Morning forex briefing

As expected, the USD remained in quiet two-sided trade overnight with a brief bit of larger action in Asia. A newswire report suggested that the BOJ may begin monitoring carry trades in an effort to potentially address Yen weakness. This report was denied by the BOJ shortly after the news broke but traders bought Yen in response to the story driving the USD/JPY into light stops placed after New York trade yesterday; low print at 118.30 before bids were seen from US names and Swiss names. Offers were said to be thick near the overnight highs at 118.80 area from Japanese names and possibly offshore names (hedge funds). Yen cross trades are also drifting this morning suggesting that eyes are focused on US data heavily for near-term direction which may affect the EURO and GBP sides of the crosses.

Traders note that news from China today will be watched for potential changes in the weeks ahead to the Yuan rate; a senior analyst with the Chinese Academy of Social Sciences has suggested that the government needs to revalue the Yuan by 10% in order to correct the country’s trade balance. PBOC has made no response to the article yet but traders expect the usual denial rhetoric before any move in the Yuan rate is announced. Cable remains firm after a two-sided evening; gaining support from the latest MPC minutes which showed a 7-2 vote to keep rates unchanged. Market players were expecting a unanimous vote so it appears that the MPC may be leaning more toward a rate hike.

EURO also two-sided overnight but firmer to start New York; no real news from the Europeans this morning. Traders note that the EURO is holding firm above the 1.2530 area ahead of US CPI data suggesting that the rate is basing for a leg higher if data is USD unfriendly this morning. In my view, it is time to short USD with both hands heading into the end of the year. Initial short USD/JPY positions have a nice lead and cable appears the firmest. The lows for the majors may be in for the month and the quarter last week. Should that be the case a significant amount of long-term players will likely adjust positions at the end of the year and with a heavily long USD position most have; I think long-liquidation is coming. Look for the USD to remain two-sided through tomorrows Philly Fed data and then to slide off to end the week.


R3: 1.8880

R2: 1.8820

R1: 1.8740

Current Price : 1.8714

S1: 1.8680

S2: 1.8620

S3: 1.8540

Pair remaining
firm over the 100 bar MA, new high for the week overnight but lack of
news and late sellers capped the move in light volume. Look for a
re-test of the 1.8820 area to attract sellers but stops above that
area likely to be heavy from the shorts; 1.8880 area previous
resistance. A move through there likely to test 2006 highs. Stops
under the 1.8650 area likely. Close below there will negate potential
up move near-term I think.


R3: 119.80

R2: 119.20

R1: 118.80

Current Price : 118.62

S1: 118.20/30

S2: 118.00

S3: 117.60

Pair approaching key support at the 118.20 area with stops said to be heavy under there; look for a test of the 118.00 handle near-term. Failure at 118.00 area likely to attract massive long-liquidation from CTA and Model funds; traders note that uncertainty with North Korea may keep pair firm or at least two-sided. Stops above the 119.20 area likely to attract Japanese selling if triggered.

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Jason Alan Jankovsky

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