Morning forex briefing

The USD gained across the board as
expected overnight
as the topping formations in the majors continue
to gain credibility. Starting Asia a bit better than the close in New York,
quiet volumes persisted as the USD climbed steadily higher in solid two-way
trade. Testing important previous support and resistance levels across the
board, the Greenback was able to draw light short-covering through light stops
until the start of European trade.

The main news out overnight is the
sharply-lower-than-expectations German ZEW sentiment index, released at -5.6;
analysts were not expecting a drop so far from July’s +15.1 reading;
indicating slowing confidence in the largest Eurozone economy. French Q2 GDP
rose +1.1 Q/Q was higher than expected but the net result was considered
bearish for the EURO. EURO fell through support at 1.2850 area to find stops
under the 1.2840 area for a low print of 1.2830 before beginning to recover
but pressure remains as New York opens. Cable is tracking EURO lower as
cross-spreaders unwind non-USD pairs, low print for Cable is 1.8893 ahead of
the New York open but losses are expected to continue should EURO fall through
to a new low also. Analysts note that hourly studies are turning lower in the
EURO and the GBP from yesterday’s highs suggesting that at least a day or two
of corrective pressure is likely. Traders report that in both pairs, model and
momentum funds were seen on the bid into the lows prior to the release of the
ZEW data. USD/JPY is firm into the start of US trade; USD/JPY is currently
116.24 after a solid overnight session with bids appearing on every dip.
Traders note that system funds were buying the pair at the 116.20/30 area as
well as option related defenders and exporters selling. Most traders look for
the pair to make a run at 116.60 area near-term and that would certainly
attract some additional selling should that price trade ahead of US data

In my view, the USD is headed higher near tem; look for a
lot of back-and-forth price action and solid technical advance. Without any
new US fundamentals due for the next 48 hours it is likely the USD will
continue to grind higher, finding stops along the way. Short-term traders can
trade aggressively and look for resistance to fail to the upside with solid
pullbacks along the way.

R3: 1.9020

R2: 1.8980

R1: 1.8930

Current Price : 1.8885

S1: 1.8840/50

S2: 1.8800

S3: 1.8700

Pair falling back from upside resistance, tracking EURO
lower as pressure from unwinding non-USD cross spreads continues to build
speed. Record high long positions at the IMM likely to begin bailing out on a
close back below last weeks low around the 1.8780 area; look for volumes to
increase on the break. Near term target for shorts remains sub-1.8700; stops
layered below 1.8840/50 traders say.


R3: 1.2920

R2: 1.2880

R1: 1.2830

Current Price : 1.2806

S1: 1.2780

S2: 1.2750

S3: 1.2700

Pair drawing long-liquidation pressure on the back of poor
ZEW data, traders note that volumes increasing on the break so far. Stops said
to be sub-1.2800 handle with large orders for offers on a break below 1.2780
possibly. Close below 1.2700 argues for deeper pullback but 50 bar MA and 50%
fib likely to offer support at that price area. Look for volatility to
increase as the longs bail.

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