Monday, June 28, 2010

Weekly Technical Commentary


Forec Special 

USD/JPY

Chart Levels:
Support 89.25...88.95..88.00..87.00.
Resistance 90.30..91.50..92.15..93.00.
Bearing down again towards May’s low at 88.95 with a weekly close clearly below the bottom of the weekly Ichimoku ‘cloud’. This puts it in line to test key support around 88.00, an area the authorities have defended many times since the financial crisis started. We continue to favour a series of random messy moves over the summer, roughly between key support around 88.00 and 94.00, with a serious and concerted initial downside probe. Further out we shall also allow for a test of critical support at 85.00. Note that many yen crosses are also expected to see a concerted downside probe, some at fairly pivotal long term support. Eastern European currencies are likely to be the weakest against the yen.

EUR/USD

Chart Levels:
Support 1.2300..1.2200..1.2100..1.1876.
Resistance 1.2500..1.2600..1.2675..1.2800.
The Euro may not be anyone’s favourite currency but then nor is it being sold aggressively. On the contrary, for three consecutive weeks it has held above this year’s low at 1.1876, trading around 1.2140 which is its mid-point since inception. Because momentum has turned bullish and because consensus opinion is so one way we feel a squeeze to the 9-week moving average at 1.2600 and the top of the ‘channel’ at 1.2850 is possible, if not this week then mid-July. Holiday-thin markets might help too. We see this as the start of what is expected to be a long drawn out basing process that will last much of the summer. Watch other currencies which are leading like CHF, GBP and SGD.

EUR/JPY

Chart Levels:
Support 109.50..108.00..107.60..106.80.
Resistance 111.50..112.50..113.40..114.40
This month Euro/yen is struggling to hold above 108.00, its lowest level since December 2001 and not that far above the record low at 88.93 of November 2000. Price action over the last six weeks looks like consolidation and all elements of the weekly Ichimoku chart suggest a short position. We feel that another serious downside test is becoming increasingly inevitable, here and against a series of other weaker currencies. As always the deeper the downside probe the greater the risk of intervention and the bigger the corrective bounce that follows, making trading strategy very difficult. Note that the Euro is currently oversold against the yen but that bearish momentum is at its strongest since January 2009.

GBP/JPY

Chart Levels:
Support 134.00..132.00..130.30..129.90.
Resistance 136.00..138.70..141.00..142.55.
Still hovering at the same sort of levels of the last four weeks but note how the 9-week moving average has dipped fractionally. This might add a tiny bit of downside pressure but we shall not rule out another squeeze up to the 26-week moving average at 138.70. More important resistance lies at the lower edge of the large weekly Ichimoku ‘cloud’ at 141.00 which coincides with the level of the descending ‘channel’ mid-July. Maybe the next step down in the long term trend to a stronger yen against sterling must wait until then. Interestingly one-month at-the-money implied volatility has remained relatively stable, one standard deviation above the very long term mean, at 16.75%. All-time low 118.80 in January 2009.

GBP/USD

Chart Levels:
Support 1.5000..1.4875..1.4780..1.4688.
Resistance 1.5075..1.5115..1.5275..1.5345.
A weekly close above the 61.8% retracement of last year’s rally, above the 9-week moving average, just above the top of the ‘channel’ and above the psychological 1.5000 point. A formidable weekly Ichimoku ‘cloud’ out through to the end of August, its lower edge at 1.5270 (not far off the 26-week moving average at 1.5344), may be problematic. This level also represents a 38% retracement to this year’s losses (1.5250). One-month at-the-money implied volatility remains at last year’s mean around 12.00%. Momentum has just turned bullish though Cable is approaching overbought territory. A monthly close above 1.5275 should add to upside pressure while a quarterly close around 1.5180 forms a massive ‘doji’.

EUR/GBP

Chart Levels:
Support 0.8180..0.8100..0.8000..0.7800.
Resistance 0.8300..0.8400..0.8525..0.8680.
The lowest weekly close since early November 2008, when EUR/GBP had been trading for eight consecutive months between 0.7750 and 0.8100. Descending weekly moving averages should help push this pair down again inside the neat ‘channel’. A monthly close below 0.8400 and a quarterly one below 0.8200 should also add some more downside pressure, bringing it well back inside the two standard deviations above the very long term mean. At this rate it could hit 0.8050 by mid-July and if anything, as more investors realise sterling is still ‘cheap’ and shun a variety of other currencies and instruments, this one might pick up speed taking it to 0.7800/0.7750 which is the mid-point between its two extremes.

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