Weekly Technical Commentary

Nicole Elliott from Mizuho Corporate Bank at 11/16/09

Chart Levels:

Support 89.00..88.00..87.00..85.00.

Resistance 90.60..91.34..92.33..93.00

Subtle signs in a series of currencies that the trend to generalised US dollar weakness is about to step up a gear. Which currency will lead is unclear, though the Brazilian real and Australian dollar have so far, +33% this year. 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). The slower the move, the longer it should last. 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 will become an increasing problem for many authorities tempting then into tinkering with these, verbally intervening or in other ways.

Chart Levels:

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

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

Consolidating neatly around the psychological 1.5000 for a fifth consecutive week. The Euro is now back up to levels last seen prior to October 2008’s meltdown, is not 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 (which are of course those pegged to the greenback). Many economists, who have been touting the greenback because of America’s stronger prospects of economic recover, will have some explaining to do.

Chart Levels:

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

Resistance 135.75..137.00..137.50..138.70

Yen crosses are just not where it’s at, at the moment, this one trading in the middle of the broad range that has dominated since April. 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 148.00..146.45..145.75..143.00.

Resistance 148.00..146.45..145.75..143.00.

Still consolidating neatly between the two weekly moving averages which are pointing to a short position, as are fifty and 200-day ones. The rally this year is undoubtedly corrective at the moment, and for months we have been trapped between the top of a massive Ichimoku ‘cloud’ and Fibonacci retracement support. All rather dull though trading very neatly. 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, hinting that sterling might be one of the better performers amid generalised US dollar selling.

Chart Levels:

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

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

Trying but not quite there yet. Cable managed a weekly close at this year’s highest level, but under Fibonacci resistance which coincides with the top of a massive Ichimoku ‘cloud’. 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. On a trade weighted basis it has rallied for five consecutive weeks but is still about 20% below where it was at the start of 2007, when creaks in the financial system first appeared. These are still with us.

Chart Levels:

Support 0.8930..0.8850..0.8800..0.8750.

Resistance 0.8980..0.9020..0.9065..0.9155.

Consolidating under the ‘neckline’ of an irregular ‘head-and-shoulders’ top and inside a very large Ichimoku ‘cloud’. Allow for more of the same this week and possibly until the end of this month when the lower edge of the ‘cloud’ rises by a penny. This should gently ease prices down towards 0.8600. 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 L/T sterling weakness avoided.