EUR/JPY: Sell at 123.80, adding to 124.45

Nicole Elliott from Mizuho Corporate Bank at 02/19/10

Comment: Dropping to a new recent low at 1.3443 in an unstable ‘wedge’ formation. The Euro is terribly oversold though bearish momentum is at its strongest since December 2008. This is not the way moves usually start, instead is more like how they end with an ‘exhaustion gap’. Be very careful.

Strategy: Do nothing if you can. If not attempt tiny longs at 1.3475; stop below 1.3400. Short term target 1.3600/1.3650.

Comment: Inconclusive as the FX focus is elsewhere. Suddenly dropping from a high at 124.85 but limited by the 9-day moving average. Two consecutive ‘doji’ candles denote instability at current levels and the potential inverted ‘flag’ formation hints at a possible big slide lower starting either today or next week. The Euro is not oversold and momentum is not particularly bearish. Messy today.

Strategy: Sell at 123.80, adding to 124.45; stop above 125.00. First target 122.76/122.50, then 121.55.

Comment: Dropping below the inverted ‘flag’ formation as feared, pushed down by the 9-day moving average. Open interest is soaring and futures volume very strong this week. Bearish momentum has increased but is still unspectacular and the pound is surprisingly not especially oversold. Wait and watch for much clearer signs of forming a weekly reversal candle, hopefully by the end of this month.

Strategy: Do nothing. If you have to attempt tiny longs at 1.5400; stop below 1.5300. First target 1.5550.

Comment: Closing above the large Ichimoku ‘cloud’ but capped (so far) by ‘channel’ resistance and the 200-day moving average at 92.28. Rather worryingly moving averages have turned to positive though the US dollar is very overbought and bullish momentum poor. Therefore we shall be looking for this move to peak and turn down again.

Strategy: Possibly attempt small shorts at 91.90; stop above 92.35. Short term target 90.50/90.30.