Weekly Technical Commentary

USD/JPY

Chart Levels:

Support 95.00..94.00..93.55..92.75.
Resistance 96.58..97.25..98.58..98.90

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Somewhat to our surprise the potential 'head-and-shoulders' in which this pair has been trading since March is still valid. During June the top of the weekly Ichimoku 'cloud' limited the upside neatly and should now set up a test of the 'neckline' in the increasingly pivotal 94.00 area. This also represents the rough mid-point of trading this year where prices have held pretty much between 87.00 and 100.00. Momentum has just turned clearly bearish and the US dollar is not oversold so if not this week then hopefully in thin markets in early July we shall get a downside test and decisive break lower. Futures volume and open interest remain very subdued, lower than they have been since 2000, hinting many have given up.

EUR/USD

Chart Levels:

Support 1.3800..1.3750..1.3600..1.3425.
Resistance 1.4139..1.4200..1.4339..1.4363.

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The Euro continues to consolidate neatly under the 1.4200 area, a 50% retracement of last year's losses which coincides with a large, flat-topped Ichimoku 'cloud'. Interestingly, it is also holding above the 38% retracement level and clearly above the 9-week average which has now inched up to 1.3773. This underlines just how little the Euro has given up despite testing such important resistance, keeping momentum bullish though less so than during the first week of June. Futures volume remains good hinting at a genuine worry as to the US dollar strength –where market consensus is that it should gain. We feel it is just a matter of time before more short-covering pushes the Euro higher.

GBP/USD

Chart Levels:

Support 1.6185..1.6000..1.5800..1.5750.
Resistance 1.6664..1.6825..1.6950..1.7000.

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Little to add as for a fourth consecutive week we consolidate just under June's high at 1.6664, below a 50% Fibonacci retracement, in a 'right-angled triangle' or 'pennant' formation. The pound is no longer overbought and a lot more are coming round to the idea that it is 'cheap', especially against other European currencies. Moving averages are clearly pointing to a bullish trend and the Lagging Span has very little overhead resistance. A weekly close above 1.6600 might kick-start the next step higher, but because of the very large weekly Ichimoku 'cloud' perhaps only a decisive break above 1.7000 will really force many into hitting the panic button. One-month at-the-money implied volatility is expected to base against 14.00%.

EUR/GBP

Chart Levels:

Support 0.8475..0.8400..0.8250..0.8200.
Resistance 0.8600..0.8650..0.8800..0.8935.

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Hovering above the 0.8400/0.8475 area which is two standard deviations above the equivalent mean since 1986. This is seen as necessary consolidation in the longer term trend to a lower Euro against the pound. The Euro is still oversold but downside momentum in this currency pair is stronger than anything seen in the last two decades. The Ichimoku 'cloud' is very thin and the Lagging Span has candle resistance. We continue to target a drop towards 0.8250, a move currently suggested by the moving averages. This would only take it back to levels last seen in Q4 2008, in turn the weakest that sterling had ever been against the Euro up until that time. One-month at-the-money implied volatility is expected to base in the 10.00% area again.

EUR/JPY

Chart Levels:

Support 133.00..132.00..131.40..130.00.
Resistance 135.00..135.50..137.50..139.26

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Tricky as Yen crosses consolidate under this year's highs but above trendline and retracement support. For this particular pair, if the range since March has been roughly 126.00 to 138.00, then its mid-point is 132.00 and prices should hold above here for another week. Then we shall probably favour a dip lower but we must point out that our level of confidence in an across the board move of this type is low. Therefore some time in July we favour a drop to 125.50/126.00. Note that bullish momentum has all but evaporated and the Euro is not oversold against the Yen. One-month at-the-money implied volatility has not picked up as we had predicted but we have not given up hope.

GBP/JPY

Chart Levels:

Support 155.000..154.00..152.80..150.00.
Resistance 158.55..159.65..160.50..162.60.

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As we had warned earlier this month, further gains for this currency pair may prove difficult as it struggles with resistance from the weekly Ichimoku 'cloud'. It has stalled ahead of 163.00, at the upper edge of the 'channel' that has held this year, forming a tiny potential 'head-and-shoulders top' over the last four weeks. Moving averages look set to cross to bearish, and should do so on a daily close below the 'neckline' at 155.00. This should lead to a sudden drop to 150.00, a level many feel is 'fair' for this cross. Later we shall allow for a slower leg down to 146.00. Note that Yen crosses with minor currencies look more top-heavy than the majors, hinting these may lead.

Mizuho Corporate Bank

Disclaimer

The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.