Morning Forex Briefing

It was a big night for the USD last night and into this morning.
Starting lower-to-mixed in Asia the Greenback had little direction early and continued to range trade consolidating gains from earlier in the week. Some upside pressure seen in USD/JPY but the grind higher was on low volume until the European session. PBOC set the Yuan rate at a new post-revalue high at 7.7977 against the USD which is also the first time the rate has been at parity with the Hong Kong Dollar. Analyst point out that with a democratically controlled congress in the US it is likely that pressure on Beijing to revalue the Yuan more aggressively will increase dramatically putting a high degree of volatility in the Yen against most other rates.

USD/JPY is sharply higher mostly on the back of aggressive non-USD cross spreading for Yen overnight and into European trade. Traders note that the Yen crosses have seen a lot of model and momentum accounts and US investment houses buying USD/JPY into the highs along with large stops covering early shorts. Technically the USD/JPY is severely overbought and a correction is more likely now than ever. No matter your results to date in the USD/JPY it is advisable to liquidate open longs and enter a short USD/JPY position at current levels. High prints at 1120.43 suggest that the option barrier at 120.00 was sufficiently battered and the writers likely out at this point.

The BOE MPC surprised the markets today by hiking rates an unexpected 25 BP in European trade. Citing the need for inflationary controls and the risk to an over-heating economy, the MPC also released a strongly worded statement suggesting that the door is open for additional hikes later as needed. GBP has rallied hard and so have the crosses; currently in early US trade the GBP/USD is trading the 1.9500 handle with a high print at 1.9539. The ECB left rates on hold as expected with their announcement and the EURO is higher in sympathy with the GBP but still finding pressure at 1.3020 area of recent technical resistance. Comments overnight by various Mid-East sources suggest that the EURO will be bought during the year in order to diversify central bank holding of FOREX. Traders note that on the dips in EURO the past few days, sovereign names have been on the bid quite often suggesting that the EURO will not see much of a further price slide near-term. A correction to the top of the recent range around the 1.3400 area will likely cap pricing into Q2 in my view; lots of two-way potential in EURO I think. Look for continued consolidation by the GBP before another leg higher.


R3: 1.9600

R2: 1.9580

R1: 1.9550

Current Price : 1.9509

S1: 1.9460

S2: 1.9440

S3: 1.9380

Pair breaching initial upside resistance and now ready to challenge tougher resistance at the 1.9580 area. A close over 1.9580 opens the door for a test of the 1.9680-1.9700 area but traders note offers thicker on approach to 1.9600. Stops under the 1.9440 area likely after advance; bids around 1.9460 near-term. Look for continued advance. ADD to open longs from Wednesday.


R3: 121.20

R2: 120.80

R1: 120.50

Current Price : 120.25

S1: 119.80

S2: 119.50

S3: 119.20

No reason for rate to be at this level in my view but here we are. Look for huge selling pressure should rate close in on the 121.00 handle. I think rate is WAY overextended to the upside, stopped out of early shorts again but recommend staying with the short side. I think selling near today’s close or early in Asia tonight will likely time a better short-sell.

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Jason Jankovsky

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