Forexpros Daily Analysis - Evening session - GMT

Overnight Asia/Europe
 
• EURO rallies to new lifetime high
• Cable rallies with EURO
• PBOC hikes reserve requirements

Today’s Economic Reports

• 7:30 AM CDT CPI forecast +0.3%, core +0.2%
• 7:30 AM CDT Housing Starts and Building Permits forecast 1025K and 970K

Looking Ahead

• Beige Book later today
• 9:00 AM CDT Thursday Philly Fed forecast -14.0

Summary
The USD opens New York sharply weaker after a steady start in Asia; briefly touching highs on the day at previous resistance areas across the board. The Greenback took a hit in European trade as Eurozone inflation numbers came out worse than expected and traders bought EURO in response. EURO rallied to a fresh lifetime high after testing the 1.5900 handle a few times and then triggering stops. Erasing option barriers at 1.5915 for stops above the 1.5930 area the rate made two attempts at highs before printing a 1.5968 high later in the day. Trader’s note that Russian names were on the bid at 1.5850 area offsetting offers from a Swiss private bank; most likely the one that has been active on the sell side some desks say. No shortage of volume on the move suggesting that the rate has more to go near-term; aggressive traders can continue to let the 1.60 sell order work. Cable rallied with EURO in sympathy but traders note that the EURO/GBP cross was also being liquidated which helped firm the Pound side of the action; stops above the 1.9720/30 area “sell zone” quickly lifted into protective bids and a short-squeeze boosted the rate for a 1.9809 high print. Traders note that the volumes were light into the stops suggesting that the move was more of a panic-driven situation as no one really expected the GBP to have any buyers near-term due to the technical failure; rate is falling back to open New York. The PBOC hiked reserve requirements for the third time this year in an effort to drain liquidity from the baking center, China sets the CNY rate at 6.9928 which is hovering at the lows against the USD. Affecting USD/JPY with a bit of pressure the rate briefly rallied on follow-through from Tuesday for a high print at 101.94 but falling in line with USD pressure elsewhere lows at 100.81 soon followed; the rate is expected to remain range-bound near-term with good support at the 100.00 level. Today’s data likely to surprise as USD favorable given yesterdays PPI data but traders warn that volatility may result if housing data is better. Beige Book later today no factor in my view, look for the USD to range-trade today.
 
GBP/USD Daily

R3:  1.9880
R2:  1.9850
R1:  1.9800/10
Current Price: 1.9755
S1:  1.9720/30
S2:  1.9700
S3:  1.9680

Unexpected reversal catches shorts by surprise as spillover volatility lifts rate into areas where stops have been rolled down; brief push to highs should be short-lived if down trend secure. Close back under the 1.9720/30 “sell-zone” very important today as the rally would be seen as a “head-fake”. Stops from aggressive longs likely rolled into range making for potentially volatile trade. Reversal signal overnight gives caution to the bears but the close may negate.
 
EURO/USD Daily

R3:  ?
R2:  ?
R1:  1.5960/70
Current Price:  1.5933
S1:  1.5900/10
S2:  1.5880
S3:  1.5850

Rate makes upside breakout suggested by rising wedge, close above previous high at 1.5915 very significant for an extended attempt for the big figure 1.6000 handle. Stops above 1.5920/30 area as expected with some signs of longs liquidating into the move. Should rate fail at this high expect a strong sell-off into support at the 1.5850 area; bulls need to really ramp-up their volume to extend the move. Top is coming soon in my view, aggressive traders can open shorts at 1.6000 area soon.