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Despite good follow-through selling overnight the USD was able to advance modestly against a few pairs today in post-report trade but traders remind that most of the action the past 72 hours has been Yen related cross-spreading; not USD focused exclusively. After yesterdays USD rout further selling was seen overnight Asia and into European trade but mostly solid ranges until US data this morning. Forecast at 51.5, ISM index came in at a disappointing 49.3 suggesting that the economy is now in the contracting mode. The USD sold-off sharply on the news but was able to hold technical support/resistance and rebounded in thinner conditions and remained supported for most of the day. Traders caution that the USD has not built strength so much as rallied on early short-covering most suspect and warn that some technical damage was done today and a test of the lows is not out of the question. USD bulls have a lot to worry about if the economy is contracting but it is early in the “soft landing” scenario so most analysts continue to expect solid two-way flows at least through the next few weeks.
Cable rallied into stops above the 1.9700 handle for a high print at 1.9741 but was unable to hold gains falling back to close back under the 1.9700 handle; traders remain optimistic for higher prices but caution that GBP is also subject to pressure from Yen carry unwinds. EURO scored the 1.3054 high about the same time as GBP and fell off about the same suggesting that EURO was moving solely in sympathy trade but still a solid close over 1.3000 suggests that EURO has the potential to break-out to the upside and lead the complex higher against the USD near-term. Many analysts note that the rally higher caught EURO bears by surprise suggesting that the recent consolidation is coiling for a continuation of uptrend for the quarter. USD/JPY broke down to a 120.10 low print but failed to trigger large stops rumored to be layered in the 120.00 area or below, traders note that the resulting up tick was on light volume and the close was ‘uninspiring”. Should today’s higher price action in USD/JPY be a bull trap there will be larger volatility overnight; look for the USD/JPY to lead the complex during the Asian session despite Yen cross-trading. Look for US data to disappoint the USD bulls, I’m looking for the greenback to make lows for the week tomorrow and finish weaker.
GBP/USD Daily
R3: 1.9850/60
R2: 1.9800
R1: 1.9750
Current Price : 1.9672
S1: 1.9620/30
S2: 1.9580
S3: 1.9550/60
Technically a strong day but a stronger finish would have helped the bulls case a bit, some two-way trade later in the day but overall a good follow-through to the upside ahead of US data on Friday. Volumes not impressive today suggesting that traders are taking a “wait and see” attitude towards the health of the rally. OK to add to open longs on a pullback as long as the 1.9620 area holds on a sell-off.
USD/JPY Daily
R3: 8420
R2: 8400
R1: 8380
Current Price : 8336
S1: 8300
S2: 8280
S3: 8250
Rate forms a near-term potential double top from last week’s highs but retracement to the close on light volume. Inside range day closing higher tomorrow would give pause to the bullish point of view but large overhang of open shorts needs to be cleared before price can decline in my view; upside potential still greater. Look for a rally to test the 8500 area near-term.
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