Morning forex briefing

The USD is trading mixed-to-lower this morning after a solid two-sided overnight session that has USD bulls a bit nervous.
Traders have been expecting a follow-through for higher prices this week and as Thursday begins in New York the USD has again failed to inspire additional buying. USD bulls are now facing the possibility that the major pairs are setting up for a correction higher as solid near-term resistance keeps the greenback under pressure.

Overnight Asia saw the USD/JPY trade lower after remaining in a tight 20 pip range until comments from BOJ governor Fukui gave traders a reason to sell the pair. Fukui reiterated that the Central Bank is watching CPI closely and that a rise in the indicator was welcome. Traders took this to mean the BOJ has a rate hike coming soon but analysts are agreed that the BOJ will likely not move rates until later in Q1 2007. Stops in the pair were elected under the 118.70 area again suggesting that late longs were active yesterday; low print at 118.45 overnight.

Cable is about unchanged to start New York after a solid two-sided European session. UK retail sales were weaker than expected and traders sold GBP quickly knocking the rate down to the 1.8660 area but not enough selling there to trigger stops reported to be resting in the 1.8640 area. Cable tracking EURO traders say keeping a firm tone to the rate. EURO traded higher to technical resistance at the 1.2570 area where resting offers capped the rally, traders note that EURO has good support at the 1.2530 area from sovereign names and central bank interest. Stops are said to be resting at the 1.2580 area with offers expected to cap additional strength at the 1.2600 handle.

In my view, the USD is setting up to finish the week lower as USD bulls have likely exhausted their momentum this week. Aggressive sellers of USD appear to be large names and late buyers simply do not have the firepower to advance the USD near-term. Today’s US data is likely to be USD neutral and should the bulls decide to liquidate after the news a solid break could develop quickly. Look for the USD to remain two-sided today but start to slide off into Friday’s trade.


R3: 1.2650

R2: 1.2610

R1: 1.2580

Current Price : 1.2564

S1: 1.2520/30

S2: 1.2500

S3: 1.2450

Pair remains in solid two-sided consolidation with today’s action pressing the top of the near-term range; look for a pullback today but support at the 1.2520 area to hold prior to a break higher in the next 48 hours. Expect upside resistance at the 1.2700 area and heavy selling at the 1.2750 area should prices advance quickly from here. Close above the 1.2750 area argues for a solid test of the highs.


R3: 119.50

R2: 119.20

R1: 118.90

Current Price : 118.64

S1: 118.30

S2: 118.00

S3: 117.50

Pair inside range day but lower suggests that bulls are loosing control of the market near-term, trader’s note that offers appear to be building around the 119.20 area so a cap on the highs may be in place. Good buying under the 118.30 area is expected so expect the pair to remain range bound near term but with a weaker tone to finish the week. Stops hit twice this week at the 118.70 area suggests that late longs are still being set.

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Jason Alan

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