Morning Forex Briefing

The USD continues to take it on the chin overnight starting in Asia on follow through buying in the majors; traders report that a lot of action was stop-driven in most pairs suggesting that a long-liquidation break is building. Although the majors continued to tic higher the main action in Asia was seen in the Yen crosses where some liquidation of long EURO/JPY and GBP/JPY was seen as the Yen continues to recover from recent lows.

Heading into late Europe the BOE minutes were released and the GBP saw a brief pop to a high print at 2.0135 before running into offers. Today’s high in GBP marks a 26 year high for the rate against the USD and also is a projected channel top suggested by chart-watchers. Some early profit taking is being seen into the start of New York trade with the rate dropping back near overnight lows at the 2.0080 area; traders suspect that the rate is now primed for a near-term correction as it would take a lot of bullish enthusiasm to press beyond a 26 year high before the end of the week with the economic calendar light as it is.

EURO has also advanced into new ground above the 1.3600 handle but has also encountered a bit of a headwind; high prints at 1.3517 were heavily offered and traders say the rate has seen aggressive selling above the 1.3600 handle. Analysts say the way is clear for a probe into the lifetime highs but in my view the rates are looking “tired” after a several week advance. I think the probability is higher for a price break before the end of the week.

USD/JPY continues to find sellers but is not correcting as hard as some had seen coming, light stops were reported under the lows from yesterday at the 118.70 area but buying from Japanese names supported the rate from there. Low prints late in Europe and into the New York open are at 118.28 as close-in stops under the 118.60 area, 118.50 area and 118.40 area were triggered after the initial buying dried up. Traders note that the unwinding of Yen crosses is likely to be a factor through the day and see an initial break to 117.80 area before buyers might emerge.

In my view, the USD is due for a larger break against the JPY but
I am urging caution in the other pairs. We may have a few days or a week of what appears to be counter-trend action as the USD weakens against Yen but strengthens against GBP and EURO. I would look to buy the correction in GBP and EURO and continue to sell USD/JPY. Aggressive traders can SELL GBP above the 2.0050 area and look for a strong liquidating break. ADD to short USD/JPY positions above the 118.30/40 area if possible today.

USD/JPY Daily

Overhead resistance is thick above the 118.80 area so expect rate to probe for stops under the 118.20 area before attempting a recovery. Successful completion of 61.8% retracement suggests a test under the 115.00 long-term but volatility will likely remain. Potential near-term up channel forming which may signal two-way trade but a clear break below 117.80 may draw aggressive long liquidation.

GBP/USD Daily

Rate scores new high before showing signs of reversing, lower close will be a hook reversal and likely to draw aggressive selling and long-liquidation. Retracement target for an aggressive short is in the 1.9850 area with a close below there targeting around 1.9650. Stops building below the breakout S/R area likely so a hard break can’t be ruled out. Aggressive traders can SELL above the 2.0050 area.

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Jason
Jankovsky

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