EUR: Possibly attempt very small longs at 1.4080

Nicole Elliott from Mizuho Corporate Bank at 01/26/10

Comment: Currently capped at 1.4200 and retreating to re-test the 50% Fibonacci retracement from April 2009’s low (not October 2008’s low). One-month at-the-money implied volatility appears to have based around 10.00% and should now squeeze up to 13.50%. Over the next few weeks we feel the Euro should stabilise and form a new interim low but this could be a slow, nerve-wracking process.

Strategy: Possibly attempt very small longs at 1.4080; stop below 1.4000. Short term target 1.4180 but be ready to re-buy on a sustained break above 1.4225 for 1.4400.

Comment: Trading below the pivotal 127.00 area, at close to the lowest price of the last eleven months. Moving averages have crossed to bearish and though the Euro is still very oversold, bearish momentum has increased to its strongest since April. Expect a cautious but concerted downside test here and in a range of other yen crosses where the path of least resistance might well be in the others and not here. Also watch out for the authorities and what they might say or do after the Bank of Japan keeps rates at 0.10%, keeps an easing bias and forecasts lower deflation.

Strategy: Attempt small shorts at 126.85 but only if prepared to add to 128.00; stop above 128.55. Short term target 126.15,125.75, then 124.35.

Comment: Holding up better than many but still stuck below the Ichimoku ‘cloud’ and the moving averages. Daily and weekly ‘clouds’ become very thin Tuesday and mid-February so watch for upside breaks then.

Strategy: Possibly attempt very small longs at 1.6245, adding to 1.6145; stop below 1.6070. Short term target 1.6265/1.6300.

Comment: Selling off suddenly ahead of the nine-day moving average, moving towards the 50% Fibonacci retracement support and the top of a relatively thin Ichimoku ‘cloud’. The US dollar is still not oversold and momentum decidedly bearish. Futures volume good again on Friday underlining the fact that recent moves have probably come as a surprise to many. We shall expect a drop to 61% retracement (88.25) this week.

Strategy: Sell at 89.65/89.95; stop above 90.65. Short term target 89.00, then 88.50.