Morning Forex Briefing

The USD is mixed to start New York this morning after one-way trade overnight; UK, European and Asian economic news all being released.
In the UK, CPI came in worse than expected giving traders a reason to sell GBP for USD and on the crosses; Cable dropping 50 pips in minutes as nervous longs liquidated driving the rate into reported stops resting in the 1.9460 area or so. Low prints at 1.9404 were enough to draw bids from reported large names and real money accounts some traders say, stops remain under the rate at 1.9380/90 area but overnight action was enough to satisfy technical traders on the short side, 1.9400 area is roughly the 38.2% fib retracement from the Q4 2006 lows to the Q1 2007 highs to-date. Analysts remind that the 100 day MA is major support at 1.9300 area and a break on further selling may be the lows near-term. GBP is a strong buy at these levels in my view.

EURO is higher despite a lower than expected ZEW survey released overnight, high prints at 1.3021 are putting the bears on the defensive today. Traders report that some real-money accounts were seen on the bid under the 1.3000 handle along with Russian names suggesting that the Central Bank is still converting USD to EURO in some amount. Look for EURO to test the top side of the range at 1.3050/60 area this week.

USD/JPY is lower this morning and is looking very “toppy” in my view. News that the North Koreans have agreed to a resolution regarding its Nuclear ambitions has weighed on the pair as lessoning tensions is seen as Yen friendly. USD/JPY is currently on the lows to start New York at 121.22 with further losses expected should US data today disappoint.

China’s PBOC was reported as saying they have no plans to raise interest rates near-term an unnamed source was quoted overnight; look for more rhetoric from Beijing in the coming weeks regarding Yuan reform. Most analysts and traders are not looking for the Yuan to rise dramatically in the coming months but a widening of the trading band is seen as the next major step forward for the PBOC. Denial rhetoric should always be watched closely as it usually signals a change of some kind is coming soon. In my view, today’s USD action is business as usual; look for a rotation further to the bottom of the range and then look to cover USD shorts if you are a near term trader. Today’s Balance of Trade data is due out shortly and is likely to be USD neutral.


R3: 122.20

R2: 121.90/122.00

R1: 121.50/60

Current Price : 121.24

S1: 120.80/90

S2: 120.50

S3: 120.20

Pair falling back on good volume after thick offers ahead of 122.20 cap the recent strength; traders note real money names on the offer. Stops said to be large under the rate at 120.80 area and more at 120.50 area suggesting that late longs will be liquidating soon should the pair fail to hold the 121.00 handle this week. Look for a rapid drop on any news from Beijing RE: Yuan reval potential.


R3: 1.3100

R2: 1.3080

R1: 1.3050/60

Current Price : 1.3014

S1: 1.2980

S2: 1.2950

S3: 1.2920

Rate rotating back to the top of the range on moderate volume; expect a pullback from the 1.3050 area as range trade continues to dominate. US data this week may be the catalyst for an attempt to break out of the range as coiling usually is released on “unexpected” news of some sort. Look for an upside breakout to rally hard, downside breakout will likely be a “head fake” in my view.

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Jason Jankovsky

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