Afternoon US Dollar Wrap-Up

The USD continued to trade in solid two-way
technical action today after a weak finish from last Friday was erased
overnight starting in Asia. Although the greenback failed to extend outside
established ranges overnight the USD was solidly on the offensive against Yen
to start this week’s trade. The PBOC unexpectedly hiked interest rates 27 BP
Monday surprising the carry trade community and giving traders an opportunity
to sell USD/JPY and lows were made in Asia on the day.

General importer demand fro dollars lifted the
rate and once the 117.00 area was breached during European trade the pair
continued to attract good bid interest but traders note that offers were heavy
on the approach to the 117.60/80 area and the pair remained trapped between
117.30 and 117.60 for the rest of the day. Yen carry action remained heavy
also with GBP/JPY holding a lot of trader interest today. Putting in a solid
up day against the USD, Cable extended gains during US trade to stay firm
above the 1.9450 area most of the day. Traders say cable is likely to suffer a
bout of volatility should the JPY continue to attract buyers; the GBP side of
the crosses seems to be more volatile than the Yen side. EURO remained under
pressure during US trade after starting a bit firmer in Asia; high print at
1.3327 well within established ranges but sellers into the highs appear

Across the board the USD appears to be trading
technically for the most part due to the lack of fundamental news so far this
week. Tonight the BOJ makes their rate announcement and no change in rates is
expected. Traders will closely monitor the wording of the statement and the
press conference after for clues to the BOJ’s next move but analysts are
agreed the BOJ is unlikely to do anything until after the July elections. The
US FOMC starts a two-day policy meeting tomorrow and rate announcement is due
Wednesday. Only the Housing Starts data is due tomorrow and traders are
expecting another range-bound day for the USD. Look for solid two-way trade
overnight and the Greenback to cover the same ground twice.

USD/JPY Daily Futures

R3: 8720

R2: 8700

R1: 8650

Current Price : 8607

S1: 8580

S2: 8550

S3: 8500

Pair opens better on PBOC uncertainty and then
sells-off as traders stay with the carry trade option. Strong support at 8600
area threatened but two-way trade likely to continue ahead of US data
mid-week. I don’t think there is a large chance of an extended rally or a
break near term so expect range trade to continue into the weekend with
current S/R holding.

GBP/USD Daily Futures

R3: 1.9550

R2: 1.9520/30

R1: 1.9480

Current Price : 1.9429

S1: 1.9380

S2: 1.9340/50

S3: 1.9300

Rate coming into resistance at the 100 bar MA,
also more likely at previous high plus 50 bar MA. Look for a pullback of some
amount near-term but that is a buying opportunity in my view. Stops are said
to be heavy below the 1.9350 area with bids layered in-between. Analysts
suggest that the rate will range trade near-term. US data tomorrow likely to
be uninspiring.

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