Overnight Asia/Europe
• USD recovers in Asia, falls in late Europe
• German ZEW better than expected, EURO rallies to new high
• Cable follows EURO higher
Today’s Economic Reports
• 7:30 AM CDT Balance of Trade forecast -59.5B
Looking Ahead
• Friday CPI forecast +0.3%, core +0.2%
Summary
The USD is softer this morning after staging an early recovery in Asia. Initially trading to highs for the week against Cable and showing signs of potential upside against the other majors the USD came under selling pressure in late European trade after the release of German ZEW Sentiment date. Although the number was lower at -32 vs. -39.5 last month it was above median forecasts of -40.0 giving traders a boost to buy EURO. EURO rallied on the news first finding stops above the 1.5400/10 area and then with active buying rallied above the previous highs last Friday for a new lifetime high at 1.5496 before offers expected ahead of the 1.5500 figure capped the move. Russian names, US investment names were seen on the bid traders say; offers were from profit-taking by longs and option defense ahead of the 1.5500 number. EURO remains firm ahead of today’s Balance of Trade data due out this morning but traders don’t see any surprises in the works. The slowdown in the USD economy will likely have slowed the trade deficit so even a better-than-expected number is actually “expected”; traders suggest that another round of USD short-covering may result but sentiment remains almost 100% bearish—which is scary in my view. When the EURO finally corrects it could be an absolute blood bath in my view. Cable followed EURO higher with Middle-Eastern names seen buying as the pair rallied into stops at the 2.0150 area for a high print at 2.0214 before falling back. Opening New York at 2.0270 area suggests a bit of selling pressure is coming on as the rate hold below previous printed high and below the 50% fib defense. Traders note that volumes in both GBO and EURO were average so far today. USD/JPY has found good support after seeing a break lower in Asia. Low prints at 101.41 were bought by semi-official names and real money account and the rally extended into the 102.20 area just ahead of the New York open. Stops were seen close in at 102.20/30 for a high print at 102.33 with more stops said to be resting at 102.50. Today’s US data is most likely going to be a non-event although a very good number could spark a modest USD rally; most traders are watching CPI on Friday. Speculation that the US Fed will cut rates by 75 BP remains high and a strong inflation number may stifle that enthusiasm.
EURO/USD Daily
R3: ?
R2: ?
R1: 1.5490/1.5500
Current Price: 1.5473
S1: 1.5400/10
S2: 1.5380
S3: 1.5340/50
Rate powers higher in a relentless march to score high after high; all this bullish sentiment is an accident waiting to happen in my view. A correction is long overdue and a liquidating break is inevitable sooner or later; be very careful holding longs. Aggressive traders can sell 1.5450 area. Stops likely rolled-up under the 1.5350 area and late longs likely to have their in range. If option defense can’t cap the move for a correction the rate has stops from shorts likely at the 1.5520 area.
GBP/USD Daily
R3: 2.0280
R2: 2.0250
R1: 2.0210/20
Current Price: 2.0160
S1: 2.0120
S2: 2.0080
S3: 2.0040/50
Rate finds offers capping strength in the 2.0200/20 area as expected and is falling back to test support at or around the 2.0100 area; look for a reversal later should stops be found under the 2.0080 area from late longs. Strong sell signal given today also suggests rate is topping, aggressive traders can sell above the 2.0180 area if we get it again today. Stops above the market at 2.0240/50 area likely out of reach today. Close under the 2.0080 area opens the door for a test of the 2.0000 area in my view.