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The low-yielding yen recovered against the commodity currencies, the euro, the pound and the dollar, while high-yielders slid on Thursday as investors cut exposure to carry trades due to the tumult in the credit markets. BNP Paribas suspended operations of three of its funds in the aftermath of the US subprime debacle and that the ECB and the Fed were forced to inject cash into the system. Carry trades suffered, but they’ve been trading one day up and one day down, so Friday should see a reprieve. The euro and the pound fell, the yen rallied, while the franc remained mixed. Following some retracement the European currencies should encounter further weakness, and the yen should do just the opposite.
Euro/dollar
The euro/dollar sank to a one-week low on Thursday and an exodus from euro/yen. It should bounce first today before any further weakness is seen.
Below 1.3655, good support is at 1.3625 from the 38.2% Fibonacci retracement level of the June 13 – July 24 leg of the uptrend. Next level is 1.3608. Distant support is seen at 1.3560.
Initial resistance is at 1.3715. Next strong resistance looms at 1.3747. Above 1.3840, resistance looms at 1.3853 from a pivotal high at 1.3853. Next resistance is pegged at 1.3935.
Oscillators are mixed.
NEAR-TERM: Mixed
MEDIUM-TERM: Mixed
LONG-TERM: Bullish
Dollar/yen
One day after climbing to a 1 ½-week high, dollar/yen fell sharply and unexpectedly to reverse all of its gains. The Europe/yen crosses and the carry trades too a beating, but their medium-term outlook remains positive. After an initial recovery the sell-off should resume – but at a slower pace.
Initial support level is 117.75. There is a pivotal low at 117.19.
Key resistance level is 118.25 from a 50-point pivot that targets 117.75 and 118.75. Above 118.75, strong resistance is seen at 119.65 from a 50-point pivot that targets 119.15 and 120.15.
Oscillators are declining.
NEAR-TERM: Mixed with downside bias
MEDIUM-TERM: Bearish
LONG-TERM: Bullish
Sterling/dollar
Sterling/dollar fell within an inside range on Thursday. It should struggle higher today.
There is a pivotal support at 2.0182. The next levels are at 2.0060 and 2.0015. Distant support is at 1.9930.
Initial resistance is at 2.0285. The next level looms at 2.0355. If the further level at 2.0410 gives way, then look for a test of the resistance at 2.0510.
Oscillators are mixed.
NEAR-TERM: Mixed
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Dollar/Swiss franc
Dollar/Swiss franc encountered another day of choppy of trading on Thursday but once again it closed little changed. Friday should be dominated by consolidation as well.
Initial resistance is at 1.1995. This level is followed by 1.2025. Above 1.2090, the next cap remains at 1.2140.
Immediate support remains at 1.1915. Below 1.1860, support is seen at 1.1820. Next levels are 1.1788 and 1.1740 from a pivotal low. Strong support follows at 1.1707.
Oscillators are mixed.
NEAR-TERM: Mixed
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
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