Morning Forex Briefing

The USD was mixed in Asia overnight as the markets had a lighter trading session due to the MLK holiday in the US and speculation regarding the BOJ rate announcement later in the week. Although the USD saw some buying early in the session for a high print against the Yen at 120.63, gains were quickly erased as offers are continuing to come in above the 120.50 area. US data due out mid-week is expected to be USD neutral-to-friendly and traders do not rule out an attempt by USD/JPY for the 121.00 handle but also remind that option defense has been thick recently and markets are bracing for a 25 BP rate hike on Thursday; analysts feel that the markets are pricing in an 80% chance of a rate hike. Should the BOJ move rates more than the usual 25 BP the USD/JPY pair could be surprised with aggressive selling. CFTC COT data released on Friday showed a large increase of Yen short futures suggesting there is a large overhang of USD longs and a correction to shake out stale positions is not out of the question.

In the UK CPI data released this morning was above expectations and now topping the BOE target at +3.0% y/y; last weeks rate hike is now no surprise and traders speculate that the rate hike cycle may continue in Cable through the middle of the year if inflation data continues to come in on the stronger side. Initially spiking to the 1.9710 area on the news, cable has since pulled back to the 1.9560 area in early New York trade but technically the rate is building upside momentum and traders expect more to the upside should US data come in lighter than expected this week.

EURO is slightly higher with a high print at 1.2990 overnight after the better-than-expected German ZEW survey released today also; forecast at -8.0 but released at -3.6 the survey suggests that Eurozone confidence for growth is higher than expected. Lower energy costs are helping this view but traders caution that one report does not an economy make. In my view, the USD is beginning to show signs of continued vulnerability. Our trading partners are in better economic positions than originally expected for Q1 2007 and the US is in no rush to raise rates seeing as we have less of a problem on our side of the ledger. Look for the USD to trade lower for the week but volatility will be large too so be nimble on your USD shorts. Sell USD/JPY over the 120.50 area for the pull and aggressive traders can add to their open GBP longs this week.


R3: 1.9780

R2: 1.9750

R1: 1.9710

Current Price : 1.9669

S1: 1.9620

S2: 1.9580

S3: 1.9540/50

Rate now firmly advancing and building bullish enthusiasm; look for a close over the 1.9680 area to discourage shorts enough for a bout of short-covering. Should US data disappoint the markets this week a push for the 1.9800 area is possible and would be likely on a close over the 1.9700 handle as bulls attempt to take control. Stops under the 1.9550 area likely out of range.


R3: 1.3050

R2: 1.3020

R1: 1.2990

Current Price : 1.2963

S1: 1.2920/30

S2: 1.2880

S3: 1.2860

Textbook buy off the 100 bar MA confirmed by higher pricing on a closing basis, today’s high print attracting late shorts in my view, look for aggressive short-covering in the next 24 hours should rate hold 1.2960 area on a closing basis. Look for selling pressure on a rally at 1.3050 to cap near-term; look for two-way trade during this week around US data.

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Jason Jankovsky

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