Morning forex briefing
The USD continues to consolidate recent strength and remains in solid two-way trade to start the week. Initially firm in Asia overnight, the greenback weakened a bit to sketch-out the lower end of the consolidation band established at the end of last week; traders see scope for further weakness early in the week. Currently the USD is in the lower half of its overnight range against the majors and appears to be range-bound with little action.
A brief flurry of Yen buying was seen last night when the Russian central bank announced that it was buying JPY to diversify its foreign reserve holdings; USD/JPY fell to 119.18 low-print before recovering to trade 119.30 area to start New York. Although the Russians have been diversifying out of USD for the past year they typically buy EURO so the move was initially seen as USD bearish against the Asian currencies. The North Korea situation remains a wildcard in the region keeping traders nervous about selling USD.
Over the weekend the UN Security Council passed a resolution imposing sanctions on N Korea; traders are watching for any “saber-rattling†by the NK but expect the situation to stabilize. China has again announced that the PBOC is committed to Yuan “stability†but gave no time table or insight as to what that means for traders; at the end of this month Beijing announces GDP growth and traders expect that to be a continued double-digit pace. Look for more rhetoric from the Chinese in the next few weeks but no direct action to revalue the Yuan, most likely the PBOC will drain reserves or raise the bank liquidity requirements to remove currency from the system. Most traders do not expect a widening of the trading band near-term.
UK home prices showed an increase from homes sales data today briefly underpinning the GBP; speculation that the BOE will raise rates continues to grow and cable does not have a 25 BP rate hike factored into current prices traders say. Look for the EURO and GBP to track each other this week. US data kicks off tomorrow with PPI and TICS; both are forecast to be USD neutral as inflation seems under control and recent foreign purchases have been below the trade deficit. In my view, the USD is giving us the opportunity to place quality short positions. Look for a lower USD this week.
USD/CHF Daily
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R3: 1.2840
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R2: 1.2800
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R1: 1.2760/70
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Current Price : 1.2720
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S1: 1.2680
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S2: 1.2620
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S3: 1.2580
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USD/JPY Daily
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R3: 120.00
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R2: 120.00
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R1: 119.70/80
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Current Price : 119.28
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S1: 119.10
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S2: 118.60/80
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S3: 118.20
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Jason Alan Jankovsky
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