Morning Forex Briefing

The USD opens New York mixed this morning after loosing ground against the JPY overnight. Stronger than expected Japan GDP data has traders rethinking their point of view on a rate hike at next weeks BOJ policy meeting. Most analysts have placed little chance of a BOJ rate hike before the July elections but with the strong growth disclosed by the most current GDP numbers many are suggesting that there is a better than 50% chance of a rate hike as early as next week. GDP grew at an annualized pace of 4.8% in Japan above forecasts for about 4.6% and along with the annualized number real GDP was up 2.2% 2006 compared to 1.9% in 2005 showing that Japan is well on the way to a recovery and the loose monetary policy of the past six years has stimulated growth. Should the BOJ hike rates next week the timing would take many by surprise and the sharp sell-off in the USD/JPY overnight will likely be a change in trend should Yen carry trades be unwound.

USD/JPY fell from 120.80 area a full Yen to 119.80 before Asian bids supported the pair, traders’ note that stops and aggressive outright selling were seen. Any bounce is likely to be sold heavily traders say and stops under the 119.80 area are said to be quite large with little technical support ahead of 118.00 area. Those traders with short USD/JPY positions should ADD to their shorts on any bounce into the 120.30/50 area during US data this week.

Cable is weaker against the USD on the back of weak UK RICS house price balance data; cable off the overnight highs of 1.9680 for a low print ahead of the New York open at 1.9545. Traders note that GBP cross spreading is pressuring GBP but dips appear to have good bids coming in for USD suggesting the rate is firm. EURO remains at the upper end of the recent rally’s range holding the 131.30 area with a high at 1.3154 overnight; traders say that the rate is firmer for both USD and JPY suggesting that the EURO is benefiting the most from cross trading and carry unwinds. Traders should continue to hold long EURO in my view and ADD to open longs on dips. In my view, the USD is about to break lower for the resumption of the multi-year bearish down trend. Although the ranges are wide and the short-term give and take will likely keep USD firmer through the next few weeks, overall I think this week will be a pivotal week and the highs in the USD for the year may be in already. Sell rallies in USD


R3: 121.00

R2: 120.80

R1: 120.40/50

Current Price : 120.09

S1: 119.80

S2: 119.50

S3: 119.00

Double top is in confirmed by break of lower support area at 120.00, 50 bar MA and previous 2006 high offering initial support for a bounce but expect any near term strength to be sold heavily as sentiment appears to finally turn neutral from bullish on the news from Japan’s GDP numbers. Look for carry unwinds to begin in earnest keeping the rate pressured. Stops under 119.80 and 119.50 said to be thick.


R3: 1.3200

R2: 1.3180

R1: 1.3150

Current Price : 1.3135

S1: 1.3100

S2: 1.3080

S3: 1.3050

Firm overnight action suggests that breakout will be confirmed but risk of a pullback still remains for a test of the 1.3050 area; any break lower likely to be on light volume so buy breaks to 1.3050 if possible. Close above the 1.3200 area opens door for a test of the highs, aggressive traders can ADD to open longs anytime for a test of the 1.3400 area. Stay long in my view.

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Jason Jankovsky

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