biz.yahoo.com
Sunday July 18, 10:15 pm Eastern Time
More misery ahead as euro/yen technicals turn ugly
TOKYO, July 19 (Reuters) - The euro's fundamental flaws are compounded by a truly ugly technical picture against the yen that warns of further misery to come.
The hapless European currency has already lost 10 percent of its value against the yen this year and analysts are certain it would have been a lot more if not for the intervention of the Bank of Japan (BOJ) to curb the yen.
The euro squandered a chance for redemption on Monday by fleeing below its former lifetime trough at 122.63 yen to as low as 121.98. In the process the euro ruined a potential double bottom formation that had offered a glimmering of a reversal in the eight month-old downtrend.
With that bulwark overrun, analysts had expected support around 122.10/20 to provide only a momentary cushion before a push to the key 121.65/70 level, a trough from August 1997 derived using the old Ecu rate.
''We would be strongly bearish below here (121.70),'' said an analyst at Standard and Poor's MMS.
''Although interaday technicals are moving into oversold territory, the overall bearish bias keeps the focus firmly on selling strategies.''
By 0200 GMT the euro had slumped to 122.09/26 yen from 123.43 late in New York on Friday.
A break below 121.65/70 would take the euro to territory not seen since the first half of 1995, again derived using the Ecu, when it delved as deep as 106.98 yen.
It subsequently rallied from that low to a peak of 164.07 yen in October last year, but has since come back a lot quicker. A 76.4 percent retracement of that rally gives a target at 120.45 and analysts see some psychological support at 120.00 yen.
However, with weekly charts showing a clear and strong downtrend, a retreat to 116.00 yen looked possible in the next few weeks, they said.
Immediate resistance would now be found around 122.60 and 123.20 yen and the currency would have to reclaim 124.45 resistance to put it on safer footing.
Analysts did emphasise that the bearish scenario assumed no intervention from the BOJ and that there was a real chance the central bank would step in to defend 122.00 yen.
They noted speculation in the market that a fall below this level would trigger panic selling by Japanese life insurers to hedge their massive euro debt exposure, losses from which could actually threaten the survivability of some institutions.
''Its always hard to know how much of their euro holdings are still unhedged, but it is thought to run into the many billions,'' said one analyst who declined to be named.
''The BOJ will want to prevent a recurrence of financial instability at all costs, and if that means bailing these guys out by buying euro/yen, then so be it.''
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Oh crap.
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