Overnight Asia/Europe
• USD two-sided inside established ranges
• Technical trade expected Monday
• UK data showing strong inflation
Today’s Economic Reports
• None of note in the US
Looking Ahead
• Overnight Tuesday German ZEW sentiment
• 7:30 AM CST Tuesday Balance of Trade forecast -59.5B
Summary
The USD is starting the week two-sided in basically technical trade. Overnight ranges remained inside established ranges from last week and only modest follow-through from Friday’s rally seen. Cross-spreading for Yen remains a major focus as the carry traders continue to buy high-yielding rates but intraday volatility still a concern as the overall trend for USD remains down. Bids are noted some desks are saying and order boards remain thin after last week’s stop-driven action; most likely traders are waiting on US data this week for further clues to what the US Fed will do at the FOMC meeting next week. Most traders feel a 50 BP cut is a “done deal” and the markets are currently pricing in a strong odds for a 75 BP cut. Across the board the majors have fully priced in a 75 BP cut and anything less is likely to ignite a USD short-covering rally in my view. Strong UK input price data released this morning showed input prices at their highest level since records were kept at +1.7% m/m and 19.1% y/y; high crude oil prices are to blame analysts say. In response the GBP rallied off its early Asian low of 2.0148 for a high print at 2.0223 but offers were ready above the 2.0110 area traders say. The rate has since fallen back to the 2.0180 area in light trade but the upside remains limited traders say; overbought readings and overhead resistance appear to have capped the move near-term. EURO is weaker to start New York after posting an overnight high at 1.5405; currently trading 1.5341 and on the low of the day. Traders note that the rate has “buy the dip” players in play to start the week but also note those accounts are e-platform and smaller players suggesting late longs who will place stops close-in; look for further weakness in EURO through the week. Aggressive traders can sell EURO/USD above the 1.5350 area and maybe again above the 1.5380 area if trade gets there this week. USD/JPY is lower to open New York but firmer off the Asian lows at 101.82 where good importer demand was seen. High prints in European trade at 102.45 with light stops seen around the 102.20 area after the dip suggesting again late shorts selling into the hole. Look for consolidation to continue ahead of US data Tuesday and German ZEW.
EURO/USD Daily
R3: ?
R2: 1.5450/60
R1: 1.5400/10
Current Price: 1.5348
S1: 1.5300/10
S2: 1.5280
S3: 1.5250/60
Support said to be thick under the 1.5300 handle at 1.5280 and layered to 1.5250 area; stops said to be thick under that area making for potential chop ahead of 1.5220/30. Upside appears limited as the dips are not being bought in size by large names traders say but rather by small names and potentially late players. Stops likely to fuel a long-liquidation break, be ready for a sharp break. Aggressive traders can get short above the 1.5350 area in my view.
USD/JPY Daily
R3: 103.00/10
R2: 102.80
R1: 102.40/50
Current Price: 102.21
S1: 102.00
S2: 101.80
S3: 101.40/50
Inside range day closing lower on light volume a good clue that sellers are not aggressively pursuing the downside. Residual sell interest is easily absorbed by short-covering into the lows. New buying likely to be seen if rate can hold above the 101.50 area for the week as that would be an inside week at a ten-year low; more than enough for the big players to lighten up on shorts. Stops above the market not likely to be thick until the 103.80/104.00 area in my view.