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The USD is a bit better to start New York after a quiet two-sided trade in Asia, which saw relatively benign movement as Japan celebrated a minor holiday and many desks were lightly manned. European trade saw the majors fade quickly against the USD once the G-7 communiqué was released and the USD is near the overnight highs as trading gets underway for the week. In the G-7 communiqué finance ministers repeated verbatim the language of the last statement and refrained from specifically addressing any one currency in detail. Traders took this to mean “business as usual” and USD bulls pressed their advantage while early shorts covered.
Underpinning the EURO were comments from ECB governors suggesting that rate hikes are far from over in the Eurozone, Russian accounts were seen on the offer on the way down as well as model accounts when the rate broke the 1.2670 area again. Underpinning EURO were “the usual suspects” and that normally includes middle-eastern central banks. GBP fell through several layers of support to again challenge key support under the 1.8760 area; low prints at 1.8735. Traders note that cross-spreaders again are the main interest in GBP overnight with most on both sides as traders spread GBP/JPY, EURO/GBP and EURO/JPY. The non-USD crosses have created a bit of volatility lately and that is expected to continue through the end of the week. Analysts are closely watching this weeks FOMC meeting where speculation runs high that the US Fed will leave rates as is for the second straight meeting. Most traders are pricing in one more rate-hike from the fed before the end of the year but are unclear to the timing. Outside chance of a 50 BP hike might surprise the market but as of today most analysts think that the Fed is about done after one more 25 BP hike to 5.5%.
In my view, the majors are retracing their current ranges and building for a sharp move in the opposite direction shortly. The USD is fundamentally weak and has completed a rather long time frame retracement going back years of a net bear market. I think large and long time frame traders are using this USD strength this past two months as a selling opportunity and I would look for the bullish momentum to fade very soon. Look for German ZEW to inspire EURO bulls tomorrow, PPI to remain neutral for the USD and today’s TICS to cover the trade deficit just fine.
GBP/USD Daily
R3: 1.8860
R2: 1.8800
R1: 1.8780
Current Price : 1.8756
S1: 1.8730
S2: 1.8700
S3: 1.8680
Pair a textbook BUY from test of 50 bar MA after completing 50% retracement between significant High and Low. 100 bar MA offering good support on any further breakdown. Technical traders will be looking for a close above the 1.8860 area to remain bullish, under the 1.8730 area to remain bearish. Look for US data to inspire the bulls in this pair near-term. Close over 1.8900 sets up test of highs.
EURO/USD Daily
R3: 1.2760
R2: 1.2720
R1: 1.2680
Current Price : 1.2659
S1: 1.2640
S2: 1.2600
S3: 1.2580
Pair also a textbook BUY completing 61.8% retracement from significant High and Low; double bottom on support at the lows also good clue. Look for rate to trade violently near-term as traders are watching overnight ZEW closely and FOMC even more. Look for offers to cap rally near-term at 1.2780 area but stops above.
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