Bank Recommendations 07.11.2006

Deutsche Bank

EUR USD (1.2770) The US midterm elections have found very little resonance in the market. The few discussions that have taken place have typically concerned the outlook for the stock market and the prospect of a re-run of the bullish outcome of the 1994 political stalemate. But this idea has not been warmly embraced, probably because equity investors, having underperformed during the recent run-up in stock prices, need a correction more urgently than they need a rally. For currencies, there is a general view that gridlock would be positive for dollar. Optimists claim that more fiscal responsibility and a dose of protectionism could help to chip away at the twin deficits. Some even go as far as to suggest that geopolitical risk could be reduced if the Democrats manage to limit George Bush’s warmongering. But all of these ideas require a great deal of patience (and a tongue firmly in cheek). It would be a brave person who buys dollars today in the hope that the risk-premium will be reduced over the next two years. The objective of yesterday’s freshly established bullish strategy remains at 1.2850. Beyond this hurdle, the gains would likely extend to 1.2975, the level that marks the upper end of the euro’s broad range. The risk-limit to the bullish view, already tight at the outset, can now be slightly raised to 1.2685.

USD JPY (117.75) The dollar climbed to a 118.45 peak yesterday, probably as a by-product of demand for the cross. The move signaled greater stability for the US-currency, although we refused to become bullish yesterday on risk-reward grounds. The best support is still relatively distant at 117.10. But a dip to the intermediate point at 117.40 would make a bullish strategy much more attractive. We would set the risk-limit at the lower point for an objective at 119.90. In the meantime, the first overhead point stands at 118.70.

EUR JPY (150.30) With volatility again near the lows yesterday, the hurdles to carry-trading became a little easier. The cross climbed back to 150.60. Verbal intervention, this time by the European Commission, could do nothing to drag it lower. Admittedly, former short-sellers were already in the process of covering their positions at the time. But traders would anyway have had a hard time accepting the Commission’s opinion that the yen’s decline against the euro was not justified by the fundamentals – one would have to ignore the interest rate differential, the growth differential and the over-performance of the eurozone stock markets relative to the Japanese bourse. We remain bullish for gains to 151.00 (if not to 151.50). Supports stand now at 149.90 and at 148.80. GBP USD (1.9040) Yesterday’s correction was a whisker too deep for the day’s dip-buying effort, but nothing bearish was to be concluded. As a result, we would again be ready to embark on a bullish strategy in case of a break beyond 1.9080. In the meantime, we look for support at 1.8950/60 and at 1.8925.

AUD USD (0.7735) Not only is the A$ under no real threat, as we suggested yesterday, it has already made back the best part of the recent losses. Supports have improved at 0.7710 as a result of the overnight recovery. Consequently, we elect to use this as a risk-limit for a immediate bullish strategy. Overhead, the first supply point is likely to be 0.7785, but the goal of the new bullish view is to be set at 0.7850.

IFR Markets

EUR/USD
Inside day and potential hammer reversal on the charts, but note that it did not come at the end of a substantial trend so the signal is not that strong. It does however point towards further topside action as day trend studies ignore an overbought bias and continue to tick north. Intraday go with a break of 1.2796 but prefer to buy dips.

Resistance:
1.2940(S) Daily High Aug 21 Take Profits, Buy Break
1.2855(M) 1% MA Band Top Flat On A Failure
1.2830(M) Daily High Sept 22 Flat On A Failure
1.2795(S) Daily High Nov 1, TL Buy A Break Above

Support:
1.2750(M) Hourly Support Nov 7 Buy A Bounce
1.2725(M) Hourly High Nov 6 Buy A Bounce
1.2680(M) Oct 31 Low, 38.2% Sell Sustained Break
1.2605(M) 61.8% Of 1.2485 - 1.2795 Cover On A Bounce

USD/JPY
Lower open and close seen in this pairing today and with day trend studies rolling over again a run back towards the Ichimoku Cloud base , which is also the 200-day MA at 116.25 is possible. Would need a nreal back inside the Ichimoku cloud first though to confirm this. Sell failures or a break of 117.15.

Resistance:
119.35(M) Hourly Stalls Oct 25 Flat On A Failure
118.75(M) Daily High Oct 27 Flat On A Failure
118.50(M) 21-Day MA Buy Sustained Break
118.00(M) Hourly Resistance Nov 7 Expect Stalling

Support:
117.15(M) Ichimoku Cloud Top Sell A Break Below
116.60(M) Pullback Lows Nov 1 Cover On A Bounce
116.25(S) 200-Day MA, Ichimoku Base Cover On A Bounce
116.05(M) Daily Low Sept 22 Cover On A Bounce

GBP/USD
1.9060 has stalled the rally and price is easing away from the highs as hourly studies threaten to topple from overbought levels. The daily charts are beginning to favor the topside again as indicators here look to ignore an overbought bias and tick north again. Buy dips intraday or a break of 1.9115.

Resistance:
1.9160(S) Daily High Apr 29 05 Flat On A Failure
1.9145(S) Daily High Aug 8 Flat On A Failure
1.9115(M) Daily High Nov 3 Buy A Break Above
1.9060(M) Session High Nov 7 Sell A Failure

Support:
1.9020(M) Hourly Support Nov 7 Buy A Bounce
1.8950(S) Daily Low Nov 6 Buy A Bounce
1.8925(M) Up TL Fm Ovt 16 Low Sell A Break Below
1.8870(M) Daily Low Oct 27 Cover On A Bounce

USD/CHF
1.2500 has propped as price needs to bounce to allow hourly studies to work out an oversold bias. Selling into strength is the preferred strategy for the day as daily charts suggest that another run back towards the 1.2405 low from last Wed which is also the 61.8% fibo is possible. Keep stops relatively tight given recent whipsawing.

Resistance:
1.2710(M) Oct 19, Oct 24 Highs Take Profit, Buy Break
1.2630(M) 61.8% Of 1.2775 - 1.2405 Flat On A Failure
1.2610(M) Dntrend Line Fm Oct 13 Buy A Break Above
1.2580(M) Daily High Nov 6 Sell A Failure

Support:
1.2480(M) Hourly High Nov 2 Buy A Bounce
1.2435(M) Daily Low Nov 2 Buy A Bounce
1.2405(M) 61.8% Of 1.2190 - 1.2775 Buy Bounce, Sell Break
1.2385(S) Uptrend Fm May 15 Low Cover On A Bounce

EUR/JPY
150.20 back under pressure as the cross continues to slide. We continue to favor playing the topside in spite of the divergence from the daily RSI. Will use dips as fresh buying opportunities for anoter run at 150.75. 150.60 stalled the move yesterday and is minor resistance ahead.

Resistance:
152.65(M) Monthly Low Aug 98 Sell Failure, Buy Break
152.50(S) Two-Yr Channel Top Take Profit, Sell Failure
151.40(M) 1% MA Band Top Flat On A Failure
150.75(M) Fail High Aug 31 & Oct 27 Buy A Break Above

Support:
150.20(M) Hourly Low Nov 7 Expect Stalling
149.80(M) Pullback Low Nov 6, 10-D Buy A Bounce
149.45(M) Hrly Low Nov 3 Buy A Bounce
148.85(M) Lower Bolli Band Buy Bounce, Sell Break

EUR/GBP
0.6710 has rejected price and the pair has eased back below the figure. failing to hold below here though and 0.6700 now a pivot level. Hourly studies are bearish and we could still see a push back toward 0.6680 support. Bullish momentum has waned on the daily charts but need a break oy of the 0.6680/6725 band to determine direction.

Resistance:
0.6820(M) Failure High Sept 11 Take Profit, Buy Break
0.6795(M) Daily High Sept 29 Flat On A Failure
0.6770(M) Daily High Oct 6 Flat On A Failure
0.6725(M) Daily Hi Oct 26 Sell Failure, Buy Break

Support:
0.6695(M) Hourly Support Nov 7 Buy A Bounce
0.6680(M) Nov 2, 3, 6 Lows Sell A Break Below
0.6640(M) 1% MA Band Base Cover On A Bounce
0.6610(M) Trend Low Jun 10 05 Take Profit, Sell Break

EUR/CHF
Longs in play as major resistance at 1.5970 was taken out. Resistance levels are few and far between as we are at 6 year highs and further gains seem likely. Momentum studies are all favourable. Our target is the top of the 1% envelope which normally contains prices. This comes in at 1.6075. Second level hourly support at 1.5935 should hold dips.

Resistance:
1.6235(M) Jan 1999 High Flat On A Failure
1.6160(S) January 2000 High Take Profit, Buy Break
1.6135(M) March 2000 High Flat On A Failure
1.6075(S) Chnl Top, 1% Env Top Take Profit, Buy Break

Support:
1.5960(M) Hourly Support Nov 6 Expect Stalling
1.5935(M) Hourly Lows Nov 6 Buy A Bounce
1.5920(M) Nov 2 High, 10-Day Sell Stop Below
1.5860(M) Oct 19, 31 Lows Sell A Break Below

USD/CAD
Longs from overnight were initiated a little early though the direction looks sound. Daily studies are bullish and support at 1.1270 has been validated already. A failure now to break this support level should bring about a test of important trend resistance at 1.1420, which is where our profit target lies.

Resistance:
1.1460(M) Jul 24 Peak, 1-yr TL Flat On A Failure
1.1420(M) Trend High Oct 17, BB Take Profit, Buy Break
1.1385(M) 1% MA Envelope Top Flat On A Failure
1.1375(M) Oct 19 Hi, Nov 2 Hi Flat On A Failure

Support:
1.1270(M) 10-Day MA, 38.2% Sell Stop Below
1.1175(M) Daily Low Oct 30, BB Take Profit/Sell Break
1.1145(S) Daily Low Oct 2, 3 Cover On A Bounce
1.1090(S) Sep 27, 28 Lows Take Profit, Sell Break

AUD/USD
Short position was squared up for a small loss as resistance at .7735 was broken. Target is now a return to trend highs around .7770. Daily studies are bearish but the uptrend seems to pay no attention to this and is marching on. We will sit this one out for a bit and perhaps sell a renewed failure at .7770.

Resistance:
0.7925(M) Daily High Mar 22 05 Flat On A Failure
0.7840(M) Daily High Apr 29 05 Flat On A Failure
0.7795(M) Trend High May 11 Sell Failure, Buy Break
0.7770(S) Daily High Nov1 Sell A Failure

Support:
0.7695(M) Hourly Sppt Nov 6 Cover On A Bounce
0.7670(S) Lows Oct 27, 30, Nov 6 Cover On A Bounce
0.7650(M) Oct 26 High Cover On A Bounce
0.7635(M) 38.2% .7415-.7770 Buy Bounce