Morning Forex Briefing
The USD is decidedly mixed to start New York this morning, lower against Asian currencies and mixed to higher against the Europeans.
After a modest start on lower volumes overnight Asia the Greenback came under attack against the Yen when the PBOC announced another round of reserve tightening designed to absorb excess liquidity in the banking system. Announcing a requirement of 9.5% for most banks, the operation drained more than 160B Yuan from the system and pressured the rate of the USD/CNY to near post-revalue highs.
USD/JPY fell sharply into stops and suffered outright selling on the news, low prints at 117.97 before bids showed up. Currently holding around the 118.30 area, traders note that major sell-stops for large names and real money accounts are layered around the 117.50 area and should those stops trigger it could create a massive liquidating break driving the rate into the 116.00 handle somewhere. Given the sensitivity of the USD/JPY to any news from China, today’s action should be indicative of what is to come for the year should the Yuan issue reach a major impasse with lawmakers from the US.
Against the European currencies, the USD is firm-to-mixed. Initially starting weaker in Asia, the lifting of carry trades and cross spreads for GBP and EURO kept the pairs two-sided and the USD under a buoyant tone into the New York open but most action was in response to unwinding of Yen crosses. GBP continues to drift into the 1.9300 handle with a low print at 1.9348 and tagging the 50 bar MA for a technical buy. Rebounding into the 1.9410 area shortly after, the pair trades about the 1.9380/90 area ahead of US data this morning. Traders note that large stops are under the 1.9340 area and remain untouched so far; traders also note momentum accounts on the offer under the 1.9400 area.
EURO also two-sided into US trade, low prints at 1.3062 in the vicinity of rumored stops but bids are supporting; mid-east names rumored around the 1.3070 area overnight. In my view, today’s NFP will disappoint the USD bulls. Look for a continued break lower in the USD ahead of the London close today; follow-through early next week. Volatility will be high around today’s report so be ready for tests of overnight ranges.
USD/JPY Daily
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R3: 119.20
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R2: 118.80
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R1: 118.40/50
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Current Price : 118.11
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S1: 117.80
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S2: 117.50/60
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S3: 117.20
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Pair showing signs of a liquidating break; massive move lower likely if stops rumored around the 117.50 area are triggered. Support seen under the 118.00 handle near the MA’s but those will likely be challenged more than once; 50% fib defense at 117.00 area likely to contain decline initially. Upside limited to 118.80 area in my view, sell more if holding shorts from Tuesday this week.
GBP/USD Daily
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R3: 1.9580
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R2: 1.9520
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R1: 1.9440/50
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Current Price : 1.9393
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S1: 1.9340/50
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S2: 1.9300
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S3: 1.9250
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Textbook BUY signal for those waiting to BUY GBP/USD; 50 bar MA at 1.9350 and 38.2% fib defense right near today’s overnight lows. Long under 1.9400 OK if not long already in my view. Support at 1.9340 area firm near-term with stops underneath, resistance back at 1.9480 area likely to have stops layered to 1.9500 handle. Look for volatility during US data but a rally into Wednesday.
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Jason Jankovsky
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