Morning Forex Briefing
The USD is weaker on follow through selling for the most part but is recovering a bit into the start of early New York trade as technical support and resistance numbers continue to keep the majors within established ranges near-term. Cross-spreading also continued to dominate trader interest overnight as Yen crosses came under pressure after rumors that the weak Yen will be a topic of discussion at official forums; this week MOF Fujii said that Japanese Finance Minister Omi and US Treasury Secretary Paulson will discuss the JPY exchange rate when they speak later this week. Also, today ministers from 13 EU countries meet with ECB president Trichet to discuss the economic situation and an unnamed source has said that the meeting will include remarks about the weak JPY.
In my view, the public or private debate of the current JPY exchange rate can do nothing but rally the Yen on the crosses. Traders are increasingly nervous that the JPY will climb modestly in value thereby negating the benefit of the carry trade. Analysts note that with the long time frame that the carry has been possible it would take a considerable rally in the JPY to negate the large profits some holders of the carry currently have but admit that a 4% rise in JPY value will cause at least a year’s worth of potential to disappear; near-term carry trades will likely be lifted and that amount of trade could easily rally the Yen two or three handles.
USD/JPY is currently the weakest pair on the board to start New York at 120.57 low print; the rate under pressure all night. Cable is holding the 1.9600 area after a modest retracement from the highs at 1.9663; traders note that as long as GBP holds the 1.9600 area the bulls are gaining control and any USD neutral or bearish news will likely ignite a rally over the 1.9700 handle. Cross-spreaders for GBP against Yen are also active and pressure may be coming from a liquidation of those carries.
EURO is firm after tracking GBP lower but the lows are holding at 1.3150 with stops said to be under 1.3140; analysts note that the rate needs a solid close over the 1.3180 area to encourage the bulls for the next leg higher. High prints at 1.3200 attracted semi-official sales traders say so some think the EURO will find a top near-term. In my view, any weakness in the major pairs needs to be seen as a buying opportunity. This weeks’ US data is growth related and therefore likely to hold more sway over traders. Should US data disappoint the USD bulls a rout could follow into the end of the week. Look for the USD/JPY to suffer the most by Friday.
USD/JPY Daily
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R3: 121.20
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R2: 121.00
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R1: 120.80
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Current Price : 120.61
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S1: 120.40
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S2: 120.00
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S3: 119.80
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Two-bar reversal confirmed by overnight follow-through, near-term technical objective is a test of the 50 bar MA and a close below; look for stops to be layered under the 120.20 area with very large liquidation orders under the 119.80 area. Test of the lows at 119.00 set-up on a one-way move into stops by Friday in my view. US data should be seen as neutral-to-bearish for the pair.
GBP/USD Daily
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R3: 1.9740
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R2: 1.9700
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R1: 1.9660
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Current Price : 1.9630
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S1: 1.9600
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S2: 1.9560
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S3: 1.9520
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Pair has continuation pattern of pennant formation but upside resistance is solid at the 1.9700/40 area so expect consolidation should the rate rally into the 1.9700 handle near-term. Two solid closes over the 50 bar MA argues for continued upside bias but remember that 1.9900 area and 2.00 handle represent a large psychological barrier. Longs should be liquidated on a stab into those areas.
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Jason Jankovsky
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