Morning forex briefing
The USD gained slightly during overnight trade starting just a shade better in New York ahead of US data due out shortly. Although considered a minor report, housing starts will likely gain more significance in the minds of traders as a potential clue as to timing the US Fed’s next move. Lower than expected numbers today might cause a burst of USD selling as traders have several technical reasons to consider. Most of the major pairs are holding support/resistance at their respective 50 day MA’s and they have completed a 50% retracement of the last 60 days or so price action between recent high/lows. Today is a Friday so I would be inclined to expect a long-liquidation break as traders unwilling to hold over a weekend square positions sell-off their profitable USD longs. This appeared to be the case in early Asia overnight as the USD tracked lower initially but technical trading kept the pairs inside the established weekly range and supported the USD.
Cable was bid up initially and EURO tracked higher as well; both pairs supported by buying from Asian names and a US investment house. Cable held to a narrow overnight range of 59 pips with quiet two-sided trade as the rate drifted through European trade. EURO fared better to the upside but the top end of the weekly range continues to offer solid offers; EURO capped at 1.2799 as traders begin to see the 1.2830/40 area as solid resistance and offers build ahead of there. In both GBP and EURO it is important to note that volumes have been on the lighter side the past 24 hours and with a US holiday coming up next week a high volume day today might well be book-squaring or short-covering. I think due to the tight ranges seen in those two pairs, volatility may increase dramatically in the next few trading hours; be ready to see a one-way market.
USD/JPY also seen tighter ranges but with a bit more volume traders say; pair was moving a bit on BOJ Fukui comments. Fukui said again that the BOJ is in “no hurry†to raise rates but that they were assessing the situation. Basically he said nothing new but traders are anxious to price in a 25 BP rate hike and need to know with a better degree of certainty when the BOJ will move rates. Speculation is leaning toward Q1 2007. Next week is light US data and the holiday; look for technical trade and very light volumes as traders leave for the holiday.
USD/JPY Daily
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R3: 119.20
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R2: 118.80
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R1: 118.40/50
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Current Price : 118.33
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S1: 118.00
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S2: 117.60
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S3: 117.10/20
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Pair likely to test for stops over the 118.40/50 area but traders remind that the rate needs a firm test of the 118.80 area with a close above to ward off signs of a near-term correction. Rate hovering at the 50% retracement area argues for a pullback; look for volumes to increase on a sell-off. Analysts remind that rate has seasonal tendencies lower due to holiday repatriation so upside may be limited.
EURO/USD Daily
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R3: 1.2880
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R2: 1.2840
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R1: 1.2800
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Current Price : 1.2769
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S1: 1.2720
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S2: 1.2700
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S3: 1.2680
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Pair approaching stronger support around the 1.2720 area of fib defense and 100 bar MA; pair likely to bounce from in here somewhere as traders square books and book gains. Analysts note that volumes have been on the lighter side this week and despite US data this week the rate has held a tighter range. A sharp move in either direction may be building as prices are “coilingâ€.
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Jason Alan Jankovsky
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