Bank Recommendations

Deutsche Bank

EUR USD (1.2965) The euro’s gains from the day before proved to have been short-lived as it started to edge lower early in the European session yesterday. It became evident that the bullishness when the single currency spiked up to $1.3035 was simply not an issue anymore and at the end of the day it was left 80 pips lower. Moreover, all of this happened while traders were not showing much of an interest in the EUR-USD at all; its development was overshadowed by the turmoil in the yen crosses and by the development in Cable. In the end the euro just became a vehicle for playing the euro-yen cross and it rose and fell in tandem with the dollar-yen. Of importance here is that market participants were waiting for the unwinding of carry trades to provide them with an opportunity to get in. This is exactly what happened yesterday and on the first downward correction they jumped in and bought it straight up to the earlier highs. For today we opt to turn bearish on continued weakness below 1.2930. The objective for this strategy would be 1.2650. Once triggered, the risk-limit would be at 1.3010. Alternatively one can wait for a more powerful bounce to 1.3090 and use this point to turn bearish. For this option the risk limit would be 1.3150 (also the point for a stop-and-reverse strategy).

USD JPY (120.40) The feared unwinding of carry- trades happened yesterday morning and provided the opportunity for some to get in (and to cash in some of the downside protection that had been recently acquired). By the time the second wave of liquidation came along in the afternoon, the would-be dip-buyers in the dollar had already been served, thus demand was missing. At the current higher level of volatility, the once highlyregarded carry-trade is becoming less attractive without a corresponding widening in interest rate differentials. Yesterday’s weakness unfortunately violated our risk-limit. For the moment we view the 119.80 point as critical for a downside target at 115.30/40. Leftover supply now lurks at 120.95/05.

EUR JPY (156.10) Here the same picture unfolded yesterday, however, the second bout of weakness was said to be the result of concerns about what will be voiced by Europeans at the upcoming G7 meeting. The sudden dip violated our risk limit. We adjust our view to neutral. For now the danger lies in further losses to 154.10. On the upside, we expect to run into resistance at 156.80

GBP USD (1.9665) Sterling’s recent rally came to an abrupt end yesterday. The tight rate decision from the BOE minutes, as well as latest remarks by Mervyn King have deflated some of the earlier UK interest rate expectations. In addition, Sterling was also the victim of carry-trade unwinding. The breach of our risk-limit means that our outlook has returned to neutral. Supports stand at 1.9580/00 (and thereafter at 1.9300). Look out for resistance at 1.9760.

AUD USD (0.7790) Aussie was in for another rough day and weakened below 0.7810. As mentioned in our last report, this development opens the risk for a further correction to 0.7720/25 (next best supply). Overhead 0.7840 and 0.7880 mark the resistances.

STEVEN WESIAK, ABN AMRO
EUR/USD: "Support line at $1.2930 defended, pop up to $1.3082 likely. Yesterday's decline held above the tested upward sloping support line at $1.2930 and higher level should be the result. The expectation is for a rise to $1.3082. Reaching that potential barrier could initiate a small dip to $1.3045 before buyers step in again, likely sending levels up to the $1.3133 target."

USD/JPY: "Correction that started at strong 121.88 yen resistance could bottom out at 120.07 support. The decline has reached an area where a rebound could occur, namely the first downside Fibonacci level and trend line support at 120.07. Holding here should tempt buyers to step in again and give the strong 121.88 resistance another whack. If it gets taken out then a move to at least 122.50 and as far as 124.50."

GBP/USD: "Prices were slammed lower after reaching a high of $1.9916, could reach $1.9590 before bottoming out. This is not surprising due to the massive barrier at $2.000-2.0225. No bottom has yet formed, so the current decline has room to move to a Fibonacci support and former low at $1.9590. Reaching it could tempt buyers to step in again. But if it fails as support, then a further fall to $1.9510 can be expected. On the upside, the first glimmer of returning bullishness comes with a push up past a small peak at $1.9700."

EUR/JPY: "New all-time high set at 158.51 yen, but price pulling back with room down to 156.36. The market headed lower after setting new all-time high at 158.51. This, though, might be bottoming out at 155.80 and if so, price will rally above 157.20. Clearly that makes the 158.51 top look vulnerable. A break above it should see level reach a projected possible top at 159.00, which could cause another round of selling. On the downside, under 155.80 then 155.09, which is just a minor level. If that also fails, then sellers will likely set their sight on 153.67 yen."

EUR/GBP: "Slight reversal bar forms at 65.37 pence, should be enough to propel price up to 66.71 pence. The bears heavily hit support but buyers were lying in wait just below it at 65.37. A slight reversal bar formed there which should be enough to propel prices up to the 66.71 former low. Holding under that keeps the downtrend intact, but if taken out then the market will have room to the 67.62 level. On the downside, violating 65.37 targets at least 65.15, but more likely 64.65 pence."

AUD/USD: "A head-and-shoulders top formed and holding under the last shoulder at $0.7937 calls for a break below the $0.7762 neckline and a move down to the $0.7616 low. That is also the 38.2 percent Fibonacci level of the $0.7106 to $0.7980 upswing and thus a good place for a bounce to kick in, likely to test $0.7762 as new resistance. This bearish scenario only ends with a break above $0.7937, which would imply that the bulls are getting ready to ram $0.8005."

NICOLE ELLIOTT, MIZUHO CORPORATE BANK

EUR/USD: "Relatively calm as crosses get hammered. The euro still needs a sustained break above $1.3065 to set off buy stops and turn momentum bullish; it would also hint that an interim low is in place. The euro is not overbought and should be helped along by other currencies doing something similar. For this morning expect basing activity around $1.2950 and a squeeze back up to $1.3050 by the end of this week."

USD/JPY: "Our caution this month has been vindicated with massive intra-day price swings and a sharp sell-off over the last two days. Trendline support is holding at the moment but probably not for much longer, with more sell-stops likely below 120.00 yen. The dollar is not oversold but open interest has set a new record high. For this morning allow for more work between 120.00 and 121.00, with downside pressure increasing the longer we hold below 121.25. Then down again late this week/next week to 119.80/119.50."

GBP/USD: "Giving up 38 percent of the latest leg higher and behaving marginally better than some other currencies. We continue to favour another bout of consolidation under $1.9900 with dips hopefully holding above the $1.9600 area and a very thick Ichimoku `cloud'."

EUR/JPY: "Slapped down from a record high at 158.62 yen with massive intra-day gyrations. We remain within normal retracement parameters. Do not jump the gun and assume candles will be bearish at the end of the day or the end of the week/month. For this morning allow for consolidation between 156.00 and 157.00 and be aware that this pair is likely to be a lot more difficult to trade over the next two weeks. We still feel that dips are probably buying opportunities for another probe higher."