Morning Forex Briefing

The USD is weaker across the board overnight, starting off on a slightly weaker
note in Asia as traders booked profits ahead of UK data and US data today.
Sharply higher than expected UK CPI data fueled a rally in Cable and stops were triggered above the 1.9950 area traders say; along with new aggressive buying GBP scored a high print at 2.0037 before the New York open. This high puts the GBP at the highest price it has been at since September 1992; beyond the reach of many traders. Caution is urged as several technical factors are in play that suggest the GBP is over-bought and a correction is almost certain in the near-term.

EURO remained strong overnight and rumors of a stronger than expected German ZEW sentiment index kept the rate buoyed through late European trade; ZEW out at 16.5 up from single digits last month. Although the data shows the stronger EURO is not affecting sentiment at this point traders still were unable to see a high print above previous highs yesterday suggesting that the EURO is finding overhead resistance ahead of the 1.3600 handle for now. Corrections in the Yen cross-rates are likely keeping some pressure on the EURO but traders feel a correction is a buying opportunity so few are bearish at this point.

USD/JPY is under modest pressure to start New York but the USD is not suffering as much due to the still bullish carry-trade enthusiasm which apparently continues to hold that pair resilient. High prints under yesterdays’ highs but a low print at 119.10 suggest a bit of topping action and traders say that stops were elected close-in at the 119.40 and 119.20 area suggesting the bulls may be a bit nervous. Exporter selling was noted and more stops are said to be located at the 118.80/90 area suggesting that the pair might develop some downside momentum if US CPI disappoints the USD bulls. For today, look for CPI to remain on the benign side and housing starts to weaken a bit.

In my view, the issue of a US Fed rate hike anytime soon is tenuous at best and more weak inflation data and weak housing data will only serve to fuel speculation that the Fed will need to remain on hold at the very least through Q3 before attempting to cut rates. I think with the strong equities markets and the general health of the US economy another round of modest rate hikes is more likely but most analysts are looking for a Fed cut. Today’s data is likely to fuel that view. Look for the USD to remain weak after initial volatility at release time.


R3: 120.20

R2: 120.00

R1: 119.80

Current Price : 119.37

S1: 119.00/10

S2: 118.80

S3: 118.40

Rate has inside range so far with aggressive selling at the 119.50 area again overnight, stops reported on the break into lows; remaining longs will run stops closer now so a sharp break is possible as layered stops below the 119.10 area get triggered. Look for volatility around CPI today, close below the 119.20 area likely to draw liquidation pressures later in the week.

/USD Daily

R3: ?

R2: ?

R1: 2.0040

Current Price : 2.0019

S1: 1.9950/60

S2: 1.9900

S3: 1.9840/50

Rate advances breakout theory but “first through the evens” is now in play, the psychological 2.0000 handle will attract a lot of long liquidation in my view so expect a correction. Aggressive traders can SELL above the 2.0000 handle for a sharp correction; less aggressive traders can wait for the pullback and BUY. Close back under the 1.9960 area likely to negate the rally near-term.

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