Weekly Technical Commentary

Nicole Elliott from Mizuho Corporate Bank at 01/18/10

Chart Levels:

Support 90.60..90.00..89.30..88.00.

Resistance 92.05..92.55..93.78..94.65.

Retreating from ‘channel’ and Fibonacci retracement resistance, as expected, as consensus opinion sees the yen weakening to 99.00 in twelve months’ time. The weekly close below the 9-week moving average has turned momentum bearish and many other yen crosses are doing something similar. All other elements of the ‘cloud’ chart suggest a short position, downside pressure probably increasing if we now hold below the 92.00/92.50 area. Allow for hesitation either side of 90.00 perhaps until month-end, prior to another concerted downside test of key support at 85.00 some time this quarter. Note that the US dollar is a very long way off being oversold having been overbought at the beginning of this month.

Chart Levels:

Support 1.4325..1.4220..1.4180..1.4100.

Resistance 1.4485..1.4580..1.4800..1.4900.

A mixed picture this week as having bounced from medium term Fibonacci retracement support, as the Lagging Span garners support from a very large flat-topped weekly Ichimoku ‘cloud’, last week’s small ‘spike high’ suggests we shall be stuck under 1.4580 (the 26-week moving average) for at least another week. Note that all other elements on this weekly chart point to a core long Euro position. Progress might be hampered by the fact the single currency is being sold against the other European currencies. Long term we continue to favour persistent US dollar weakness, regardless of the mumbo jumbo spouted by the authorities, a trend which has been in place since 2002.

Chart Levels:

Support 130.00..129.60..129.00..128.00.

Resistance 133.60..134.37..135.50..136.00

‘Bearish engulfing’ weekly candles here and in many other yen crosses (some of which also have ‘extensions’ higher this year). Though still within a huge weekly Ichimoku ‘cloud’, whose lower edge has been rising steadily since mid-October, as from this week its upper edge drops quickly. The lines cross by mid-March so maybe we shall have to wait until then to get a decisive move outside recent ranges. Later this quarter we favour a drop below 127.00, support that limited the downside most of the period since April. This contrarian view is in stark contrast to consensus opinion where the mean forecast is for this pair to rally to 139.00 in twelve months’ time. The Euro is not oversold and momentum is bearish.

Chart Levels:

Support 147.50..146.50..146.00..145.00.

Resistance 150.00..150.70..151.75..153.25.

Dropping by less than most other yen crosses as sterling and the yen gain 2.00% against the US dollar last week, much to the surprise of many. Still holding between the 9 and 26-week moving averages, closing below the bottom edge of the massive weekly Ichimoku ‘cloud’ by default as this has been moving higher since mid-November. Note that as of this week the upper edge collapses over the coming month. Momentum might turn bearish if the Lagging Span finds resistance from last year’s massive Ichimoku ‘cloud’, where all aspects of this chart point to holding a short position. Interestingly one-month at-the-money implied volatility at 13.75% is still above the long term mean of 11.65%, though a fraction of October’s peak.

Chart Levels:

Support 1.6250..1.6100..1.6035..1.5830.

Resistance 1.6400..1.6600..1.6800..1.7044.

Though stuck in the middle of the sideways band that dominated most of last year, the upside limited by a flat-topped ‘cloud’, the downside by Fibonacci retracement support, elements of the chart are changing. Most notably the upper edge of what had been a massive Ichimoku ‘cloud’ thins sharply while the lower edge continues to grind its way higher as it has been doing since November. Interestingly 1.6375 is the mean of the last thirty years so maybe this explains the reluctance to move away form this neutral point. Momentum has yet to turn decidedly bullish but should do on a weekly close above the moving averages. Much to the surprise of many both sterling and the yen are likely to outperform this quarter.

Chart Levels:

Support 0.8750..0.8725..0.8600..0.8450.

Resistance 0.9055..0.9125..0.9155..0.9240.

Dropping to a new recent low today, below the psychological 0.8800, to its lowest level since September. Now it must grapple with the lower edge of the flat-bottomed cloud which continues out until early April, though this thins to nothing mid-February so a break lower is more likely then. Bearish momentum has been maintained despite the painfully slow moves, though the Euro is oversold against sterling. Long term we remind that while above the pivotal 0.8400 the risk of sudden sterling weakness against the Euro remains. Despite this we feel that the intermediate trend, over the next couple of months, is for this pair to drift down towards 0.8500 again, probably with much sideways consolidation at the 0.8750 level.