Morning forex briefing
The big news overnight is the
surprise move by the PBOC to raise interest rates, a move that was
not entirely unexpected but surprised traders with the timing. The PBOC hiked
the one-year lending rate and the deposit rate by 27 BP in a move to encourage
savings and cool investment/credit growth. Analysts feel that much higher
interest rates are needed to encourage companies to slow the investment growth
in the economy and without a steady increase in rates the economic expansion
at double-digit numbers could continue for some time. The PBOC also set the
value of the Yuan at 7.9737 to the USD at the close of the tightly —controlled
“open†market.
Analysts now look for the USD/JPY pair to weaken
further as the Yen gains on the USD but the underlying tone overnight in the
pair is firm and corrective; traders note that the sharp break seen in the USD/JPY
in response to the news has attracted good buying and the pair has recovered
all the way back to the 115.90 area of pre-report trade. Against the European
majors the USD is also firm to start New York after spending a quiet evening
consolidating showing little reaction to the Asian news. Traders note that the
GBP is “heavy†at 1.8850 area after staging a brief move higher that was
quickly sold. Some light stops were said to be elected under the 1.8820 area
and cable broke another support area at 1.8800; currently in New York the rate
is trading actively in the 1.8790 area.
Traders expect a weak close in GBP today as some technical
damage has been done with the failure to hold the 1.8820 area on the
correction. EURO is faring a bit better this morning but still lower, tracking
the weakness seen in Cable but firmer above the 1.2800 handle after making a
brief show under there for a low print at 1.2795. Analysts also expect a
weaker close for EURO as some technical damage was done on the failure at the
1.2800 area; most looking for stops at 1.2780 area to be probed soon. In my
view, the USD has a few more days of upside pressure before stalling.
Aggressive traders can sell the break in the majors on any strength but the
better play is to wait for the correction to end and go long USD. Look for a
50% retracement of the recent moves to enter long USD positions.
GBP/USD Daily
R3: 1.8920
R2: 1.8880
R1: 1.8820
Current Price : 1.8785
S1: 1.8750
S2: 1.8700
S3: 1.8610
Pair continues to correct lower giving back all the gains
from the past two weeks. Long liquidation likely in full swing but look for
additional selling to take the rate to a 50% retracement at the 1.8650 area or
below. Good support at the 50 bar MA is also likely but for now, hold shorts
for the pull; probabilities are high for further weakness.
USD/JPY Daily
R3: 117.20
R2: 116.60/80
R1: 116.20
Current Price : 115.83
S1: 115.50
S2: 115.20
S3: 114.80
Pair breaks on PBOC rate hike but good support at the 50 bar
MA stops the break; recovery back to pre-release levels suggests rate has more
upside to go. Look for aggressive selling at 116.80 area but buyers have a lot
of reasons to add on a break into stops said to be resting above that area.
Look for a test of the 116.80 area next week.
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