Morning Forex Briefing

The USD is starting New York modestly firmer against the majors after a technically driven overnight session dominated by continuing interest in the Yen crosses. Rising to another lifetime high the EURO/JPY cross was the major focus keeping all the JPY crosses on the offensive. Rising to an overnight high of 121.40 high print, the USD/JPY cross saw exporters on the offer and investment houses on the bid as expected. Cheap Yen is continuing to fuel speculation in the carry trade and although the BOJ has raised rates the actual price differential is small enough that it doesn’t make a huge dent in the profitability of the carry. Traders note that although interest in the USD/JPY is largely from the “weak JPY” side, concerns of US Fed intentions continue to offer both sides ammunition heading into the later part of the year.

Yesterdays FOMC minutes were a bit on the hawkish side according to traders and that may have underpinned the USD overnight for Yen. Stops triggered over the 12120 area found willing offers to cap the extended rally and volumes were only modest suggesting that the range expected for the pair may be developing around the 121.40/50 and 119.00 areas.

GBP had a quiet night but saw stops elected on a small move lower, low prints at 1.9460 saw buyers covering from earlier in the day on the short side suggesting that long-term traders are not active near-term. Sovereign bids in Cable and EURO near the lows were noted some traders say and also Eastern European names arguing that big names are still using the “buy the dip” strategy in the EURO and GBP.

EURO had a low print at exactly technical support at 1.3080 where the sovereign names were seen. Bulls note that they would like to see a rally over the area of reported offers at 1.3160 area for a try at 1.3200 handle, traders note that a 1.3180 close would argue for a rally attempt into the 2007 highs at some point. In my view, the lack of fundamental news due out until next week will keep speculation on the issue of near-term interest rates and the Yen carry; look for more rhetoric from the BOJ and the PBOC. Technical trade likely to dominate ahead of Tuesday next week.


R3: 122.00

R2: 121.80

R1: 121.40/50

Current Price : 121.29

S1: 121.00

S2: 120.80

S3: 120.50

Rate a bit higher on follow-through and general demand for the Yen crosses; approaching major resistance at the 121.80 and 122.00 areas, aggressive traders can add to shorts in that area. Pullback to test the 119.00 area again is likely and a range is likely to be sketched out near-term as traders debate the Yen carry. Large overhang of Yen Short Futures likely to drag on the market near-term.


R3: 1.3220

R2: 1.3180/90

R1: 1.3140/50

Current Price : 1.3100

S1: 1.3080

S2: 1.3050

S3: 1.3020

Rate making a technical correction back to test the breakout, holding above the 1.3050 area is a strong confirmation of the breakout in my view. Look for a test of offers and stops above the 1.3150 area within 72 hours; likely catalyst will be poor US news next week. Large names are seen on dips. OK to ADD to open longs.

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Jason Jankovsky

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