Morning Forex Briefing

The USD is lower across the board this morning after an early Asian rally by the majors gave the greenback a run for the money with all pairs better except USD/JPY which is flat. Initially fears of increasing tensions with China over the WTO lawsuit would underpin the Yen pressured the USD/JPY to a low print at 118.75, well off the overnight close in New York at 119.35 but after the BOJ rate announcement the USD found willing bids. Contributing to the strength in the recovery was strong spillover from EURO/JPY which again reached an all-time high.

Adding a bit of fuel to the fire were reports by Japan MOF officials that Yen weakness would not be a topic of the G7 meeting this weekend. Although traders continue to place carry trades the BOJ head Fukui mentioned in his remarks following the BOJ announcement that he didn’t think the Yen carry would be as popular moving forward and that the BOJ cannot show the path of rates in advance; which is ridiculous in my view. Any central bank can signal intentions if it wishes and macro-economic change in the business cycle is well-understood. In my view it is only a matter of time until the BOJ begins an aggressive interest rate hike program and the rest of the world fully knows that will happen after the elections in July. Given the markets propensity to lead the fundamentals by 4-6 months than a gradual re-pricing of the Yen pairs to reflect consistent 25 BP hikes by the BOJ will begin during Q2 in my opinion. USD/JPY currently around 119.10 in New York to start.

GBP is sharply higher following EURO’s rally overnight. Fears of tensions with China and Yen cross spreading may be contributing to the near-term strength; GBP high print at 1.9745 ahead of the New York open. EURO is also sharply higher making one of the strongest one-day showings in several weeks trading to an overnight high at 1.3335 just under the two-year low set last week.

Both GBP and EURO are poised to advance into new territory for 2007 and aggressive traders can ADD to open longs on a small pullback. In my view, the USD is simply resuming the overall bearish trend with current action confirming that the short side is the place to be. Lagging the complex is the USD/JPY but selling strength will eventually show nice gains I believe, the USD cannot continue advancing with the structural weakness it has and it is only a matter of time before the carry trade closes & China revalues the Yuan. This trade has a long way to go.

GBP/USD Daily

Rate advancing on good two-way action and solid volume, look for a test of the reported option barrier at 1.9750 before a pullback. Dips should be bought, aggressive traders can ADD to open longs under the 1.9700 handle on a break, look for a solid close over the 1.9800 area near-term. Expect some pressure form the top of the range but a breakout is likely on aggressive UK fundamental news due this week.

EURO/USD Daily

Rate building on underlying strength but due for a pullback from overhead resistance area at 1.3480 area; look for a break over that area to expose stops. Traders note that the 1.3500 area likely to attract profit taking but “buy the dips” is the strategy to use. Support said to be solid at 1.3360 area. ADD to open longs on a pullback, look for new 2007 highs near-term.

Please see www. ProEdgeFX.com for details

Jason
Jankovsky

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