Morning Forex Briefing

The USD is mixed to start New York after a one-way overnight session that saw the USD gain on the GBP and EURO while lose ground against the JPY. The big news was Yen carry unwinds (as expected) and the release of China’s GDP data fueled the liquidation. At 11.1% estimated Y/Y growth, fears that China’s record expansion pace will destabilize world economies sparked speculation that the PBOC will have to raise rate soon to slow the growth rate.

Traders note that the USD/JPY will likely take the brunt of a rate hike and sold the pair heavily. Falling to a low print at 117.60, traders note stops were elected under the 117.80 area as expected but no new selling is apparent as of the New York open; the pair is hovering at the 117.70 area. Analysts note that the 116.90 area is the next major level of support and look for a technical bounce from there but remind a “dead cat bounce” is more likely given the rate of carry unwinds. Cable is weaker this morning making a show back under the 2.0000 handle; low prints at 1.9983 as general liquidation runs the course.

Traders say GBP/JPY unwinds the reason for the break but the issue of the BOE hiking rates earlier than expected still has many buying dips. Although some news from the UK is due this week it is unlikely to be enough to convince traders that the potential for yet another high is in the works; traders remain cautious and are looking for a pullback. EURO is flat to open New York after light pressure overnight, high prints were at 1.3620 but option defense is very thick traders say. Although EURO made a technical high overnight, most analysts are seeing a daily double-top forming and with todays’ action remaining on the lower side a potential two-bar reversal is in the works. Techncial trade is likely for the remainder of the week as the Eurozone calendar is also light.

In my view, the USD is correcting the oversold condition against the GBP and the EURO but the biggest part of the break is still to come. Lower USD/JPY is a given in view of the potential for a China rate hike and rumors again of a BOJ rate hike but I think it is more likely that the USD/JPY will remain two-sided and range-bound. To end this week I think we will see a deeper pullback in the GBP and the EURO. Today is Philly Fed survey; expect the markets to view it as benign. With the already weakening USD to start the day it would take a strong upside surprise to rally the Greenback against the Yen but with the potential for the Yen unwinds to continue the report may be a footnote on the day. Look for higher volumes today.

USD/JPY Daily

Pullback under the 117.80 area finds initial stops and volumes were larger overnight traders say, lack of follow-through is a caution to shorts but the market may be waiting for the release of US data today. Close under the 117.80 area sets up further losses to the 116.90 area I think and rallies are likely to be sold near-term. ADD to working shorts on a close below 117.80 today.

GBP/USD Daily

Rate showing distinct signs of topping, doji close yesterday followed by down day today indicates sentiment may be changing. Look for a pullback to find large stops under the 1.9980 area and “buy the dip” traders to stay away for the week. Test of the upside breakout likely to find support around the 1.9820 area. ADD to open shorts on a close below the 2.0000 handle.

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Jason
Jankovsky

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