Afternoon US Dollar wrap-up

After a quiet overnight session
slightly higher against the majors, traders took this morning’s CPI
data as USD bearish and took the majors back up to key resistance and support.
Although CPI was about “as expected”, the slightly below forecast core number of
+0.2% was seen as the important part of today’s data and leveraged the losses
seen from Tuesday’s PPI number. USD fell back to 1.2865 EURO and 1.9025 GBP in
moderate trade but gave back those gains into the New York close providing the
USD Bulls with a bit of ammunition for the lower forecasted Philly Fed number
due out tomorrow. Traders note that the USD has gone “net nowhere” the past week
and from a technical standpoint provides a good argument to both bulls and bears
for the next 72 hours. Solid two way trade is expected with the USD firming up
into overnight Asian trade tonight but existing support/resistance should once
again contain the majors to previously traded ranges.

Analysts note that strong hands were likely selling into the
rally in the majors today suggesting that large traders are buying dips in the
USD; USD/JPY was expected to be particularly vulnerable to a blast of sell-stops
under the 115.80 area but could manage only to post a low print of 115.62 and
then recovered to spend most of the day above the 115.80 area, suggesting that
stops were not significant and attracted no new net selling. Volumes were only
moderate traders say providing another clue that sellers of USD are beginning to
dry up. On the day, EURO rallied to the more significant resistance number in my
view, running into buy stops above the 1.2830 area with new buyers said to be at
1.2850 but steady supply all day eroded bids and late in the session EURO slid
off and currently trades around the 1.2830 area in what appears to be
day-traders liquidating longs set this morning. In my view, the entire day was
an exercise in how to short-sell a rally.

After the initial flurry of average and expected fundamental
news driven trade, the market generally moved sideways to lower and a late
sell-off confirms that longs are not confident enough to continue taking prices
higher. The lower volume suggests that potential longs are waiting for
confirmation of the rally before setting positions so today was a weak rally and
a great place to get a second chance at higher prices before the
long-liquidation break. Look for the USD to slowly build momentum overnight to
the upside and the majors to grind lower until the next level of stops are
found.

USD/JPY Daily

S3: 8550

Pair slightly higher on follow-through from Tuesday after CPI
data inspires a bit of short-covering. Quality of the rally is suspect in my
view, V/OI picture suggests that weak longs may be initiating; they will bail at
the drop of a hat on a reversal so look for a sharp break the next 48 hours.
Resistance at 50 bar MA likely as well, aggressive traders can sell anything
over 8700 area.

GBP/USD Daily

S3: 1.8760/70

Pair rallies on news then falls back to create a “doji” star
point of indecision; upside resistance at the 1.9040 area confirms the top of
the trading range I think. Stops likely building in the 1.8880 area or below so
look for a sharp break the next 24 hours. Aggressive traders can sell anytime
over the 1.8950 area; today’s failed rally sets-up a reversal potential in my
view.

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