Morning Forex Briefing

The USD is mixed-to-lower to start Wednesday’s New York trade after a volatile several hours in European trade driven by BOE minutes and aggressive cross-spreaders.
Starting initially steady in Asia the closely watched State of the Union speech by President Bush had little impact on traders as most of what Bush said was “as expected”. The USD had a bit of volatility after his remarks but continued inside established ranges with most of the action confined to cross-spreaders in Yen.

China was in the news overnight and may have contributed to a bit of USD/JPY long-liquidation but until the Sterling/Yen cross took off in Europe all the major pairs were basically quiet. BOE minutes released late European trade showed a surprising degree of dovish-ness in the vote for the last 25 BP rate hike. Voting 5-4 (a close vote) the MPC showed a bit of division in the ranks with regards to how serious the inflation picture is. Traders now feel that the question of further rate hikes is less obvious and will likely keep a bit of near-term volatility in the GBP pairs. GBP/USD fell though initial support at the 1.9750 area on stops and aggressive cross-spreading, trading all the way down to resting bids at the 1.9693 low print. Rallying back to post a high print just under the 1.9770 area in volatile trade described by some traders as “brutal”.

EURO held firm but had a bit of pressure in sympathy with Cable for a low print at 1.2973 but is firm above the 1.3000 handle in solid two-way trade. Traders note that EURO is firming between the 50 and 100 bar MA’s suggesting that the rate is possibly being accumulated by large long-term traders. If that is the case the breaks are strong buys for long-term traders. USD/JPY also sold off into stops in a violent session that saw signs of a topping pattern; low prints at 120.64 found bids and a recovery back to opening levels at 121.50 area resulted. Strong volatility of this nature is often a sign of a near-term turn in pricing so aggressive traders can look to sell USD/JPY on the rallies as well as ADD to those positions on weak closes. In my view, the technical nature of the previous few sessions has urged traders to look more at the short side of the USD lately; I think a “buy dips” strategy in EURO will work nicely through the next few days but Cable is a bit overbought. Look for GBP to sell off the next few days, USD/JPY also.


R3: 1.9910/20

R2: 1.9850/60

R1: 1.9780

Current Price : 1.9727

S1: 1.9690

S2: 1.9620/30

S3: 1.9580

Inverted hammer formation and subsequent follow-through this morning indicates a tired market in my view; look for further declines to at least the first near-term fib defense at 1.9600 area. Stops said to be resting around the 1.9680/90 area and offers are resting at 1.9800 area layered to 1.9850 traders say. 50 bar MA will also encourage buyers so a short position is not a long-term play in my view.


R3: ?

R2: 122.00

R1: 121.80

Current Price : 121.39

S1: 121.00

S2: 120.60/70

S3: 120.00

Pair looking toppy again and with long tail plus volatility on today’s trade look for solid two-way action as pair continues to cover a lot of the same ground twice. Lower close under the 121.00 area ideal for continued sell-off but expect bounce at the first fib defense at 120.00. Offers above the 121.50 area said to be very thick so upward potential is limited in my view.

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Jason Jankovsky

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