Morning Forex Briefing

Subdued trade was the rule overnight as Japan celebrated the Vernal Equinox Holiday; market conditions were thinner in Asia. Traders kept the major pairs in tight ranges with a slightly softer tone against the USD until the start of European trade where a bit of volatility was seen. The BOE MPC released the minutes of their latest policy meeting and showed an 8-1 split in the voting with Blanchflower voting for a 25 BP rate cut. Cable broke on the news after hovering basically around the New York closed from yesterday. Low prints in the rate were at 1.9553 before bids were seen underpinning the rate. GBP recovered back to the pre-release trading area but has since fallen off to start New York.

EURO is off slightly but as has been the case for the past several sessions but still holding above the 1.3280 area in quiet trade; low prints at 1.3290 so far today. EURO normally tracking GBP lower or higher would be expected but with heavy focus on JPY crosses the action in EURO is fairly subdued. Traders note that the EURO is near the 2006 highs on lighter volume with stops building below starting at 1.3280 area or so suggesting that most traders are expecting a correction of some amount before EURO legs higher. In my view, the EURO is poised to make new highs for the year but I think the underlying sentiment is not quite there. Focus remains heavy on how China will address their FX management and what the US Fed will do near-term; it seems EURO is trading on “fallout” news.

ECB President Trichet was speaking to reporters overnight reiterating the bank’s stance on inflation management; EURO saw no reaction to his saying that the bank has been accommodative when normally there is some reaction as traders attempt to mean the bank will look to pause in the hike cycle. With EURO’s upside appearing limited while other pairs remain in focus it seems the EURO will trade quietly with little attention near-term.

USD/JPY had a quiet session overnight as expected. With Japan out for a day volumes were noticeably lighter. Initially firm, high prints were seen just ahead of New York at 117.85 but resting offers capped the rate and USD/JPY is back to 117.60 area. In my view today will remain technically driven and on lighter volume until the FOMC rate announcement. No rate hike is expected and the wording of the statement is also expected to remain “as is”. I think after a brief flurry of light activity the USD will resume technical trading. Look for the USD to fall off into Friday as housing data takes center stage again.

Euro/USD Daily

R3: 1.3380

R2: 1.3350

R1: 1.3320

Current Price : 1.3300

S1: 1.3280

S2: 1.3250

S3: 1.3220

Rate continues in two-way consolidation in a tight range with offers extending above 1.3320 area and bids extending to 1.3280 area. Fib projection suggests a correction back to the 1.3100 area possible with 50 and 100 bar MA offering support. Look for a modest correction attempt this week as stops under the 1.3280 area are almost certain to be triggered as late longs get squeezed out.


R3: 118.50/60

R2: 118.20

R1: 118.00

Current Price : 117.70

S1: 117.20/30

S2: 117.00

S3: 116.80

Pair continues to respect potential bear-pennant formation as offers continue to cap around the 117.50/80 area near-term. Good short potential above 117.70 area I think as stops are reported below the overnight lows around the 117.30 area close-in. 116.80 area now appears to be the breakout area today so look for a test of the pennant within 24 hours.

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