Afternoon US Dollar Wrap-Up
The USD is mixed to lower today after concerns for Yen carry trade unwinds continued as well as a new potential bearish indicator developed: the sub-prime lending meltdown. In my view, traders are attaching a bit more importance than is likely to an economic reality that has always been with us. The size of the sub-prime lending market is a smaller part of the economic puzzle so even if there was a total collapse of the banks involved I don’t think it would be a significant amount of wealth in the big picture. Regulators served subpoenas to UBS bank as well as others today and I feel that the market’s reaction was a bit overrated. Still, the USD had a brief bout of liquidation today during New York trade after a firm opening overseas.
Although German ZEW came in a bit over expectations the EURO still was unable to find the rumored stops said to be resting at the 1.3210/20 area. A close below the 1.3200 handle I think is EURO neutral and a rotation back to support is likely near-term. It will likely take US data due out Thursday and Friday to be a major impetus. GBP had a high print at 1.9356 before falling back and traders note that the large interest in GBP/JPY unwinds this afternoon attracted the lion’s share of the action today. Trader’s note that both GBP and EURO are holding up tremendously well given the large amount of action and volatility in the JPY crosses.
In my view, that bodes well for the underlying long-term bullish tone to those two pairs. This week’s US data is likely to come in USD neutral and I think that will help the GBP and the EURO hold gains and potentially rally as late shorts cover for the weekend. I would look for the GBP to test the 1.9400 handle in the coming 72 hours so look to buy dips. EURO will try for those stops above the 1.3220 area I think in the same time period; buy dips and the 1.3120 area is likely to hold on a break I think.
USD/JPY has broken back through the 117.00 handle on stops and aggressive selling traders say. Stops elected again on the dip under the 116.50 area leaving the next technical level of support vulnerable. Look for the rate to bounce from the 116.00 area before the end of the week.
USD/JPY Daily
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R3: 8820
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R2: 8800
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R1: 8740
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Current Price : 8692
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S1: 8660
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S2: 8600
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S3: 8580
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Potential double-top at 8700 area but check V/OI in the CME bulletin for low volume rally. Looking for topping near-term but stops building and offers mixed in traders say. Look for choppy trade on attempt into 8700 area; stops layered under the 8600 area likely by late longs; potential violent action building ahead of weekend. Aggressive traders can look for a short sell anytime; need a fallback to close the week.
EURO/USD Daily
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R3: 1.3220
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R2: 1.3300
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R1: 1.3260
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Current Price : 1.3244
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S1: 1.3220
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S2: 1.3200
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S3: 1.3180
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“Doji†star close on the day indicates point of indecision suggesting that the rate will respect the upper channel trend line and rotate lower. Looking for stops above the 1.3260 area to expose stops in size; offers said to be mixed in so watch for violent chop. Buy dips in the rate for the best strategy in my view; the EURO is really strong despite the Yen carry.
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Jason
Jankovsky
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