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The USD continued to advance against the major pairs today after starting the overnight session a bit firmer in Asia; most of the advance coming from a disappointing German ZEW sentiment index released during European trade. With the lack of fresh news from the US side of the Atlantic, traders have focused on non-US fundamentals for clues to near-term USD direction. With the positive Eurozone fundamentals seen in recent weeks, analysts forecast a solid ZEW reading but today’s reading was a very poor -5.6, sharply lower than the median forecast of +12.2 suggesting that the Eurozone growth potential is moderating. EURO responded by selling off hard from the recent resistance area above 1.2900 area seen in early trade yesterday and continued to weaken all day into the close of New York trade.
Traders note that stops were elected at several layers as expected but aggressive selling emerged as the pair moved through support rumored at 1.2840 area. On the bid was US names and model/momentum funds around the 1.2840 area but those longs were likely liquidated once the rate fell through the 1.2800 handle shortly before the close of European trade. The EURO remained under pressure all day and likely will have seen a drop in O/I in futures as long-liquidation may have been the bulk of the selling pressure today. Tracking EURO lower was the GBP, falling through support at 1.8930 area and triggering stops as well to eventually post a new low for the week at the 1.8856 area; traders note that cable has done some technical damage to the bullish position so more follow-through is expected the next 24 hours.
USD/JPY rallied through resistance as well, triggering close-in stops at the 116.40 area and again at 116.60 area before encountering offers at the 116.80 area to cap the move. Exporters and option defense noted at the highs suggesting that someone does not want to see a 117.00 print anytime soon but buyers were thick under the market with good buying expected on any dip back to the low 116.00 handle. In my view, the USD is continuing a correction from the highs that started in the GBP three weeks ago and gaining momentum. Look for lower prices to end the week. Aggressive traders can sell rallies in the majors as the sizable long position in Futures has a long way to go before support I think. Overnight expect the USD to consolidate these gains and remain very two-sided.
EURO/USD Daily
R3: 1.2950
R2: 1.2910
R1: 1.2860/80
Current Price : 1.2821
S1: 1.2800
S2: 1.2770/80
S3: 1.2730
Pair falling back on long liquidation pressure and failure at the recent high. Stops rumored to be building at the 1.2780 area and below, close under 1.2770 area sets up a test of the 100 bar MA at 1.2730 area; trend line support also at 1.2700 area. Look for solid two-way trade overnight with a heavy tone as traders look for follow-through selling overnight. Strong offers likely on a rally back to 1.2860.
USD/JPY Daily
R3: 8720
R2: 8700
R1: 8640/50
Current Price : 8608
S1: 8590
S2: 8550
S3: ?
Pair finding near-term support at 8600 area, stops rumored to be sub 8590 area, bottom picking likely on approach to 8550 area to form a double bottom. Upside limited to previous offers at 8700 and 50 bar MA at 8720 area, look for continued liquidation pressures should pair stall under 8600 area. Massive short-covering rally likely should market have a quiet day ahead of US data.
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