Morning Forex Briefing

USD traders have had a quiet overnight session with two-sided action. Initially better in Asia, the USD fell back later in the European session but aggressive action from Yen crosses and technical S/R kept the USD two-sided within established ranges with reasonable volume traders say. Major news overnight was the RBA leaving interest rates on hold. The failure to raise rates was initially seen as a bit bearish for the Majors but traders are watching more news coming later n the week so the reaction was more of a knee-jerk.

USD/JPY is encountering heavy resistance art the 119.00 area as expected; high prints at 119.10 attracting heavy selling and option defense trades say. Bids back at 118.50 area likely to contain the pair in technical trade as the breakout from the bear pennant is either confirmed or not; traders note that a German bank was active on the AUD/JPY cross after the rate announcement. Most of the action in the JPY is due to resetting the carry trade, there is still lot’s of room to execute a solid interest rate differential play analysts remind and the JPY weakness will likely continue but the question is against which currency. The recent fall of the USD/JPY may have more to go should the China situation develop a more protectionist measure and traders would be wise to consider the short side of the pair for the long-term.

Cable is remaining well bid ahead of the Thursday BOE MPC meeting. Although analysts are divided over the potential for a rate hike traders are bracing for a 25 BP hike anyway. GBP is likely to remain inside established ranges with the upside potential for stops at 1.9820/30 area; dips likely to be bought at firm support should the rate drop into the 1.9650 area. Analysts remind that the BOE has a history of surprising the markets so a rate hike can’t be ruled out even if the MPC has not “signaled” a rate hike is coming.

EURO continues to lag the complex as interest in the Yen crosses continues to remain in high focus. Overnight ranges were tight and volumes lighter. The EURO has bid interest under the 1.3300 area traders say but low prints at 1.3317 have kept the dips shallow. Stops are rumored to be above the 1.3380 area near-term and traders look for an eventual test of the 1.3400/20 area near-term. In my view, we can expect continued consolidation and two-way action until Thursdays BOE announcement and Fridays US NFP report. I think the best course for the next 24 hours is to sell rallies in the USD and look for the majors to strengthen into the end of the week.

EURO/USD Daily

Rate continues to consolidate recent gains but hourly studies showing some bear-divergence depending on who you talk to. Upside test of 1.3400 handle likely near-term, should BOE hike rates in a surprise move EURO likely to follow GBP higher on sympathy; stops over the 1.3420 area said to be heavy. Stops under 1.3250 resting traders say with good bids ahead creating range.

USD/JPY Daily

Pair meeting overhead resistance as expected at 100 bar MA and 50% fib defense; current “doji” star signals potential fallback should rate close at this level today. Bear pennant breakout to the upside likely a “head fake” as volumes were not significantly high traders say and heavy selling of the pair was reported overnight from real money accounts. Should bids be absorbed today, sell-off likely I think.

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Jason
Jankovsky

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