Afternoon US dollar wrap-up
After a solid follow-through rally
overnight, the USD remained in tight ranges with lighter volumes
for the bulk of the New York trading session today as market players continued
to debate developments in the Asia rim and technical considerations for the
major pairs. Initially remaining firm to weaker in early Asia, the greenback
was able to post small gains as rumors of a second North Korean nuclear test
made the rounds into early European trade. Comments by PBOC advisor Fan
suggested that perhaps the Chinese were about to liquidate USD FX reserves or
possible raise the Yuan value in some way resulted in a brief break in the USD
but traders saw an opportunity to buy and rallied the USD through resting
stops.
Cable fell dramatically through resting orders at 1.8630
area and continued to see stops fire off past the 1.8560 area as New York got
underway; eventually attracting bids at the 1.8530 area and remained in a
tight 40 pip range the rest of the day. Traders note that technical sellers
emerged as the rate fell through trend line support around the 1.8600 area but
feel the GBP is looking for a bounce on any further weakness into the
sub-1.8500 area. EURO fell in sympathy but cross spreading again was evident
and EURO posted a low print through stops as well around 1.2520; right at the
top of the previous 1.2480-1.2520 support zone.
USD/JPY railed through the 119.20 area again to post a
14-month high at 119.78 but traders warn that the massive record net-short Yen
Futures position could easily spark a turnaround as those shorts cover; any
news that rallies the Yen could fire off close-in stops from late or nervous
shorts and a massive liquidation break in the USD/JPY similar to the break
from 2005 highs at the 121.30 area could be seen. In my view, the structurally
weak USD has gotten a lift from probable flight-to-quality issues and remains
extremely risky to the long side at these levels. Traders note that high
prices attract sellers and eventually a top will form; only the USD/JPY pair
is at or near a high price for the year. All the other pairs are at important
retracement levels from the overall bull market that started about 13 months
ago and culminated at highs just prior to the US Fed pause in the rate hike
cycle. Perhaps the USD is simply following-through on near-term sentiment; be
ready to sell into this rally.
USD/JPY Daily
R3: 8600
R2: 8520
R1: 8480
Current Price : 8430
S1: 8380
S2: 8280
S3: ?
Pair at potential double bottom from Feb 2006, studies
approaching oversold and massive record short position remains a threat to
lower prices. Huge short-covering rally is in the works and short traders need
to be very careful at these levels. China situation may attract Yen bulls if
Beijing adds muscle to Korea situation. Look for consolidation ahead of US
data this next 48 hours. Price near 75% fib number from last years lows.
EURO/USD Daily
R3: 1.2720
R2: 1.2680
R1: 1.2620
Current Price : 1.2580
S1: 1.2550
S2: 1.2490
S3: 1.2420
Pair approaching double bottom of potential large four-month
long trading range; support said to be firm around the 1.2500 area should rate
drop through 1.2550 area. Stops the word on the day suggesting that bulls are
willing to play but shorts still have some muscle left near-term. US data due
the next few days may cause some book-squaring; look for inside range closing
higher tomorrow.
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