From BofA Merrill Lynch Global Research / Global Technical Strategy:
Summary: €/$ enters the buy zone; $/CHF the sell zone. Watch US 10s. However, higher US yields won’t help $/¥ or the Nikkei
- €/$ has entered the sell zone at 1.3676/1.3735
- $/CHF has entered our buy zone at 0.8910/0.8845
- From these levels we are now looking for the US $ to resume its larger bull trend against both currencies.
- We think that it’s almost time to buy the US $ against € & CHF, but we want to wait for confirmation that the trends have turned before diving in.
- Keep a close eye on US Treasuries. A 10yr yield break of 2.568% would confirm a base and resumption of the larger bear trend, targeting 2.825% and eventually the Jan high at 3.049%. This should be bullish US $ against € and CHF. However, higher US yields should not be enough to save $/¥ (or the Nikkei). To be clear we are looking for a breakdown in the correlation between these asset classes.
- $/¥ is on the verge of breaking down. A bounce into the high 101, low 102 area (ideally 102.20) is a solid selling opportunity for a breakdown to at least 99.21, but more likely 97.40.
- Indeed, we remain bearish the Nikkei against the 15,442.67 high of Jun-23 for the multi-month range lows at 13,995; potentially as far as 13,188/13,107 before greater signs of stabilization occur.
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