Morning forex briefing

The USD is trading mixed at the
start of New York this morning after a solid two-way overnight session

which saw positive growth numbers from our trading partners. In Asia, the
Japanese Tankan survey was released showing better-than-expected business
confidence; traders initially sold the USD/JPY pair on the news expecting that
the potential for the BOJ to raise rates has increased. The BOJ is remaining
in the stance that better business growth and confidence will lead to an
increase in core inflation; the have communicated that more interest rate
hikes are on the way and traders are sensitive to the USD/JPY rate being at a
five-month high overnight before sellers capped the rebound at 118.40 area.
Some light stops were noted on the move into the highs suggesting that shorts
are being tried near these levels. Additionally, IMM net short Yen futures
were slightly lower as of Friday’s COT data indicating that confidence in the
short Yen position may be waning.

Cable rallied higher after a two-sided Asian session and
opens New York firmer against the USD after UK CIPS PMI data showed
better-than-expected manufacturing growth and confidence; initially US
custodial demand buoyed the rate to open Asia and the GBP remains well-bid to
start the week. EURO has remained two-sided as well holding previous lows and
continuing to attract sellers on rallies. Currently the rate holds below the
1.2700 handle after a brief rally higher to find offers around the 1.2710
area; bids back at 1.2660 are supporting. EURO has remained in a tighter and
tighter consolidation range for the past two weeks and traders remind that a
coiling market can move a long way when it is ready.

IMM COT data showed yet another drop in net EURO long
futures for the week suggesting that longs are either happy with their open
trade gains and are liquidating or positioned poorly from higher up and taking
their loss; in either case—