Weekly Technical Commentary

Nicole Elliott from Mizuho Corporate Bank at 11/23/09

Chart Levels:

Support 88.50..88.00..87.00..85.00.

Resistance 89.75..90.62..91.34..92.33

Moving at a snail’s pace but nevertheless the trend to generalised US dollar weakness is underway. Which currency will lead is unclear though for dollar/yen 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 only). The slower the move, the longer it should last but remember that the threat of verbal or actual intervention is great. The USD is not oversold and bearish momentum has increased over the last week to the mid-point of the range of this decade. FX rates generally are an increasing problem for many authorities in any countries whose track records are poor at best. Don’t bank on them to sort things.

Chart Levels:

Support 1.4900..1.4800..1.4700..1.4625.

Resistance 1.5064..1.5115..1.5250..1.5300.

Holding up better than we had hoped as it consolidates around the psychological 1.5000 area. It is not in the least overbought and bullish momentum remains steady at the sort of levels established since May. Over the year-end we continue to 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 or the worst. On the ECB’s Effective Exchange Rate basis the Euro is trading close to its highest ever levels, where it started off in 2008, and just under this year’s all-time peak of 118.82 set in mid-October.

Chart Levels:

Support 131.75..131.00..129.00..127.00.

Resistance 134.35..135.75..137.50..138.70

Holding in the middle of the broad range that has dominated since April. One wonders whether things might get a little more interesting as year-end looms. 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 146.25..145.75..144.00..143.00.

Resistance 148.75..150.50..151.70..153.25.

Moving averages (9 and 26-day as well as 50 and 200-day ones) have crossed to a bearish position as we prepare to re-test early November’s low and the bottom of the large Ichimoku ‘cloud’. Rather slow but very neat work though, suggesting there is enough momentum to keep the trend moving. A break below the bottom of the weekly Ichimoku ‘cloud’ might be postponed until very late November/early December when its lower edge starts rising. We expect the Yen to gain against all other currencies, so that yen crosses drag each other lower one step at a time, moving towards last year’s extreme lows. Being closest to that low, GBP/JPY may have less downside scope than others..

Chart Levels:

Support 1.6460..1.6260..1.6100..1.5700.

Resistance 1.6745..1.6880..1.7044..1.7520.

Retreating from a high at 1.6880, just under this year’s high of 1.7044. Expect more work under here this week and maybe next as Cable steadies itself for another upside attack. Obviously a sustained break above here is needed to set off the next rally, forcing many into short-covering and reviewing their outlook. The pound is no longer overbought and bullish momentum is almost at its strongest since late 1990. Futures volume remains high though subdued open interest suggests a lot of day-trading. Where it might form a new interim base is a guess, at best, and probably not worth pushing too hard at. More interestingly the rush into precious metals underlines investors’ mistrust of the authorities.

Chart Levels:

Support 0.8950..0.8895..0.8833..0.8750.

Resistance 0.9055..0.9070..0.9155..0.9200.

Bouncing a little more strongly than we had thought possible while still consolidating under the ‘neckline’ of an irregular ‘head-and-shoulders’ top, back inside a very large Ichimoku ‘cloud’. This week a new interim high ought to form. 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 long term sterling weakness avoided.