Morning forex briefing

The USD continued to consolidate
losses overnight,
as continued two-way trade pressured the major
pairs to both sides of unchanged. Continued follow-through selling from
Wednesday’s US CPI data was seen in early Asia but the Greenback saw only
narrow trading ranges initially. An article in the Asian edition of the
Financial Times suggested that Japanese investors may be pulling out of USD-denominated
assets prompted a flurry of USD/JPY selling but technical support levels at
the 115.20 area held firm into European trade; traders say that stops under
the 115.50 area accelerated the move but bids absorbed those offers suggesting
that the pair has reached firm support.

Analysts note that 114.80 is very strong support in USD/JPY
and look for any test of that area to be bought heavily. EURO gained a bit of
support from the weakness in USD/JPY during European trade holding the 1.2860
area from yesterday’s highs until a brief rush of buying on the news that the
German Banking Association raised it’s EMU GDP forecast from 1.75% to 2.0%
caused a pop over Wednesday’s highs; strong offers countered the light stops
and analysts note good offers are layered up to the 1.2900 handle.
Additionally, traders note that CTA and system accounts were buyers of EURO
overnight. Cable has held to inside weekly ranges again overnight and opens
New York firmer but well off overnight highs.

Cross-spreading still remains evident and traders suggest
that technically the GBP is forming a near-term top as some studies are
showing bearish divergence and overbought readings. In my view, the USD is
range trading with good potential for a rotation higher to end the week. All
the pairs have seen volumes drop off on their rally higher the past two days,
technical support/resistance areas are drawing in traders to contain price
action in solid two-way trade. Note that CTA and System Traders have been
active on the buy side near the high prints suggest that the momentum play for
further upside follow-through will be expected the next 24 hours. If no
follow-through, those longs will bail on their positions by Friday. I think
the USD has fallen to the weekly low and the short-covering rally to end the
week is likely. Look for reversals across the board today and the USD to
finish higher on the day.

GBP/USD Daily

R3: 1.9050

R2: 1.9010

R1: 1.8990

Current Price : 1.8964

S1: 1.8920

S2: 1.8880

S3: 1.8820

Pair continues to consolidate pullback from 2006 highs,
traders note that volumes are lighter on the move higher from last weeks lows
suggesting that buying interest is drying up. On the “bearish” USD news this
week this pair has managed to move a total of 80 points higher net; not a
solid amount of buying in my view. Tech resistance is solid at 1.9010 area,
look for a sell-off to finish the week.

EURO/USD Daily

R3: 1.2980

R2: 1.2950

R1: 1.2920

Current Price : 1.2875

S1: 1.2820

S2: 1.2780

S3: 1.2740

Pair back to the near-term resistance area of just under the
1.2900 handle, strong offers reported layered between 1.2880 and 1.2920
expected to cap this weekly strength. Look for a pull back and a reversal late
this week or early next week as market remains heavily long. CTA type accounts
on the bid overnight are a great clue that a reversal is in the works.

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