Weekly Technical Commentary
Nicole Elliott from Mizuho Corporate Bank at 12/07/09
USD/JPY
Chart Levels:
Support 89.00..88.60..87.75..86.00.
Resistance 90.50..90.85..91.35..92.33.
Rallying, with record volume on EBS, a lot more than we had allowed for after touching a multi-year low at 84.82, so that this now looks like an ‘extension’ and ‘spike low’. This suggests that the ‘channel’ will hold for many months to come, though keeping the downside bias thanks to the descending Ichimoku ‘cloud’. Interestingly, while easing the oversold situation all other elements of this chart still suggests a short USD/JPY position. Long term while below 92.00 downside pressure is maintained, while the closer we get to 86.00 the more the authorities will be tempted to intervene. Two-way price moves ought in theory to see at-the-money implied volatility increase, especially in thin year-end conditions.
Chart Levels:
Support 1.4750..1.4700..1.4600..1.4465.
Resistance 1.4900..1.5000..1.5065..1.5145.
Breaking below immediate ‘channel’ support, with many bailing out, yet all other elements of the Technical picture continue to suggest a long position. Record futures volume of the 27th (when the Euro dropped to and then rallied from 1.4827), followed by huge EBS volume on Friday’s Non-Farm Payroll, suggests many have cashed in their chips for the year. The drop has postponed the move to a new recent high (which we still expect), probably until after year-end. Therefore we shall be looking for the Ichimoku ‘cloud’, combined with medium term Fibonacci retracement support, to help form an interim base over the next fortnight. The same applies to most other currencies as this is a USD move.
Chart Levels:
Support 132.00..131.00..129.00..126.95.
Resistance 134.55..135.55..136.15..137.00
Such a disappointment as we move back inside the broad band that has held for most of this year. Last week’s surprisingly strong rally has sent the Euro from oversold to overbought against the Yen, and bearish momentum has vanished. The move also suggests that one-month at-the-money implied volatility will hold below 15.00% all month. Similar effect with all other Yen crosses with the strongest rallies in last week’s best performers the MXN and BRL. Looking ahead to the end of March, note how the lower edge of the huge weekly Ichimoku ‘cloud’ rises steadily, a fact which might help push these crosses lower during Q1 2010. Weekly moving averages continue to point to a short position.
Chart Levels:
Support 146.25..145.00..143.00..139.25.
Resistance 149.00..150.50..151.60..153.25.
Rallying from October’s low and first Fibonacci support, correcting the oversold situation. This has postponed but not altered our view that the next step will be lower; weekly moving averages still point to holding shorts. Hopefully the neat series of descending weekly highs will be maintained so that we drop below the huge Ichimoku ‘cloud’ by the end of this month. A monthly close below 140.00 would probably cause a sudden slide to the 130.00 area. Next year 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 (record 118.80) GBP/JPY may have less downside scope than others.
Chart Levels:
Support 1.6272..1.6100..1.5900..1.5700.
Resistance 1.6515..1.6745..1.6900..1.7044.
The huge surprise that was Friday’s US Non-Farm payroll number barely registers on this chart. Instead the weekly candle shows yet another pullback from the top of a very large Ichimoku ‘cloud’. Declining futures volume suggests many are packing up for the year. Surprisingly implied volatility sold off last week. A weekly close above the top of the ‘cloud’ (or a monthly one above 1.6700) might add some much-needed bullish momentum, while a break above this year’s high at 1.7044 is needed to set off the next big rally, forcing many into short-covering and reviewing their outlook. As we expect Sterling to do better than many other currencies next year, albeit slowly, Cable should lead the way to generalised USD weakness.
Chart Levels:
Support 0.8990..0.8895..0.8833..0.8750.
Resistance 0.9115..0.9155..0.9200..0.9240.
Fibonacci resistance and the top of a large daily Ichimoku ‘cloud’ limited the upside for Euro/Sterling last week and will hopefully form a new interim high for this pair. The only worry is that the ‘cloud’ thins dramatically at Christmas. One-month at-the-money implied volatility has collapsed though, not something we had forecast. Another surprise is that momentum remains stubbornly bullish. These conflicting signals bring with them the possibility that prices might move broadly sideways, in a yet to be determined band, for many more months. All in all this pair continues to be hard work, and while above the pivotal 0.8400 the risk of sudden weakness of the pound against the Euro remains.
