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Weekly Technical Commentary

Nicole Elliott from Mizuho Corporate Bank at 11/09/09



Chart Levels:

Support 89.00..88.80..88.00..87.00.

Resistance 91.34..92.33..92.55..93.00

Question: if investors are piling into ‘risky’ assets, a new version of the ‘carry trade’, then why aren’t they selling the Yen? Refugees from zero interest rate policies are understandable, but the pieces do not fit the puzzle properly. Last week’s ‘doji’ candle denotes instability at current levels, while all other Technical elements suggest the dominant trend is still very much to lower prices for USD/JPY. We continue to favour a series of cautious downside tests of key support between 87.00 and 1995’s 85.00 (below which it spiked to a low 79.75 over a three month period). This in the context of generalised US dollar weakness which we expect through to year-end and probably a lot longer. The slower the move, the longer it should last.


Chart Levels:

Support 1.4850..1.4700..1.4625..1.4580.

Resistance 1.5064..1.5110..1.5240..1.5300.

Rallying neatly from Fibonacci and channel support, propelled higher by the 9-week moving average. The Euro is now back up to levels last seen prior to October 2008’s meltdown, and might need to consolidate around here for another week or two. But over the year-end we expect another bout of generalised US dollar weakness, a feature that is likely to be repeated again and again over many months. The Euro will likely be somewhere in the middle of the pack, neither the best performer (most likely AUD and GBP for this role), or the worst (those pegged to the greenback). As this view is not market consensus, which expects the Euro to drop to 1.4380 in 12 months, many will have to re-think strategies.


Chart Levels:

Support 133.00..131.00..129.00..127.00.

Resistance 136.00..137.00..137.50..138.70

Very dull as we trade in the middle of the broad range that has dominated since April. The rally in February/March is corrective and since then we have seen endless consolidation. What might turn out to be a massive ‘quadruple top’ is very clear, but the fact it has taken so long to build is a little worrying. Quite what will cause it to drop below trendline support and the bottom of the very big Ichimoku ‘cloud’ is unclear, but our view remains unchanged: towards the end of November we expect a break below the pivotal 127.00 support area. This effect will be mirrored across all Yen crosses so very much a Yen buying situation. The very long term view is still for more broadly sideways moves similar to what we saw over the last six months.


Chart Levels:

Support 149.00..148.00..147.00..145.75.

Resistance 151.70..152.00..153.25..156.75.

Consolidating neatly between the two weekly moving averages and one-month at-the-money implied volatility has pushed higher as expected. Weekly moving averages and the Ichimoku ‘cloud’ still point to a short position so we continue to watch for a new interim high to form over the next week or two around Fibonacci retracement resistance at 152.00. Fifty and 200-day moving averages have turned bearish though momentum has yet to do so. For this reason a break below the bottom of the weekly Ichimoku ‘cloud’ might be postponed until late November/early December when its lower edge starts rising. Note that the chart pattern here is more harmonious and symmetrical than many others suggesting steadier moves.


Chart Levels:

Support 1.6500..1.6260..1.6100..1.5700.

Resistance 1.6850..1.7044..1.7520..1.7635.

After a lengthy sideways bout since the summer, signs of life as Cable tests the top of a massive Ichimoku ‘cloud’ and Fibonacci resistance. Moving averages are positive though the pound is slightly overbought already – but who cares when bullish momentum is stronger than it has been since late 1990. One-month at-the-money implied volatility hit 14.50% as expected, and subsequent dips towards the 11.00% area are seen as buying opportunities. Futures volume remains high suggesting this is the only ‘cheap’ currency for Americans to diversify into. On a trade weighted basis it has rallied for four consecutive weeks but is still about 20% below where it was at the start of 2007 when creaks in the financial system first appeared.


Chart Levels:

Support 0.8875..0.8800..0.8750..0.8600.

Resistance 0.9050..0.9100..0.9150..0.9240.

Having formed a ‘head-and-shoulders’ top over the last two months, albeit a slightly crooked one, prices should now move steadily lower over the next fortnight to reach 0.8700. Allow for consolidation at this point prior to another drop to 0.8400 in January/early February. One-month at-the-money implied volatility should base in the 10.00% area and move back up to 14.00% towards year-end. As the mean view is that this pair should hold above 0.8800 for the next twelve months, many will have to review assumptions and economic consequences. Long term only when this pair starts holding consistently under 0.8400, two standard deviations form the calculated mean of the last twenty years, is sterling weakness avoided.

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