Weekly Technical Commentary

Nicole Elliott from Mizuho Corporate Bank at 02/15/10

Chart Levels:

Support 89.50..89.00..88.55..87.75.

Resistance 90.40..90.65..91.28..91.88.

Unbelievably slow work, with relatively small daily ranges suggesting a lot of uncertainty at current prices. The Yen is consolidating in the middle of a decent-sized flat-bottomed daily Ichimoku ‘cloud’. Fibonacci retracement support at the 61% level will probably limit the downside this week (and maybe the following one too) with prices hopefully holding under the 26-day moving average at 90.62 today. Apart from the ‘cloud’ all other elements of this chart suggest a short position, and note that the Lagging Span will encounter resistance from the candles next week. The US dollar is not in the least bit oversold against the yen and momentum is neutral. Futures volume is well down on the previous week and open interest too.

Chart Levels:

Support 1.3585..1.3532..1.3450..1.3250.

Resistance 1.3700..1.3850..1.3965..1.4025.

Dropping even further than feared as the Euro plunges into the chasm formed by the weekly Ichimoku ‘cloud’, dipping below its bottom edge and 50% Fibonacci retracement support. This lies at 1.3580 out until early April and is expected to provide support which will eventually end the corrective move lower that started in December. Note also that the upper edge of the ‘cloud’ rises very sharply in March, so were we to get a strong reversal weekly candle over the next two weeks the Euro should benefit. 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; it is also very oversold.

Chart Levels:

Support 121.55..120.70..120.00..119.00.

Resistance 123.35..124.30..125.00..127.55

Hovering slightly unsteadily on Fibonacci 61% retracement support at 122.50, and the Euro is still oversold against the yen. Bearish momentum is stronger than it was all last year giving conflicting technical signals. Of all the yen crosses this one is trading at its lowest relative to last year’s range, underlining the Euro’s recent weakness. Though just 8 yen from last year’s low, and probably a little too close for comfort for the authorities, the all-time low was 88.93 in October 2000. Later in Q1 we favour a drop to roughly the 118.00 area. Until then we urge caution, especially when looking at anything against the Euro because opinion against it is overwhelmingly one-sided. An overcrowded trade, perhaps?

Chart Levels:

Support 139.70..138.20..137.65..135.00.

Resistance 142.00..143.00..144.45..145.25.

Hovering slightly unsteadily on the 50% Fibonacci retracement support. The fact that we did not drop last week, after the lowest weekly close since March 2009, suggests more sideways work this week and maybe for several more. The 9-day moving average will hopefully limit the upside, recent lows the downside. Later this year we still favour another move lower, most likely when the lower edge of the weekly Ichimoku ‘cloud’ drops sharply in early April. Sterling is somewhat oversold and bearish momentum low. All aspects of this chart point to holding a short position, but maybe not just yet. One-month at-the-money implied volatility has picked up and will probably continue to do so, albeit slowly, over the next two months.

Chart Levels:

Support 1.5600..1.5535..1.5350..1.5260.

Resistance 1.5766..1.5950..1.6000..1.6100.

After spending most of last year trapped between support at 38% Fibonacci retracement and the top of a massive Ichimoku ‘cloud’ bang on key Cable dropped below it just as it thinned dramatically. We continue to see the drop below 1.5700 as some sort of ‘extension’ and a chance to clear out stale longs. Cable is somewhat oversold and last week’s ‘doji’, where there was zero follow-through from the lowest weekly close since May 2009, is telling. It backs up our view and we will continue to watch and wait for clearer signs of a reversal candle followed by a rally for sterling. The very thin ‘cloud’ mid-March suggests a break above 1.6000 then. Open interest soared suggesting many have piled in since the end of January.

Chart Levels:

Support 0.8650..0.8600..0.8575..0.8525.

Resistance 0.8750..0.8800..0.8845..0.8965.

Last week’s potential small ‘spike high’ might cancel out the two ‘spike lows’ of last month. Quite interesting too that prices are holding below the flat-bottomed weekly ‘cloud’ most of the time. While we continue to feel this pair will hold above 0.8650 for another month, we shall be quick to pencil in a re-test of pivotal support at 0.8400 if necessary. The Euro is no longer oversold against sterling and momentum is only just bearish. Note that on the Bank of England’s Trade Weighted Index it is currently trading at the mean since December 2008 at 80.00. One-month at-the-money implied volatility has a ‘double bottom’ at 8.50% but upside progress is terribly slow and likely to fade by the time it gets to 10.50%.