Forexpros Daily Analysis - Evening session - GMT

Overnight Asia/Europe
 
• USD two-sided overnight
• Technical trading for the most part
• Japan CPI better-than expected

Today’s Economic Reports

• 9:00 AM CDT Michigan Sentiment forecast 71.0

Looking Ahead

• Chicago PMI, ISM index, ADP employment, and Non-Farm Payrolls next week
• Sunday Daylight Savings Time begins in Europe

Summary
The USD opens New York mixed today after a firm start in Asia. Trading was quiet and technical in nature as early USD strength triggered stops for some USD shorts and the majors drifted lower into first levels of support. A brief flight to quality rush as reports of a North Korean missile test resulted in a quick run to overnight highs for the Greenback but after the initial activity the USD returned to earlier levels ahead of European trade. Tokyo CPI came in a bit higher than forecast which gave Yen a lift and the USD sold off to the lows against Yen, low prints in USD/JPY at 99.29 before recovering. Large bids were seen in the pair from a US investment house traders say, during Europe the rate scored its high at 100.40 before falling back to mid range. Traders say the rate feels “neutral” ahead of US data this morning but the big numbers come out next week so I wouldn’t expect a lot from today’s Michigan Sentiment number. Cable was two-way overnight as well initially weaker to start Asia but posting a low print at 1.9929 in Europe after the release of UK current account data. UK C/A data shows a 50% reduction in C/A debt suggesting that money is flowing into the UK a bit faster than expected which lifted the GBP off the lows back over the 2.0000 handle. Traders note that both the GBP and EURO have more of a corrective tone this morning and are looking for continued higher prices as early shorts lighten up ahead of the weekend. EURO is firmer after a brief break lower to find close-in stops; remarks by ECB Weber resulted in a rally into the highs during late Europe. Weber said that he sees risks to wage pressure and rising inflation and that the ECB will act promptly and appropriately to prevent second-round effects; traders took this to mean a sooner-than-forecast rise in interest rates and the EURO scored highs at 1.5840 just ahead of the New York open. For the most part overnight trade was technical in nature as S/R levels hold and stops get cleared, in my view we can expect the USD to finish the day weaker after its brief show of follow-through strength from yesterday. As in most rallies within a bear market prices decline after less than 48 hours of the move; I think that is our show for today in the USD.

GBP/USD Daily

R3:  2.0100
R2:  2.0080
R1:  2.0020/30
Current Price: 1.9993
S1:  1.9920/30
S2:  1.9900
S3:  1.9880

Rate sells off on follow-through then quickly reverses catching the late shorts in an early squeeze; look for continued higher action should the rate advance beyond the 2.0020/30 area of initial sell-stops. Higher US data could spark another rally and should the rate return to the opening range a strong recovery is possible to end the week. Most likely there will be some demand around the London Fix as month end & quarter end needs are met. Look for a “doji” close to further advance early next week. 

USD/JPY Daily

R3:  101.00
R2:  100.80
R1:  100.30/40
Current Price: 99.84
S1:  99.20/30
S2:  98.50
S3:  98.00

Rate possibly going to settle in a “doji” star after two-way action failed to press the advantage for either side. Stops over the 100.50 area said to be in size as are the stops under the 98.50 area. With sentiment still very bearish I think the early longs are most at risk and a break lower on US news might create an engulfing pattern; very bearish should that happen. I think the USD has one more leg lower to test support before sentiment begins to shift. Bad US news next week likely to force the rate lower.