Afternoon US Dollar Wrap-Up

As expected, the bulk of market action for the first day of the week came on the release of the G7 communiqué overnight; although traders we not expecting any surprises the communiqué failed to address FOREX at all. Traders viewed the release of the basically same rhetoric from the Essen conference as a tacit approval that the Yen could be allowed to fall further before aggressive action might be taken by central banks or other institutions; EURO/JPY soared to a new lifetime high taking GBP/JPY with it.

Additionally, the USD/JPY traded into stops said to be resting in the 119.60/70 area and eventually some light new buying lifted the rate into the option defense area around the 119.80/90 area; high prints during New York were 119.88 before some light long-liquidation was seen. Volumes across the board were not spectacular traders say with most of the action in the high-yielding pairs leaving the USD/JPY higher more by default than aggressive action. Additional US data released today was a bit of additional help for the USD but by the time TICS data was released the damage had been done across the board.

GBP and EURO climbed higher against the greenback as demand for the buy side of the crosses supported those rates. UK PPI was a bit higher than expected today helping lift cable to a 15 year high at 1.9942 before sellers emerged. EURO tagged along for the ride, high print at 1.3578; another 2007 high. TICS data covered last week’s balance of Trade numbers at more than 94.0 B suggesting that foreign investors continue to have an appetite for US debt. USD had little reaction on the news and after the London fix the markets settled down to quiet two-way flows with the rates all holding gains through the close. Tomorrow’s US CPI data will likely hold more weight for USD action for the near-term as inflation fears are moderating a bit and last week’s PPI data suggests that the Fed may be on hold far longer than expected. Should that data come in as expected or slightly lower the USD could see a flurry of selling. More likely in my view is that the majors are a bit “tired” at current levels and a short-term correction is due. Should the major pairs attempt one more push for highs on the data it would be reasonable to see longs take profits; look for the USD to remain steady overnight and perhaps gain a bit into the morning.

EURO/USD Daily

Rate scores another 2007 high on only reasonable volume, COT data suggests that the market may be over-extended and a healthy correction is due. Doji close also another warning to lighten longs in my view, expect a pullback sooner rather than later. Support said to be solid on a move to the 1.3380 area with stops said to be layered close in under 1.3500/20 area. Lighten Longs!

GBP/USD Daily

Rate continues to advance and is now in “no man’s land” into 15 year highs. Look for signs of a pullback near-term as aggressive buying will likely dry up ahead of the 2.0000 handle. 1.9700 area likely to offer solid support, stops likely building in-range so expect volatility into and around tomorrow’s data. CPI should be benign but low numbers could spark yet one more leg higher. Lighten Longs!

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Jason
Jankovsky

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