Morning Forex Briefing
The USD is trading mixed today after starting overnight Asia on the defensive. Initially lower to start after Thursday’s additional rally, traders now are saying that the USD is a bit “tired†on this rally. The BOE surprise rate hike yesterday has resulted in a bout of GBP buying that suggests cross-traders are active in the mix as well.
EURO/GBP is falling into 18 month lows as traders sell EURO and buy GBP, GBP/USD is making new daily highs to start the New York session with firm trade over the 1.9500 handle. Resistance is expected on a move into the 1.9530 area with stops said to be layered above. Model and momentum accounts were active on the buy side of USD overnight in Asia and again in Europe with a large US investment house seen on the bid as well. Currently to start New York the USD is near the lows for the session against the Yen and the EURO in addition to the GBP.
EURO is firm at 1.2890 area after falling a bit into stops under the 1.2880 area but nobody was home and the pair quickly recovered despite heavy selling elsewhere on the crosses. USD/JPY has been heavily bid by speculators overnight and a new intraday high at 120.75 attracted a lot of selling interest from Japanese names, exporters and rumored to include sovereign names also. Pair making for lows in late European trade and into early New York trade holding at the 120.40 area making no progress for the past 24 hours. Selling pressure expected to be large in the rate should stops rumored to be close-in get triggered at the 119.80/90 area from recent late-longs.
In my view, the USD is providing the perfect short-selling opportunity and aggressive traders can continue to sell into this early 2007 rally. I think the highs for the month are now in and a rotation lower for the Greenback is due starting next week. Major fundamentals are in play with the BOJ policy meeting on Thursday and PPI, CPI, Philly Fed and housing data all due for the Greenback’s side of the ledger. Most analysts continue to project benign inflation data, slowing housing and sliding manufacturing sentiment; all expected to continue sideways into Q2 suggesting that the Fed will be looking at a rate cut in Q3 or so. Remember that the markets tend to lead the fundamentals by a few months suggesting that should data continue to look weak near-term the USD will top and start to slide off in anticipation of a US Fed rate cut later in the year. In my view, the opportunity for the short side of the USD is very good. Look for the USD to slide a bit on Friday today, accelerate next week.
GBP/USD Daily
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R3: 1.9610/20
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R2: 1.9580
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R1: 1.9530
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Current Price : 1.9485
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S1: 1.9440
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S2: 1.9380
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S3: 1.9350
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Selling pressure from yesterday’s capping action post-rate hike being negated in solid two-way action overnight. Close today in the 1.9500 area likely to cause a rush of short-covering next week; close over 50 bar MA likely to keep the bulls happy for now. Stops under the 1.9450 area likely to be out of range for today as the market has built on gains the past 24 hours suggesting a stronger upside potential.
USD/JPY Daily
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R3: 121.00
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R2: 120.80
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R1: 120.50
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Current Price : 120.39
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S1: 119.80/90
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S2: 119.40
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S3: 119.00
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Pair showing signs of topping. Late buyers are in the mix and volumes were light on the high print. Look for a quiet day with a slightly softer close. Look for rhetoric over the weekend suggesting a BOJ rate hike on Thursday; sell-off likely on that news. Any rhetoric or action from PBOC likely to cause a shift in sentiment. Technically the market is overbought.
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Jason Jankovsky
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