Morning forex briefing
Overnight action in the greenback
saw a quiet Asian session with light flows keeping the major pairs range-bound
and two-sided for most of the session. UK CPI data released this
morning in European trade was stronger-than-expected at +0.4 m/m and +2.5% y/y
suggesting that the BOE may be pressured to raise rates sooner than the
forecast mostly for Q1 2007. Cable rallied on the news and analysts are
suggesting a short-squeeze is in the works; short-term spec accounts seen on
the offer at 1.8700 but bids easily absorbed that selling posting an overnight
high at 1.8750 before falling back slightly to open New York at 1.8730 area.
Traders note that the volumes are modest but expect larger stops above the
market to be resting at 1.8780 area and perhaps again at 1.8820 area.
Model accounts were seen buying GBP/JPY suggesting that
either the GBP is set to rally or the Yen to fall farther but most analysts
agree that the non-USD cross rate is in a heavy correction mode so volatility
in the major pairs is not unexpected. EURO had a two-sided night as well
remaining in established ranges into European trade; initially getting a lift
from Sterling on the rally. Stops above the 1.2720 area were triggered but
good offers at the 1.2740 area are expected to cap any rally today. Asian
sovereign names and Eastern-European names seen on the bid near the lows;
model accounts were suspected on the offer suggesting that the EURO is set to
rally and a short-squeeze can’t be ruled out there as well.
USD/JPY is tightly range-bound to start New York with Asian
real money names seen on the offer above the 117.70 area, overnight lows were
still in range with Monday’s trade but traders say that bids are much lower at
117.00 to 116.50 area suggesting the pair is a bit over-extended to the
upside. Model and momentum funds were buyers of EURO/JPY overnight suggesting
the pair has a further correction to go, likely from the Yen side of the pair
should the G-7 rhetoric start flowing sooner than the weekend. In my view, the
major pairs have likely posted the lows for the week and we can expect the USD
to weaken into the end of this week when CPI data will likely show no real
inflation pressures at the core level. Today’s balance of trade data will
likely see some long-liquidation pressure on the USD but expect volatility as
well. Sell rallies in the USD.
GBP/USD Daily
R3: 1.8820
R2: 1.8790
R1: 1.8750
Current Price : 1.8731
S1: 1.8700
S2: 1.8680
S3: 1.8620
Pair likely to remain two-sided with a firm tone today as
traders adjust positions after US balance of trade data due shortly. Look for
upside to cap around the 1.8820 area on the day should US data disappoint USD
bulls; close anywhere over the 1.8750/60 area argues for a short squeeze and
potential rally. Buy pullbacks near-term as the lows for the week are likely
in.
USD/JPY Daily
R3: 118.20
R2: 118.00
R1: 117.80
Current Price : 117.61
S1: 117.20
S2: 116.50/60
S3: 116.20
Pair overextended in my view, hovering around previous
resistance area around the 117.50 to 118.00 areas. Fall back likely to
accelerate quickly as this would be the forth or fifth time the pair failed at
this level (depending on how you count it). Model accounts buying Yen suggests
a top is in place so look for a pullback to the rumored bids around the 116.50
area near-term.
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