Morning forex briefing

The USD is modestly weaker in light
after initially gaining a bit of follow-through strength
early Asia. The major pairs found solid support against the USD after failing
to trade to a new low overnight, then short-covering lifted the pairs back to
the higher end of the established ranges from yesterday and Monday. Traders
say that stops appear to be building under the pairs and could accelerate any
slide should the USD regain some poise during today’s New York trade. Traders
also note that due to the light US data calendar this week, today’s Existing
Homes data may be more closely watched than usual only because traders feel
the USD is ready for “something” today ahead of tomorrow’s Durable Goods data.

Overnight the pairs had quiet action and inside range days
suggesting that interest is waning ahead of fundamental news and both bulls
and bears are happy with their positions but the USD bears are decidedly
nervous after yesterdays’ decline after an attempt at new lows. GBP regained
the 1.8900 handle in solid two-way trade to post a high print at 1.8936 but
traders note that supply from a UK clearer was able to stop the advance;
analysts are looking for a new 2006 high before the end of Q3 but warn the
market is heavily long and stops are said to be heavy as well below reported
bids in the 1.8870 area. EURO continued in two-way action as well, testing the
downside early but lifting into close-in stops above the 1.2820 area but
stalling ahead of reported supply in the 1.2840 area.

Traders note that a US investment bank was a heavy buyer of
short-dated EURO calls with strikes of 1.3050 and 1.3100. EURO will likely not
reach those strikes in the two-week period purchased without a sharp sell-off
to attract new buying. Record long futures positions at the IMM likely to
overhang both EURO and GBP near-term in my view. In the USD/JPY pair, support
at the 116.10 and 116.20 area appears solid for now and stops are said to be
above the 116.80 area for recently set short positions. After yesterday’s rise
to the 115.60 area on both stops and new buying, analysts say that the pair
has good upside potential but will likely track the other majors higher
leaving the fate of USD/JPY in the hands of European traders near-term; news
from China has been scarce this week as well but speculation continues that
the PBOC will have another monetary policy change soon affecting the Yuan. In
my view, overnight action and today’s projected action is normal two-sided
range consolidation trade; expect the USD to have a bit of volatility around
the housing data.


R3: 1.9050

R2: 1.9020

R1: 1.8950/80

Current Price : 1.8923

S1: 1.8900

S2: 1.8880

S3: 1.8800

Pair simply consolidating recent gains but with a softer
tone. Both 50 and 100 bar MA’s are so far back that a correction to test the
bulls resolve is very likely and may start with a fundamental such as today’s
housing data. Stops said to be under the 1.8870 area and likely to be quite
large after Monday’s failed top. Close under 1.8800 argues for deeper pullback
to 1.8760, rally and close over 1.9000 needed to restore bullish confidence.


R3: 117.60/80

R2: 117.20

R1: 116.60/80

Current Price : 116.30

S1: 116.00

S2: 115.80

S3: 115.20

Support is building on dips, traders say selling wick on
Tuesday likely late shorts. Expect 50 bar MA to offer support on a pullback
but bids are layered down to that area so stops will have to be large to
extend a break past about 115.80 I think. Break above the 117.00 area argues
for test of the 117.80 area near-term high; look for selling pressure in that
area to cap the move.

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