Morning Forex Briefing

The USD is mixed to start New York after a volatile overnight session dominated by interest in the JPY crosses.
It seems that the entire world is focused on how the Yen carry trade is going to play out and Japanese officials are downplaying the risk this time as opposed to warning investors against “one way” bets on the value of the JPY.

Overnight MOF Watanabe said that he is not concerned with the Yen carry and MOF Fujii said that the economy is strong; both officials reiterated their support for the BOJ and that they trust the bank’s choices on interest rates. Traders took this as a tacit approval for the JPY to remain weak and bids around the 118.40/50 area and higher kept the rate buoyed through the early Asian session; high prints at 118.88 overnight. Offers from exporters capped the move and the rate fell back into initial support at the 118.20 area where reported Japanese accounts were seen buying USD/JPY. Stops triggered in early New York trade found the pair falling into previous support at 117.50/60 area where official names are said to have resting bids. Traders note that the carry has evaporated the 90 day float suggesting that late buyers of the carry likely have liquidated.

If that is the case the USD is ripe for a rally because the sell-off was a liquidating move and not speculation in the USD; analysts note that the USD is “on sale” for the year at this point and a speculative buy is a good value relative to earlier in the year which is likely to attract value investors. Cable is firm after dropping into the 1.9560 area overnight. Buyers are said to be looking for a test of the 1.9680 area near-term but Mid-East and Eastern European Sovereign names have been seen on the offer.

Cable remains with an upside bias as long as the 1.9560 area holds analysts say. EURO is firm at the 1.3220 area after a slight dip to test support at 1.3210 area; low print at 1.3207 keeping bullish hopes alive but traders note that the rate looks “tired” at current levels and reminds that without a good dose of EURO friendly news this week the rate is at the mercy of USD fundamentals that have been unable to propel the rate above recent resistance suggesting that the pair is topping for the week. EURO needs a solid run at the 1.3280 area to keep upside intact otherwise a sell-off to the 1.3150 area is in play I think. Look for the USD to remain two-sided and Yen volatility to remain. A bounce is coming in the USD/JPY so be ready to sell into the rally.


R3: 118.60

R2: 118.20

R1: 117.80

Current Price : 117.52

S1: 117.20/30

S2: 117.00

S3: 116.80

Rate extends break and completes a 61.8% Fib retracement. Bids said to be extended into the 117.00 area with stops layered in, the break back to 117.50 area exposed large stops traders say and that may be the extent of the selling pressure. Look for a recovery from this area into the top of the consolidation range as the rate is over-sold in my view. Rally to the 50 bar MA is a sell in my view.


R3: 1.9720

R2: 1.9700

R1: 1.9650/60

Current Price : 1.9632

S1: 1.9600

S2: 1.9560

S3: 1.9500

Rate continues to respect 50 bar MA as support for now but a close below this area likely to stop the bulls as selling pressure is evident on all rallies. Best move is to buy a break on a liquidation sell-off back to key support in the 1.9480 area. Expect 100 bar MA to hold as support on a dip; resistance seems solid at 1.9660 area so look for a break to end the week.

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