Afternoon US Dollar Wrap-Up

USD bears had another good day as the majors took both overnight news and US data and added to their advance to post some aggressive high prints. Even the pressured USD/JPY lost ground despite the continued strong appetite for Yen carry trades across the major high-yielding pairs. Getting the ball rolling overnight was UK CPI data coming in higher than expected showing the Y/Y rate over the 3.0% mark; the BOE has stated numerous times that above this number is outside the envelope for risk control leading analysts to speculate that the BOE will be looking to raise rates aggressively during the year.

Cable scored the highest level since September 1992 for a high print against the greenback at 2.0077 before offers capped the rally. Much of that gain came during US trade after the release of US CPI data showing tame inflation; the closely watched core number forecast at +0.2% was released at +0.1% and Y/Y core is still soft at +2.5%. Analysts agree that the timing of a US Fed rate cut may be pushed back as inflation numbers continue to come in benign. US Housing starts although higher than forecast are still lower from last year and pressured the USD
again but by the time of the London fix the day was about over as volumes
dropped dramatically traders said.

EURO was along for the ride
with a high print at 1.3596 but traders report option defense at 1.3600 behind
the faltering rally. Still scoring a 2007 high in the process the EURO looks
ready to challenge lifetime highs at 1.3680 area but traders are increasingly
fearful of a corrective pullback.

USD/JPY fell back as long yen carry traders booked good gains this week and stops were reported for long positions at the 119.40 area and the 119.20 area. The rate held firm all day at the 119.30/40 area before selling off on the close for a new low driving for stops in the 118.80 area. At this writing the rate is holding above the area of reported stops but weaker USD/JPY is likely on follow through into Asia tonight. In my view, long GBP and EURO traders need to exercise caution; the risk of a pullback is rising and the US calendar is light until Friday. Should traders choose to book short USD gains this week ahead of the NFP report Friday a near-term correction could develop the next 24-48 hours. I would look to lighten longs. Look for two-way consolidation overnight Asia and a firmer USD on Wednesday. Aggressive traders could short GBP for a break but be nimble on it.

USD/JPY Daily

Rate recovers on good volume suggesting that a short-covering rally is in the works. 100 bar and 50 bar MA offering resistance as expected, a close above the 8520 area opens the door for a deeper correction. Rate could go two-sided again to retest lows but support at 8420 area appears to be holding near-term. BUY is not already long from yesterday’s buy signal.

GBP/USD Daily

Rate extends rally on potential exhaustion move, check V/OI numbers to confirm long liquidation into the rally by smart money; stops likely rolled up in range by existing longs. Fall back from current levels could attract aggressive selling and most importantly model/momentum funds may have been active on the buy side today. Close back below 2.000handle makes “first thru the even” in play.

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Jason
Jankovsky

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