Morning forex briefing
The USD is a bit better to start
New York after a quiet two-sided trade in Asia, which saw
relatively benign movement as Japan celebrated a minor holiday and many desks
were lightly manned. European trade saw the majors fade quickly against the
USD once the G-7 communiqué was released and the USD is near the overnight
highs as trading gets underway for the week. In the G-7 communiqué finance
ministers repeated verbatim the language of the last statement and refrained
from specifically addressing any one currency in detail. Traders took this to
mean “business as usual†and USD bulls pressed their advantage while early
shorts covered.
Underpinning the EURO were comments from ECB governors
suggesting that rate hikes are far from over in the Eurozone, Russian accounts
were seen on the offer on the way down as well as model accounts when the rate
broke the 1.2670 area again. Underpinning EURO were “the usual suspects†and
that normally includes middle-eastern central banks. GBP fell through several
layers of support to again challenge key support under the 1.8760 area; low
prints at 1.8735. Traders note that cross-spreaders again are the main
interest in GBP overnight with most on both sides as traders spread GBP/JPY,
EURO/GBP and EURO/JPY. The non-USD crosses have created a bit of volatility
lately and that is expected to continue through the end of the week. Analysts
are closely watching this weeks FOMC meeting where speculation runs high that
the US Fed will leave rates as is for the second straight meeting. Most
traders are pricing in one more rate-hike from the fed before the end of the
year but are unclear to the timing. Outside chance of a 50 BP hike might
surprise the market but as of today most analysts think that the Fed is about
done after one more 25 BP hike to 5.5%.
In my view, the majors are retracing their current ranges
and building for a sharp move in the opposite direction shortly. The USD is
fundamentally weak and has completed a rather long time frame retracement
going back years of a net bear market. I think large and long time frame
traders are using this USD strength this past two months as a selling
opportunity and I would look for the bullish momentum to fade very soon. Look
for German ZEW to inspire EURO bulls tomorrow, PPI to remain neutral for the
USD and today’s TICS to cover the trade deficit just fine.
GBP/USD Daily
R3: 1.8860
R2: 1.8800
R1: 1.8780
Current Price : 1.8756
S1: 1.8730
S2: 1.8700
S3: 1.8680
Pair a textbook BUY from test of 50 bar MA after completing
50% retracement between significant High and Low. 100 bar MA offering good
support on any further breakdown. Technical traders will be looking for a
close above the 1.8860 area to remain bullish, under the 1.8730 area to remain
bearish. Look for US data to inspire the bulls in this pair near-term. Close
over 1.8900 sets up test of highs.
EURO/USD Daily
R3: 1.2760
R2: 1.2720
R1: 1.2680
Current Price : 1.2659
S1: 1.2640
S2: 1.2600
S3: 1.2580
Pair also a textbook BUY completing 61.8% retracement from
significant High and Low; double bottom on support at the lows also good clue.
Look for rate to trade violently near-term as traders are watching overnight
ZEW closely and FOMC even more. Look for offers to cap rally near-term at
1.2780 area but stops above.
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