EUR: Attempt very, very small longs at 1.55525 but only if prepared to add to 1.5400

Thu, Mar 13 2008, 07:30 GMT
by Nicole Elliott

Mizuho Corporate Bank

EUR

Comment: As we have warned for years, investors should prepare for persistent and possibly chronic US dollar weakness this year. The Euro, along with several other currencies, has rallied to a new record high at 1.5587. It is of course overbought but desperate times mean dramatic values and moves. At-the-money implied volatility should increase to 11.75%.

Strategy: Attempt very, very small longs at 1.55525 but only if prepared to add to 1.5400; stop below 1.5250. Short term target 1.5750.

EUR/JPY

Comment: Dropping quickly below the bottom of the Ichimoku ‘cloud’ and downside pressure has increased. Note that the cross is not oversold and that implied volatility should remain high and possibly spike to 20.00%. Watch other Yen crosses too for signs of topping, noting that some are testing key downside support (CAD/JPY and SGD/JPY).

Strategy: Sell on a bounce to 156.00, adding to 158.00; stop above 159.50. Short term target 155.50, then 154.00 and later an awful lot lower.

GBP

Comment: Plenty of room to play ‘catch up’ and we continue to favour another short squeeze to 2.0500/2.0600. Cable might just lead the way because it is not overbought.

Strategy: Buy on a dip to 2.0250, adding to 2.0150; stop below 1.9990. Add to longs on a sustained break above 2.0365 for 2.0500/2.0600.

JPY

Comment: Dropping like a stone to a low at 100.02, the lowest since November 1995, and below the 101.25 and 101.65 lows of 1999 and 2005. Add to this mix a ‘headless’ Bank of Japan and things do not look pretty. The line of least resistance is still selling the Yen crosses. Momentum is strongly bearish and who cares that the US dollar is very oversold. Below 100.00 is a very real prospect and something very few are prepared for, psychologically or tactically. At-the-money implied volatility should soar above 20.00%.

Strategy: Stand aside if possible. For those who have to: sell on a rally to 100.50 but be prepared to add to 101.40; stop above 102.30. Target 97.00, maybe 96.00.