Morning forex briefing

The USD quietly gained on the
majors overnight,
testing the lower end of the recent trading range
and finding light stops as expected but the long-liquidation break seems to be
taking it’s time to develop. Ahead of the German IFO survey this morning in
Europe, rumors hit the trading desks suggesting that the number would come in
sharply lower than forecast. EURO and GBP sold off into the stops rumored to
be resting under the Wednesday lows and a quick drop put EURO at 1.2750 and
Cable at 1.8874. Once the actual number for IFO was released, traders covered
early shorts and the pairs rallied to make highs on the day and test the highs
seen yesterday.

Traders note that active selling was seen by “smart” names
in EURO and GBP as both pairs rallied but size was lacking and the USD
continued to weaken into the start of New York trade. Volumes are on the
lighter side ahead of US data this morning and with the thin US economic
calendar this week; analysts are looking for today’s number to again increase
volatility much like yesterday’s housing data did. Traders note that given the
tighter two-way trading range in the USD since Monday-stops most likely are
building across the board on both sides of the market. USD bulls point out
that the Greenback has held important support in all pairs and has had solid
bids on dips; bears point out that upside volumes have been on the lighter
side and note that seasonal capital-flows favor a USD sell-off through
September. In my view, the USD is simply continuing to consolidate recent
strength. The “summer doldrums” end next week and volumes are likely to
increase as we start September. Downside in the USD is limited I think as the
very large heavily long open interest in the EURO and the GBP needs to correct
a bit to better balance the market and allow for an extended rally to develop.

Against the Yen, the Greenback has had a rather
uneventful overnight session. Holding to an extremely tight range amid lighter
flows, traders note that the technical picture is broadly neutral for the USD/JPY.
Analysts point out that the China situation will likely draw selling in the
pair the fact that recent PBOC actions have failed to inspire the USD bears in
Asia point to a stronger market than some anticipated. Today’s data will
likely give traders a reason to liquidate open USD shorts as volatility
increases due to the light data calendar. Look for the USD to gain on the
majors by the end of the week.


R3: 1.2950

R2: 1.2900/10

R1: 1.2860

Current Price : 1.2835

S1: 1.2750

S2: 1.2700

S3: 1.2660

Pair completes a 38.2% retracement from recent highs and
traders note only light stops elected on the move under 1.2770; much larger
volume would have been indicative of long-liquidation but early shorts covered
stopping the decline and leaving layered bids and stops under the 1.2750 area
intact. Rally capped at 1.2840 area for now, expect volatility during US data.


R3: 1.9080

R2: 1.9050

R1: 1.9000

Current Price : 1.8944

S1: 1.8910

S2: 1.8880

S3: 1.8860

Pair again testing the resistance area around 1.8950 to
1.9000; “smart” selling seen traders say. Pair holding firm above the 38.2%
retracement area and hovering around the 23.6% suggesting that bulls are
remaining confident. Volumes are light ahead of US data so expect a bit of
volatility during the Durables report. Look for a lower close on the day.

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