Afternoon US Dollar Wrap-Up

Although the USD is marginally softer and two-way after the overnight Asian
session, the majors did not create any sensation today as most of the action was
contained to the JPY crosses. Traders note that the GBP/JPY and the EURO/JPY were under some accumulation today as the recent volatility encouraged the bulls to reset Yen carry trades.

Some signs of topping are happening in the GBP
and EURO but those rates remain firm into the end of the week after some strong
gains. Holding the 2.0000 handle after probing for stops and finding none of
size, Cable continues to create speculation that further gains are possible into
next week. I strongly disagree with that hypothesis due to the fact that volumes
have been dropping off for two days and today’s lower close suggests at least
some long liquidation. I think smart money bulls are prepping to buy a pullback
and they will likely wait until a break happens before adding to any open longs.

EURO continues to flirt
with lifetime highs this week, making 2007 highs 8 of the last 9 sessions but
again, volume appears to be lighter into those highs and a correction is likely.
Both pairs have classic “doji” style price patterns suggesting at least a mild
pullback which is likely to be bought so expect volatility.

USD/JPY is firm and testing the bears resolve. Although the rate is firm it is also on dropping volume suggesting that the rally may be weakening. Japanese trusts and exporters were reported on the offer into the 119.00 area overnight and today suggesting that if nothing else, large traders are paring back their Yen shorts on dips. In my view, this week has confirmed the underlying bullish scenario for the EURO and GBP but the speed and distance of the rally begs for a correction.

Aggressive traders can SELL GBP over the 2.0050 area for the break; but be nimble as volatility could spark a stop-driven rally above the 2.0100 area if those stops are there. I don’t think shorts have taken a stand yet, the high is too new at this point, but light stops are always likely so a fall back from a stab at the highs would be a great clue that GBP is topping. Look for solid two-way trade overnight into Monday. I am taking a sabbatical for to weeks and won’t be writing commentary. I will be back Monday May 7^th to resume writing comments; see you then. Have a great finish to the month.

USD/JPY Daily

Rate continues to orbit the 100 bar MA and close just above there is technically bullish but shadow below suggests potential volatility. Close above the 8520 area needed to restore bullish enthusiasm, Yen carry resets continue to pressure rate but lows are higher also; two way trade likely to continue so use limit orders and wait for the market to come to you.

GBP/USD Daily

Rate showing some topping action but jury still out, close back under the psychological 2.000 number likely to draw additional long liquidation. Look for high volume and drop in open interest to confirm a potential top; shorts will likely get interested on a break of the 1.9900 area. Stops layered above the 2.0050/60 area may be very light so potential volatility may whipsaw traders.

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Jason
Jankovsky

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