Afternoon US Dollar Wrap-Up

The greenback is marginally firmer after today’s trade but traders note that volumes remained thin post-holiday and with parts of Europe still out for the day expectations are for more volatile trade ahead of US data due starting Wednesday. After starting firm in Asia overnight, the USD climbed briefly against the majors while remaining firm against the Yen in consolidating trade with little in the way of fundamentals to focus on. Continuing the firm tone into New York action, the USD rallied briefly triggering close-in stops but holding near-term S/R as about expected. Volumes were light on the move and may have been a bit exaggerated due to conditions but traders note that there was no shortage of speculation as to near-term Yen direction. Citing the BOJ policy meeting that started early Monday and wraps up late Tuesday (tonight in Asia), traders note that the Yen crosses remained the focus today even though the volumes were light. No change is expected in BOJ interest rate policy tonight and at worst case traders are expecting a bit of “buy the rumor/sell the fact” leading to a firmer Yen overnight; the policy statement will be more closely watched than the IR decision as no rate change is anticipated. The BOJ is not in the habit of surprising the markets and with little or no signal given to the markets the past 30 days or so traders are expecting IR to remain “on hold”.

GBP fell into near-term support where bids were expected at 1.9580/1.9600; low prints at 1.9590 were on low-volume and the rate closed back over the 1.9600 handle making a correction from the recent highs complete in my view. Pending any surprises from our trading partners a rotation higher is likely given the aggressive housing market in the UK gets more data coming this week; but that is on Wednesday as is the FOMC minutes which will likely overshadow. Traders expect more consolidation and technical trade ahead of then so GBP is likely to remain at the lower end of the ranges for now.

EURO broke into support as well but found little stops and no aggressive selling suggesting the rate is merely drifting after last weeks two-year high. Look fro EURO to bounce out of the 1.3350 area but better support is around the 1.3300/10 area traders say. I would look for EURO to remain sideways as well ahead of US data later in the week but don’t expect a full-blown correction; I think the ‘buy the dip” strategy is fine for now. USD/JPY continued to attack the 119.50 area but with no success; traders note that option defense and heavy offers remain ahead of there. Look for the Yen to continue to range trade as well until we see if the recent weakness was a “head fake”.

EURO/USD Daily

Rate continues range bound and channel-trading but break of 1.3300 may draw aggressive selling. Fib defense likely on first try but rate is appearing a bit tired above the 1.3350 area. Most analysts turning increasingly bearish suggesting the rate is still heading higher on remaining bull enthusiasm before a break. Volumes light on the recent weakness so be nimble if holding shorts.

USD/JPY Daily

Rate hovering around 50 bar MA offering a bit of support after Friday’s sell-off on low volume. “Doji” star close today indicates a point of indecision suggesting that more impetus is needed to the downside as follow-through was lacking. Next fib layer to offer defense again but main issue is BOJ announcement rhetoric. G7 meeting later in the week may also address Yen weakness so expect volatility this week.

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Jason
Jankovsky

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