Morning Forex Briefing

As expected, the G7 finance ministers issued no statement on FOREX rates in this Sunday’s post-meeting communiqué; traders saw this as bearish USD and JPY as no policy to support Yen is indicated. USD bears are seeing mixed exchange rates this morning as all the major pairs are higher against the USD with the exception of the USD/JPY which is lower. Strong demand for the Yen crosses after the release of the data rallied GBP/JPY sharply higher and EURO/JPY hit a new record high overnight.

GBP/USD is sharply higher making a new 15 year high at 1.9942 and EURO is also higher at 1.3555. Strong UK PPI data helped the GBP firm as well coming in above expectations at +0.6% front number and +0.4% core suggesting that inflation pressures remain building in the UK; analysts now project a higher bias for a BOE rate hike in Q2. Surprisingly strong against the Yen, the USD continues to attempt an advance over the 119.50 area; overnight high print at 119.68 but currently hovering back at 119.50 to start New York arguing that stops above the 119.60 area were finally cleared leaving the pair vulnerable for a pullback.

Traders suggest that the USD/JPY is still vulnerable and the lack of initial follow-through could be an indication of a near-term top as the heavy interest to sell rallies from exporters remains. Rumors that the PBOC is nearing a possible revaluation of the Yuan sent traders running for the exit in Asia and the pair slide under the 119.00 handle very quickly but once that was unconfirmed the rate snapped back to the highs. I think the speed and sharpness of the move on Yuan revaluation rumors shows that the rate is vulnerable and nervous; much of the strength in the pair is spill-over from aggressive EURO/JPY and GBP/JPY cross spreading and doesn’t reflect a strong USD in my view.

I would look to continue selling into USD/JPY rallies and remaining patient for the inevitable sell-off that is coming. GBP at the 1.9900 handle with sights set on the 2.00 handle is getting lofty in my view; look for a pullback of some strong amount. Same for the EURO; look for a strong correction from the next round of highs. I think the majors are a bit over-extended at this point so longs need to be nimble. Look for US data tomorrow to be benign; inflation isn’t really a problem and the USD bears may get a leg up again on the news.

USD/JPY Daily

Rate continues to orbit the 61.8% fib number while exporters continue to sell into the rallies; Friday’s huge volatility has attracted some follow-through buying but the volumes are not large suggesting the rally is weak on follow-through. Aggressive traders can remain short or ADD to open shorts with a long-term perspective. Might take time to resume down-trend from shakeout.

GBP/USD Daily

Rate powers to a 15 year high but some selling pressure is evident. Traders remind that option defense ahead of the 2.0000 handle is likely and profit taking by the longs is inevitable. Look for a fall-back from the 2.000 area initially but lot’s of residual buying potential is out there so the near-term top might be hard to call. Look for GBP/JPY to remain the lead focus with the GBP/USD taking a cue from there.

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Jason
Jankovsky

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