USDJPY resisted by multi month downward trendline

USDJPY is currently trading at a multi-month downward trendline, seeing resistance at 91.80. This can be considered good resistance as the trendline actually goes back a long way..

Please see the weekly chart below to have a graphical feel:



As to where the USDJPY might fall, if it does really fall, the next likely support is at 90.50 - the 23.6% level between the '09 high and low (on the weekly chart).

This level provides good support because it kept the USDJPY afloat during Oct and when broken through on the downside eventually, it provided good resistance in Dec when the USDJPY surged (after NFP). Areas where support turned into resistance are often significant because orders tend to congest around there.

Please see chart below.

US STOCKS TOPPING OUT

US stocks seem to be topping out based on a couple of technical indicators.
Please see chart below.



There is currently this phenomena of a divergence between the S&P500 price and both the Rate of Change (ROC) and MACD indicators. As the S&P500 heads higher, the ROC and MACD indicators are making lower highs. I drew lines joining the tops of these indicators and found there is some consistency in both indicators signalling that momentum (hence strength) of the advance is weakening. More likely than not, the bears would take over the market soon.

Also, the tapering off of volume (chart below) points to a growing disinterest in the market.



On the other hand, because of near term volatility and the fact that volume is tapering off, it might actually be easier for the market to make another push higher before turning back down - for this, I'd use the blue lines drawn above the ROC and MACD indicators to gauge when the S&P500 will meet resistance.

New Immediate Resistance Level - 1,121 (50% Retracement of '08 high - '09 low)

The 50% retracement (1,121 on the S&P500) could provide strong resistance to this whole rally as in past recessions, the 50% halfway mark between the pre crisis high and crisis low usually sees some stalling of stock indices, followed by months of gradual down moves.

In fact, this level is just 2.6% higher from where we are now, so how the next few days will pan out will be interesting.

The alternate scenario may happen going into the Christmas season is that a Santa Claus rally causing a break above 1,121 will open the way to immediate targets 1140 and 1185, another 4.3% or 8.4% upside respectively though this is the more unlikely scenario for now.

My EURUSD forecast for week ending 8 Nov

The most significant econ data of the week is the US Q3 advance GDP which at +3.5% beat estimates of +3.2%. This is largely a positive for risk sentiment as it marks the bottom of the economy and within the reading’s components; indications were of broad based recovery.

Looking into the details, household spending actually rose 3.4% even as household income fell 3.4%. It seems that instead of de-leveraging, families are returning to spending quite quickly (namely durable goods) and that suggests that this increase in spending might not be sustainable. That number can be largely attributed to cash for clunkers (new cars purchases with a government grant) which just expired.

Meanwhile, residential investment increased for the 1st time in 3.5 years as prices stabilized with help of 1st time home buyers tax credit (again, more government grants) helping real residential investment to rise an astonishing 23.4% after a drop of a similar magnitude in the 2nd quarter. Hence, Q3 will mark the turnaround in the housing market after the subprime crisis. Its sustainability is also questioned but to a lesser extent as the federal govt is likely to continue with the tax credit program until late 2010.

Prior to the release of the GDP data, we saw some risk aversion in the market during which Goldman Sachs downgraded GDP to +2.7%. EURUSD broke below 1.50 firmly and USDJPY came close to breaking the 90 support level as investors pared carry trade.

An observation is that the yen is coming back as the main funding currency now instead of the dollar as short term yields on the dollar at close to 1% is proving very attractive vis a vis yen assets, giving USDJPY support this week (which kept above 90 for the most part). But I the feel the main pair to watch for dollar direction is the EURUSD, the fact that it is now trading below 1.50 for 4 running days goes to show that mkt has been pricing an eventual recovery in the US economy which was confirmed by the GDP release and by extension, the unemployment rate.

Recently there has also been market talk in the WSJ and FT about the fed preparing to change its ‘extended period’ language and the suspicious may think this was induced by some in the fed to prepare the market for an eventual change in language.

In the FOMC meeting next week however, I think the fed will still keep its ‘extended period language’ because recovery is in its early stages and to do otherwise would be disruptive. But they will put more weight and words describing the recovery of the economy and maybe suggest more winding down of securities purchases in light of better corporate funding and financial conditions. QE has ended and would be a thing of the past. All these are dollar supportive as these have to take place before removal of the ‘extended period’ phrase. So even if PMI data and earnings in the earlier part of the week are good, any dollar sell off would be contained. Rangey trading is expected.

My expected range for EURUSD next week (ending 8 Nov): 1.4650 (50 day moving average) - 1.50 (I doubt the market is willing to take on risks before the outcomes of the FOMC on Wed and NFP on Friday.

How high can US stocks go?

I just took a look at the S&P500 weekly chart to see the next target point(s) should the bullish run continues.

It seems that the next important target is 1120 (red line), which has proven also to be a good resistance/support level for the broad equity index dating all the way back to 1998.

1120 happens to also be the 50% retracement level between last year's high and this year's trough, hence highlighting the significance of this level. Its like ISM's 50 expansionary/recessionary cutoff.

If the upward trend continues, the market should have less gyrations between 1080 (red line) to 1120 as this space in between looks quite clear historically. I've gotten the level 1080 from the confusing 'rays' - which I highlighted as brown lines. These are gann lines and show the natural support/resistance levels like Fib lines do.

In terms of momentum, it seems things are going well for the current trend. Volume continues to be higher than usual (vs pre- 3Q '08) and this means good interest in the equity market on the way up. Rate of Change (seen by the ROC section at the bottom) have ascending lows so this spells good momentum.

Beyond 1120, the next objective is 1220, which historically has been a good resistance/support levels for years dating past.

In terms of support, the first line of defence has always been the 12 wk mva (red mva) - a representation of the quaterly average of prices (some funds do window dressing every quarter btw). That currently stands at 1024, where the mkt bounced up from last week. The next level of support will be on the gann line, but because we are pretty far away from that now, let's leave this story to another day if the bear does comes to eat up the bull.

My GBPUSD forecast

For the Gbp especially, it is hard to see much further upside from where we are at now (GBPUSD spot 1.5887) when policy makers appear to lean towards a weaker sterling. (King saying that a weak Gbp is beneficial - Thur 24 Sep 09)

To be sure, the UK economy is running huge public debts - to the tune of a level which rating agencies like Moody's usually flashes red lights for a possible downgrade.

But at the moment, the UK will keep their AAA status.

Right now though, PM Brown has said he will not unwind quickly the levels of debts until he sees the recovery becoming firmer and more sustainable.

My thinking is.. with the poor fiscal outlook and debt levels as the UK's, it will probably take some years to deleverage and finally achieve a more prudent balance sheet.

Even if the economy does pick up, the currency is likely to underperform the Eur and the dollar. For the latter, the reason being the US is expected to push itself out of recession faster than the UK. For the former, well, at least no central banker wants to talk down the currency in such a direct way.

The pound used to be one of the highest yielding currencies in the developed world and has been a big favourite for the carry trade.

But we might be seeing a permanent change occuring right now. The Gbp may not return to as strong as it was before, given it needs time to sort out its public debt and groom other parts of the economy to replace the sputtering financial industry and contribute to taxes.

So I'm out on a limb here, saying that in the medium term, we might see parity in the EURGBP (spot now is 0.9216).

My forecast for GBPUSD anyway, is 1.5600 (Dec '08 congestion high) to 1.6230 ( near neckline of double top reversal).

My EURUSD forecast this week

The focus of last week had been on the relentless move to the year's high for the currency majors like Eur, Nzd, Aud and of course, the stock markets.

And then came the correction following the FOMC statement on Wed 23 Sep 09 and the pound led decline on Thur. Recall: BOE chairman Mervyn King said a weaker Gbp will help the UK rebalance its economy towards one more dependant on exports. **GBPUSD fell 1.6% (a massive 200 plus pips down move) following that.

The feeling of euphoria that drove the markets higher for several weeks now is seemingly checked and can only be boosted by the occasional M&A activity like today - we hear Abbott and Xerox making multi billion dollar offers for Solvay and Affiliated Computers Systems respectively. The Dow now trades +137 pts and the S&P 500 +1.7% at print. Other than that, we will be in limbo until Q3 earnings are out from next week onwards.

Compared to the previous FOMC's statement, Wednesday's statement highlighted further recovery in the housing market and the fed deemed fit to slow down mortgage securities purchases until end Q1 '10. This effectively leaves the US unemployment rate as the main factor for the USD outlook.

This Friday, the Non Farm Payroll will be released and judging from the trend of better Jobless Claims in the past month or so, there might be a chance for a surprise. The U/E rate is expected to increase to 9.8% from 9.7%.

So I think, together with the slight rise in the dollar index recently, we'll see a firmer comeback in the dollar this week - confirming that a better than expected NFP will boost the dollar.

My expected range for EURUSD this week is 1.4500 (early Sep support) to 1.4850 (shouldn't break last week's all year high)

USDJPY's 2 yr downtrend

Discovered something on the USDJPY: below is the monthly USDJPY chart.

I joined the peaks of the pair dating from Q307 till now (2 yrs) and saw that the pair has been strongly resisted by the downward trendline (blue). With the global recession remain until at least 2010, I think this downtrend is likely to remain in place until the end of the year..

In recent months, the pair has been hugging to the resistance line more tightly, but on a month end basis, could not close above it.

The highs were also rather 'obedient' and did not move that much above the trendline.

The largest outbreak was only about 90 pips and was due to the last NFP report and after that, USDJPY 'normalized' downwards. That high was 97.75 vs trendline resistance of 96.84 (Aug).

ADX shows a strong number - 35 and that means a good trend is still in place and will take time to undo.

And IF assuming that the downtrend will remain in play, these are the levels below which the USDJPY should close on a month end basis.

Aug 09 - 96.84
Sep 09 - 95.92
Oct 09 - 94.86
Nov 09 - 93.87
Dec 09 - 92.75

My GBPUSD forecast

I feel that there will be a correction downwards in the coming 1-2 weeks as the trend upwards tires out and investors take profit/re-assess the Bank of England's willingness to rely on Quant Easing measures.

Quant Easing is the printing of money to purchase govt bonds or other securities from investors, as a direct form of injecting liquidity into the economy.

The release of the UK's inflation numbers on Tue 19 May may reiterate this. The BOE is very keen on keeping the inflation numbers' fall in check to avert stagflation.

This is the primary reason for them to expand QE measures by GBP 50 Bn to GBP 125 bn in the last BOE meeting. Following that announcement, the GBP fell but remained support by bouyant stocks.

And on Tue, if a faster than expected decline happens for the Apr CPI numbers (mkt expects 2.3% yoy vs 2.9% previous), then the BOE will see a need to quicken the pace of QE or even increase it, though I doubt this will happen given the laid out schedule for QE needs some doing to complete.

On price action, the long legged doji on the recently concluded week for the cable indicates indecision after a 2 week surge (see weekly chart below).

The 23.6% retracement level shown in the chart also provides reasonable resistance.

A little bit on Technical Analysis for the GBPUSD - Rate of Change and Williams %R on the daily chart, both measures of momentum have shown declines, with the latter, falling into negative territory.

These give support to a weakening trend and certainly shows potential for the pair to head down (see daily chart below).

My call for GBPUSD for the next two weeks (until 29 May 09):

Sell GBPUSD from 1.5255

Stop loss: 1.5375 (above 12 May high)

Take profit: 1.5014 - potential 241 pips profit (above 1.50 psychological support)

Profit taken on USDCHF

Having seen the USDCHF trade in a range in the past few days, but showing some potential to move higher (as noted in my 13 May My Forecast post), I bought into the pair at 1.1062 on Wed.

Last night, the pair did hit my profit level at 1.1188, giving me a profit of 126 pips under 3 days.

But I hadn't been greedy enough. The pair was last done at 1.1220 and I think there is still more upside to it.

Still a profit is a profit is a profit and I should be thankful for that.

Have a good weekend!

My USDCHF call

This is a play based on technicals which I feel provides reasonably good risk-reward opportunity for the USDCHF.

From the daily chart above, we see two hanging man candlesticks formed on the 11 and 12 May. The bodies of the two bars are almost identical in height, and are completed by 'legs' at the bottom.

The legs indicate that there had been buying interest in the USDCHF since the 11 May even while bears are trying to push the pair lower. However, the bears could not force the issue and close the price near the lows, allowing space for the bulls to take over slowly.

Hence, I'm going with the flow and am staying on the side of the bulls.

My call for USDCHF until next Fri 22 May is:

Buy from 1.1062 (bottom of 13 May 09 candle)

Stop loss 1.0973 (lower than last low touched on the 13 May)

Take profit at 1.1188 (near lows touched in late Mar)

Profit taken on USDJPY trade

I recommended selling USDJPY in a post on the 25 Apr 09.

My order to sell was hit at 99.25 a few days later on the 1 May and I just took profit today at 95.85 - a 340 pips profit.

I had to wait for more than two weeks for this trade move over 99 and come back down. But I guess the wait was worth it.

Volatility hadn't been enough to cause me a heart attack and fundamentals (as explained in that post) gave me the confidence to hold this position for the two whole weeks.

The only scare came as USDJPY hit a high of 99.74 on the 7 May, just 10 points shy of my stop loss order before it crumbled back down and never looked back. I guess it is rather important to not place the stop in a 'hot zone', where the price tend to congest as chances are that your stop loss will be hit out of volatility.

In this case, the stop was placed above the previous price surge and my trade was safe. Or else, it'd be shameful to say I had the right view but could not profit on it.

Hope you have been profitable too.

My EURUSD Call

I guess I under-estimated the market's willingness to take on risk.

In my previous forecasts on the EURUSD and USDJPY on the Sunday before last, I called for the two currency pairs to fall on persistent uncertainties within the banking sector and EZ economy.

Yes my orders to sell were hit at 1.3425 and 99.40 for the EURUSD and USDJPY respectively, the two obviously did not move down to my target zones at 1.31 plus and 97. USDJPY did trade near the 97 handle though, but not near enough to my desired level.

I did take some profits off the table in the EURUSD on Wed when it got stuck at low 1.33 because price action tells me there is some strong buying that keeps coming back into the market.

I just closed out the remaining position at a small loss near the opening price because this trade seems to be a lost cause. Sometimes we have to live with a poor call. Not allowing a trade to run deep into the red should be priority. Ego is second.

My USDJPY position is still open though, but I'll be closing it soon if cross yen buying persists. I sold at 99.25. The only thing that is keeping the USDJPY contained is broad dollar weakness it seems.

On Thur, the ECB announced a refi rate cut of 0.25% to a record low of 1% as well as a plan to buy up to Eur 60 bn worth of covered bonds to ease credit conditions in the EZ.

Well, Eur 60 bn is just a small percentage of the total outstanding issuance in the EZ market and is not expected to make much of a splash but the fact that the EURUSD jumped after the announcement says a lot about the market.

There is pent up demand for risk.

And look at the sterling pound - after announcing further Quant Easing (bringing the total to GBP 130 bn from GBP 80bn), the pound recovered from its post news sell-off to end the week at 1.5237, from under 1.50 on Monday.

Maybe next week we might see some profit taking, but I wouldn't bet against another surge higher.

Will try to write a post on my forecasts for the next couple of weeks before the weekend is over.

Hope your weekend has been good.

My EURUSD Call

This past week, we've seen some correction taking place for the EURUSD.

The pair surged 197 pts or 1.51% after a thorough whacking the previous week.

The pair had been driven higher by better than expected German ZEW and IFO results which point to a stabilizing economy in the EZ. That saying, we should take this with a pinch of salt as these indicators are measured from a very low base well within the contractionary territory.

I don't see good fundamental reasons for the EURUSD to climb much higher given uncertainties still surrounding the EZ economy and european banking sector.

IMF this week deduced that european banks are facing up to USD 750 bn in writedowns and although these are disputed by economic figures like Trichet and Lagarde, a portion of that estimated amount still create a lot of worry. Plus, jobless rates are growing at a quick pace. Spain just hit 4m.

One major ECB event the market is looking forward to is the 7 May ECB meeting in which ECB members have previously indicated the council will announce 'unconventional methods' to ease credit conditions. Potential wildcard.

If they decide to move to purchase european debt assets in a big way, then it will further hurt the euro. But chances are that they will merely expand their current credit easing programs, given the conservative nature of the ECB on fiscal measures. Nothing much changes.

I'd look for opportunities to sell the EURUSD these coming 2 weeks.

On the daily chart, we see there's a downward channel in which the EURUSD currently trades. in. I'll be looking to sell at the top of the channel, naturally.



However, at what level to sell at is a dilemna for me. I drew two channels on the daily chart and the weekly chart. The tighter channel which is very close to the current price. is from the daily chart. The other channel is wider and more generous spans is drawn in the weekly chart.

Still, being one who always strive for a better risk-reward position, I'd target my order at an appropriate higher price.

Judging from the weekly chart, last week's closing was a bullish engulfing pattern, which may mean further upside.


My call for EURUSD for the next 2 weeks is:

Sell from 1.3400 - 1.3450 (top end of downward channel)

Stop loss: 1.3550

Take profit: 1.3000

My USDJPY call

This week, we've seen the USDJPY fall approx 2% from an open of 99.15 to 97.17 (a 198 pips drop).

It is interesting to observe how the USDJPY - stock correlation continue to play out. Historically its always been when stocks decline, USDJPY will too, as investors flock to the safe haven status of the yen.

This week, we did see a little bit of that, especially from yen cross selling (e.g. EURJPY, GBPJPY, AUDJPY) which depicts escape from the carry trade, but only for the first day of the week.

But cross selling did not prove to be convincing as the EUR, GBP and AUD all climbed higher later in the week but still USDJPY continued to fall.

Well, there isn't much carry trade to unwind in the first place as a lot of de-leveraging had been done in Q4 08.

It is too, especially counter-intuitive as Japanese investors are continuing to pour money out of the country to buy foreign bonds and stocks. The Japanese have a penchant for US securities.

USDJPY should go up in this case.

MOF data indicated that for the week ending 19 Apr 09, net outflow to foreign bonds and stocks were JPY 1,564 bn or approx USD 1.6 bn.

So why is there still downward pressure on the USDJPY?

I feel that the market was a little too quick to push the USDJPY up to beyond 100. Even though Japan's economy is suffering from the exports collapse and perceived fiscal deterioration (bond issue supported stimulus), Japan still stand in good stead as it should continue to run a trade surplus when the global economy recovers and will still be an investment income nation.

March trade surplus showed a rebound into positive territory from the previous months' crash.

Furthermore, MOF estimates that the market still has appetite to absorb the increased JGB issuance to fund the USD 140 bn stimulus package announced by Aso's government.

With the USDJPY yield differential as they are, there isn't much difference for investors to heavily favour USD based assets right now.

Things aren't so bad as it seems for the yen.

From a technical standpoint, the weekly chart below shows a three outside down candlestick formation which means bears having a strangle hold on the market. This means further downside is possible.

I fear that this piece is one week late because I noticed the outside red bar last weekend which means the bears are taking control but did not write. Nevertheless, as the week progressed, there seem to be more fundamental reasons for selling UDJPY. The ethos for my calls have always based on fundamentals. Technical analysis help me to confirm sentiments.

I favour selling on upward moves, near the 50 day moving average at 98. 40 (see chart below).

My call is for the next 2 weeks is:

To sell USDJPY from 98.40 - 99.00

Stop loss: 99.85 (above recent overbought moves)

Take profit: 95.50 - 96 (near neckline of recent double top formation)

Profit taken from half of position on EURUSD

Following my post on Sunday 11 Apr 09 My EURUSD forecast, my order to sell EURUSD 1.3349 was filled on Monday as the EURUSD surged to high 1.33 from high 1.31.

Tue and Wed saw this gain wiped out as deflation concerns coming out of the EZ caused the market to price in further cuts and speculation on asset purchases by the ECB in May gained traction.

As part of my usual strategy, I closed half the position at 1.3184 (165 pips profit) and decided to let the other half run, in the hope that EURUSD will continue to decline to below 1.30 before the end of next week where I will take profit again.

To prevent this remaining half position from turning into a loss, I placed a stop at 1.3349, exactly where I opened the position. So effectively, I have a free trade. The maximum I can lose on this trade is zero.

My EURUSD Call

As an Easter day gift, Well Fargo reported Q1 results on Thur 9 Apr to be much better than expected. That helped the Dow to surge a whopping 246 pts and the S&P 500, 3.81% higher.

Looking at the charts of those indices that day, the indices never looked like even making a convicted correction. The market is happy to stay long, I guess as there could be more surprises in the other banks' Q1 announcements coming up ahead.

But I still prefer to be cautious. JP Morgan said March was a 'tough' month. I'm keeping my emotions neutral before the next few announcements.

Over to currencies, EURUSD took a good amount of correction this week. The lure of the yield differential against the USD seems to have diminished as investors sold EUR to buy USD, JPY and GBP. Charts of EURJPY and EURGBP have shown obvious declines..

Case for a weaker EUR going forward

Perhaps, this was profit taking. Perhaps, people are judging the ECB to be behind the curve in boosting the economy. Perhaps the IMF euphoria is dying down and investors are sitting up to notice the huge amounts of potential bad loans and burden in the CEE - central and eastern Europe.

Afterall, an ECB member said the IMF idea of pumping USD 100 bn into the kitty to aid emerging economies was more like creating 'helicopter money'.

This year, the EUR has depreciated just 6% against the greenback. Its strength has contributed to a worse than expected drop in exports in Germany and France. Eventually the EUR might come to terms with itself, that it cannot stay so strong indefintely.

Even an ECB member on Thur said 'a cut beyond 1% could very well be in discussion soon'.

ECB has also started to talk about asset purchases, which more often than not, will devalue the currency. Maybe they'll have something concrete in May.

Looking at the daily chart of the EURUSD, we can see that the it has been making lower lows.

It has quite assuredly broken below the 23.60% retracement at 1.3270. The candlestick hammer formation formed on the 9 Apr signals some buying interest though, but its hard to imagine it is a big one.

Then on the weekly chart, it seems the bears have taken control of EURUSD as seen from the bearish engulfing pattern. This pattern shows that selling pressure is stronger than buying pressure from the previous week as bears took the higher opening and closed it lower than the low of the previous week.

But the volatile nature of FX being that is it, next week might be a week of a small move up if Q1 earnings are good and more risk appetite returns.

Even better, I'd sell at a higher level.

With that, here's my call for the next two weeks:

Sell from 1.33 - 1.3350 (near 23.60% retracement)

Stop loss 1.3450

Take profit at 1.2800 - 1.2991 (congestion in Nov 08 period)

USDSGD call

Come Thursday 9 Apr '09 *correction: Tue 14 Apr 09*, the Monetary Authority of Singapore or MAS will end their bi-annual meeting and issue a statement of currency guidance for until the next meeting.

Usually guarded and secretive, officials usually don't speak to the press like their foreign counterparts, but this time around, there is some market expectations for a statement of SGD depreciation.

In official terms, there could be a re-centering of the band lower.

Right now the SGD trades just slightly below the middle of the SGD NEER band (which is a measure of the strength of the SGD against a basket of currencies Singapore trades mainly with). The lower the SGD is in the band, the weaker it is. Re-centering the band lower effectively depreciates the SGD a tad.

With demand for Singapore's exports having crashed to the ground, as seen in the last 3 NODX measures, the government can ease the difficulties faced by exporters by helping them to be more competitive. Exports make up 70% of the island state's GDP.

Last year, when inflation was sky-rocketting, the MAS steepened the band and then lifted it higher to contain price rises, a drastic move by any count.

This year, inflation has declined sharply led by oil prices, so the need to keep the SGD at a high level is reduced.

My call for the USDSGD for the next week is to buy on dips (as the EUR makes its move higher) from 1.4950 (support level from mid Jan to early Feb), with stop loss at 1.4880. Take profit at around 1.5200.

Of course, if the MAS does not re-center or mention anything about depreciation, I'd revise this view.

My GBPUSD forecast

First and foremost I want to apologize for the ugly and untidy looking charts I've pasted in my blog so far.

I'm not a naturally artistic person so I can't spruce up the charts well.

And I also can't explain concepts well using graphics and words that are slapped on them. But I guess, I might get better doing a little more of this.

Anyway this post is about a potential trade on the GBPUSD.

As we know the UK and the US are in official Quant Easing. And because the market hadn't expect the Fed to make this move last Wednesday, the market had a huge reaction and brought up the GBPUSD to break the 4 months old downward channel resistance line - see chart below.

I feel this is an over-reaction by the market (as it always does) and the pair would not have legs to carry on much further.

For a re-cap, the Bank of England announced a GBP 75 bn package whereas the US put up a USD 300 bn package of their own. A big difference eh?

Firstly, QE is not equal in the US and the UK. There was an Financial Times article Friday that says that for the US to implement a proportionally equivalent QE package, it will cost up to USD 900 bn! - GBP 75 bn is worth a fifth of the gilts market.

Further, Friday's Commodity Futures Trading Commission (CFTC) open positions report revealed that there was a net long position in the USD still, compared with the other majors. If I remember correctly, the shorts on GBP was quite substantial - now this also emphasizes the market's downward view on the sterling.

Besides, UK unemployment rate is declining drastically and home prices are still very weak. I don't see a good fundamental reason to long GBP.

Back to the chart above, the 3.5 months support turned resistance line will be a tough nut to crack. Hence, Friday's (20 Mar 09) close of 1.4444 sits just on the resistance line.

Perhaps, more upside momentum (MACD entering into +ve territory) might punch the pair high towards the 50% or even 61.8% retracement levels - see chart below.

As the GBPUSD is a notably high volatility pair, my call for the next 2 weeks (till 6 Apr) is to sell at closer to the 61.8% retracement.

My call: sell from 1.4850 - 1.4980

Stop loss: 1.5080

Take profit: 1.4080 (23.6% retracement)

Weekly Forecast - USDJPY

- The major economic data that was out for Japan this week had been the '08 Q4 GDP which came in -12.7% (per annum basis), representing the worse decline since the '74 oil crisis.

- This week, we have seen broad USD strength as risk aversion came back into the market.

- And for the USDJPY, it had been a defining week too. The high was hit on Thur NY trade at 94.47. JPY is no longer the safe currency of choice. USD seems to be the only 'good' ccy left (by virtue of a lack of options).

- One interesting thing I have noted is that the stock correlation between USDJPY and stocks (Dow) have broken off. Traditionally, as stocks fell, the USDJPY would fall as well as investors flee to buy the safe haven ccy JPY. I ran a correlation test for the two from the first trading day of this year to 19 Feb '09 and found that the correlation is 0.026.

This is by no means a comprehensive statistical result as I have used a small sample size but a similar 1 year correlation test returned more than 0.8. The huge difference between the two results should tell you something as an indication.

- Furthermore, we're seeing more Japanese investors ditching Japanese stocks and bonds for foreign assets. Just last week (ending 13 Jan 09) there had been an outflow of JPY1.8 trn. This is USDJPY supportive as investors need to sell JPY to buy foreign currencies to purchase foreign assets.

And as long as local assets show no promise of returns, money will flow out of the country. Remember Japan is facing a serious deflationary scenario.

- On technical analysis, the USDJPY now trades at the critical neckline level (appr 93.75) of a double bottom reversal (see chart). A clear break of this level would mean further upside.



In my previous post I've highlighted a resistance line that goes all the way back from Q3 '07. Extrapolated to today, it is indeed very relevant in resisting upward moves. Notice that the price is resisted by the line in early Q4 '08 (see chart).

Because of this week's huge surge, USDJPY is currently trading above the current resistance of 92.7 (93.75 at the point of writing). We should see a close above this line of 92.7 today at NY close.

Next week Friday’s closing will be critical to judge if usdjpy is going to break over clearly and go for the home run of 98 but that's another story altogether. Watch this space.

With that, my call for week ending 27 Feb 09 is

Buy from 92.40 (which is the resistance line extrapolated to next week)

Sell near 97 (congestion area of late nov 08)

Profit taken off long USDJPY position

11 Feb 09
Entry: long USDJPY at 90.45

18 Feb 09
Took Profit: sold at 93.00 (255 pips)