Morning forex briefing

The USD is firmer to start New York
this morning after a busy night
that saw solid two-sided action in
advance of rate announcements by the BOE and the ECB. As expected, the ECB
hiked rates 25 BP but the BOE left rates unchanged. Speculation that the BOE
would raise rates by a quarter-point dropped over night and traders squared
positions in GBP putting a bit of downside pressure on the rate.
Cross-spreaders also were active in non-USD pairs putting pressure on the GBP,
stops also were triggered in Europe after the rate failed to press over the
previous overnight high; traders note that Asian names were on the offer
early.

Some lingering concerns over a potential N. Korean nuclear
test has kept some upside support for the USD during Asian trade. EURO is firm
at the 1.2710/20 area of previous support/resistance after the overnight
session continued to see the rate mired inside previous established ranges.
Traders note that the ECB rate hike is well factored in and do not expect any
volatility in the pair near-term. Cross-spreaders in EURO/JPY continue to
support on dips and sell on rallies as the big mover in the cross appears to
be the Yen side of the equation. EURO showed no reaction to the rate
announcement and now traders will focus on Trichet’s press conference starting
shortly; look for the EURO to remain range-bound today. USD/JPY is weaker to
start New York, trading down to overnight lows in the 117.50 area.
Cross-spreading again the main driver overnight but traders note that good
support for the Greenback appears in the 117.30/50 range and expect that to
hold near-term. Upside is also limited to the 118.30 area but traders remind
that stops are likely building on either side of this range; a large move
could be triggered if the market is surprised by US NFP tomorrow.

Analysts note that the EURO and Yen pairs have neutral
studies at this point but GBP is looking more overbought; a potential
correction in the EURO/JPY and GBP/JPY crosses might send a wave of selling
against the USD-pairs. In my view, the fundamental picture is as expected and
traders are looking for something to break the pairs out of the current
range-bound trade. Look for US NFP data tomorrow to offer something to work
with. Forecasts have dropped the last few days so I would look for a
lower-than-expected number Friday morning.

EURO/USD Daily

R3: 1.2920

R2: 1.2780

R1: 1.2740

Current Price : 1.2711

S1: 1.2680

S2: 1.2660

S3: 1.2620

Pair remains range-bound and contained by resistance at
1.2780 area and support at 1.2660 area. 50 bar MA offering resistance also at
the 1.2720/30 area; close above the 1.2740 area needed to set up a test of top
of range. ECB rate change no factor leading to a bout of long liquidation as
traders square positions; support at today’s lows should hold for a rotation
higher to top of range to end the week.

GBP/USD Daily

R3: 1.8920

R2: 1.8880

R1: 1.8850

Current Price : 1.8821

S1: 1.8800

S2: 1.8760

S3: 1.8700

Pair showing no reaction to BOE rate announcement, longs
still holding positions and sellers have little more to work with; look for a
round of short covering to end the week. Inside range day likely to attract
buyers due to the higher action on the week so far but close above the 1.8900
handle needed to improve bullish outlook. Stops said to be sub-1.8760 and
above 1.8880 areas.

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