Morning Forex Briefing
As expected, the focus overnight remained on the JPY crosses with Sterling/Yen having a violent two way session which spilled over into other Yen pairs; USD/JPY initially weaker on stop-driven trade and model account selling but then reversing sharply to make highs on the week at 117.27. Traders note that on the offer were model and momentum accounts selling into the break but a large Asian name was seen on the bid all the way to the low print at 115.54. Violent two-way action could be expected analysts say but with the rally in Asian equities overnight the JPY appears to be tracking stock prices more so than responding to carry trade focus.
A case of “buy the rumor/sell the fact†appears to be active in the GBP and the EURO this morning as both the BOE and the ECB provided “as expected†fundamentals; the BOE leaving rates unchanged and the ECB hiking 25 BP. Cable has fallen back from the overnight high at 1.9355 to trade below the 1.9300 handle in early New York trade but analysts say as long as the rate can hold above the 1.9320 area on a closing basis recovery hopes will remain. EURO is falling back a bit in sympathy with GBP but support appears solid at the 1.3120/30 area near-term as dips are being bought by large names this week; look for the EURO to hold firm into tomorrow’s US data. Across the board the two-way action is providing solid opportunity for short-term traders and aggressive traders need to buy dips in GBP and EURO in my view.
Buying USD/JPY is also the preferred strategy and weakness into the 116.20/30 area is a strong buying position I think; look for all the major pairs to rally into the end of the quarter. Heading into tomorrow’s US data it is important to remember that the USD has a structural weakness in play and that is the housing crunch. NFP data will likely reflect the seasonal issue of a slow-down in construction employment. If that seasonal drop is larger than expected it may be signaling a broader drop in employment over time; traders will likely see that as broad-based weakness in the economy. Although the US fed is likely to hold rates steady through the end of the third quarter with a “wait and see†attitude it is a fact that the markets tend to lead the fundamentals by around four-to-six month period. The end of Q1 is about right to forecast a cut in the Fed Funds rate and a USD drop.
USD/JPY Daily
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R3: 118.00
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R2: 117.60
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R1: 117.20/30
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Current Price : 116.99
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S1: 116.50/60
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S2: 116.00
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S3: 115.50/60
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Volatility in the crosses keeping the rate very two-sided overnight but upside remains the preference at this point as the correction gets underway in earnest. Stops initially triggered on the move over the 117.10 area and traders report Asian names on the bid suggesting that the rate has put in a near-term bottom. Look for additional upside to end the week. Stay long.
EURO/USD Daily
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R3: 1.3250
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R2: 1.3220
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R1: 1.3170/80
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Current Price : 1.3148
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S1: 1.3120
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S2: 1.3100
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S3: 1.3080
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Pair continues to build on recent strength and appears ready to challenge offers said to be resting in the 1.3200 to 1.3220 areas. Stops said to be mixed in so volatility may be the result but buying dips is the lowest risk in my view. ECB rate hike no factor and upside pressure likely if Trichet signals rate hike potential in Q2 this year.
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Jason
Jankovsky
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