Morning Forex Briefing

The USD is mixed-to-firm after a slow start in Asia, lack of fundamental news until late European trade kept the USD fairly range bound again. Initially weaker in Asia on technical trade the major pairs continued to have narrow ranges ahead of European data until the China PBOC announced an increase in the banking reserve requirement. In typical Beijing style, no previous signal was given to the markets prior to the announcement and traders had to adapt to changing USD/JPY on the fly; no doubt damaging some balance sheets in the process.

Overnight demand for the Yen crosses helped keep volatility to a minimum but some book-squaring was seen ahead of the BOE rate announcement leaving the Yen crosses under pressure prior to the start of New York. USD/JPY fell to 118.48 low print on steady pressure until the start of European trade where demand for USD again lifted the pair to the highs just under the 119.00 handle; traders note that supply is heavy ahead of the 119.00 area suggesting that the rate will fall back near-term.

Mixed UK data kept the GBP two-way along with GBP/JPY liquidation ahead of BOE data. Leaving rates unchanged saw cable make a sharp sell-off after Manufacturing data came out on the low-side while Home Prices came out on the high side; traders note that the strong rebound from the lows at 1.9670 back to the pre-BOE announcement rate at 1.9730 underlies the strength in the rate near-term. Traders look for a test of the 2007 highs near-term and are placing a strong chance of a rate hike by the BOE in May. Cable continues to trade steady at the start of New York and analysts look for a poor NFP number to rally GBP to end the week.

EURO continues to be the unlucky girl at the dance; overnight ranges were again modest with only a 30 pip range so far today. Traders note that the focus on Yen carry trades continues to take interest away from the EURO despite it’s firmness; volatility being low is not helping either. Near-term traders continue to look for the rate to test the upside highs with stops said to be getting thick above the 1.3420 area; given the recent tight ranges and lack of volatility that 50 pips looks a long way away. Support is seen very firm under the 1.3300 area with some analysts suggesting that a small correction will draw the bulls in very quickly which may explain the bears lack of enthusiasm leaving the rate to drift and grind slowly higher. All eyes now looking to the US NFP numbers tomorrow; also the Good Friday holiday. Most markets will be closed or have shortened hours so high volatility is expected with most of the action to be over within an hour or two.

GBP/USD Daily

Pair continues to have modest rallies and modest pull backs while filling out long-term rising wedge formation. Near-term sideways action defeating the bulls and bears and a break in one direction or the other is likely to test the rising trend line underneath or resistance overhead; US NFP likely to spark the break ahead of the Easter weekend. Look for an upside break as fundamentals continue to favor a stronger GBP. BOE rate announcement no factor despite knee-jerk drop.

USD/JPY Daily

Pair drifting despite bearish news from PBOC, most likely traders focus on NFP Friday and Yen carry resetting. Close below the 100 bar MA likely to draw some pressure and traders report that offers are thick ahead of 119.00 area. Stops under the 118.50 area said to be growing and little support after 118.20 area until 117.50. Upside appears limited and setting shorts is called for.

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Jason
Jankovsky

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