above the top of the weekly Ichimoku ‘cloud’ for the first time since December 2007. Note that so far this month the Brazilian real has lost the most, and the yen gained the most, against both sterling and th US dollar.

Chart Levels:

Support 0.8750..0.8725..0.8650..0.8635.

Resistance 0.8840..0.8900..0.8935..0.9025.

Getting rather ahead of itself as prices drop below the lower edge of the flat-bottomed cloud - which continues out until early April, though this thins to nothing mid-February so a sustained break lower is more likely then. Last week’s ‘hammer’, at the same level as February’s low, suggests we shall hold above 0.8650 again this week. Bearish momentum has been maintained and the Euro is no longer oversold against sterling. Moving averages have crossed to a sell and should cap any bounces over the coming month or so. In fact bearish pressure might actually increase, to its strongest since November were we to now hold below 0.8900. One-month at-the-money implied volatility has a ‘double bottom’ at 8.5%.