Morning Forex Briefing

The USD has recovered some poise overnight after yesterday’s sharp drop on nervous fears regarding the Yen carry. Overnight BOJ board member Mizuno said that the BOJ is “closely monitoring” the efforts of individual investors participation in the Yen carry trade suggesting that the BOJ will act to deter speculation in the JPY pairs; no one knows what the BOJ might do to send a signal to the markets but most analysts would agree that the risk of Central Bank intervention is low.

The BOJ has not intervened in the FOREX markets since 2004 and is unlikely to do it anytime soon. USD/JPY has recovered to the 118.50 area in solid two-way action with a high print over night at the 118.80 area suggesting that any stop-loss driven selling or the break in the rate to the 117.00 handle was absorbed by large enough traders to keep the rate in the buy mode keeping the USD bulls happy. In my view, the Yen carry has been threatened enough by yesterday’s reaction to potential change in USD sentiment that additional gains by the USD will likely be seen as selling opportunities near-term. Should that result in additional gains by the Yen the eventual change in trend for the greenback is certain. Long term traders have likely started USD selling operations and even though their horizon might be months or years out the change in USD direction is coming in my view.

Cable has sold-off overnight and is trading under the 1.9600 handle triggering stops under the 1.9580 pivot area; low prints at 1.9515 overnight before bids stopped the decline. Currently trading 1.9580 area on the bounce with sellers seen active traders say. EURO is also weaker with a low print at technical S/R 1.3180 area and stops elected on the break under the 1.3210 area overnight. Bids were from model and momentum funds traders say in both EURO and GBP suggesting that the downside for those rates still has more to go. In my view the EURO and the GBP will weaken a bit back to the near-term technical levels seen before the move on Tuesday in order to shake out the weak or late longs.

Due to the surprise in the US data yesterday and the tendency for “late” traders to trade off the news, it would be a reasonable assumption that today’s US data will provide a bit of volatility but likely that volatility will trigger close in stops underneath the pairs. I would look for the USD to bounce today into technical resistance and then resume its fade later in the week.


R3: 119.50/60

R2: 119.20

R1: 118.80

Current Price : 118.53

S1: 118.20

S2: 118.00

S3: 117.50

Rate recovering nicely after the liquidation break but beware the risk of a “dead cat bounce”; traders note that model and momentum accounts were active sellers on the break under 118.80 area the past 24 hours suggesting that a rally is brewing. Look for 100 bar MA to offer near-term resistance but a close over that area argues for a retracement into the 119.00 handle near-term. SELL into rallies.


R3: 1.3300

R2: 1.3280

R1: 1.3250

Current Price : 1.3212

S1: 1.3180

S2: 1.3150

S3: 1.3120

Rate developing a potential two-bar reversal from a significant high, correction back to the 50 bar MA not out of the question as late longs get forced out, look for a sharp move lower if US data is USD friendly as traders feel the rally was “overdone”. New highs for 2007 still likely but I would expect a correction to test the bulls first.

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