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Forex Trading StrategiesJPY may be prime mover today as USD/JPY reaches key retracement levels and other JPY crosses must stand or fall.
EUR/USD reversal back into the old range appears complete, though thin markets treacherous. US PCE Deflator on tap as US rate view in focus.
MAJOR HEADLINES – PREVIOUS SESSION
• Canada Retail Sales for October out at 0.6% vs. 0.3% expected, but -0.3% vs. -0.4% expected less Autos.
• Final estimates for US Q3 GDP growth adjusted down slightly from 4.3% to 4.1% and GDP Price Index adjusted up to 3.3%
• US weekly energy inventories show larger than expected expansion in crude supplies, but sharp draws in distillate supplies. Oil first sold off and then recovered strongly
• Japan Merchandise Trade Surplus lower than expected in November (600B vs. 613B expected and 708B vs. 785B expected on adjusted basis.)
JPY weakened briefly overnight on the trade data, but was easing stronger again by the late Asian hours
THEMES TO WATCH – UPCOMING SESSION
USD/JPY at very interesting levels overnight - with the pair easing close to the 117.75 first Fibonacci line for the retracement of the move from 121.40 to 115.50. After three days of consolidation from the recent impressive move, it's time for the pair to probe the lows again or reverse higher once more. The key level above that retracement area being the 118.30/50 zone that was a zone of contention on the way up.
Elsewhere, GBP really bit to the downside after the BOE minutes yesterday, and EUR/GBP seems bizarrely mispriced with the short rates in the UK collapsing while Euro rates did the opposite on ECB sources purportedly talking up further rate hike scenarios going forward. EUR/GBP is a difficult pair - but it looks cheap here even though it has priced in some of yesterday's large contraction in short rate differentials.
The reversal in the USD/European pairs seems be complete with the swift move back below 1.1900 in EUR/USD and the brutal GBP/USD move yesterday. These likely represent an unwinding of the fresh positions put on just before and after the recent key FOMC meeting as the USD failed to follow through on the move weaker. A couple of possible reasons for this: First and foremost is the resilience in the US numbers - with the housing market persistently refusing to show sustained weakness despite spotty numbers here and there. US rates are beginning to come higher again as well, as the newswires are now beginning to talk about Bernanke wanting to continue the rate hiking regime to prove his inflation fighting prowess. Watch the Fed's favorite PCE Deflator release today for more hints on Fed thinking - if the number is high and US treasuries continue to sell-off, this could continue to support the USD.
So the USD weaker play around the FOMC appeared to be the market getting ahead of itself, and this scenario is delayed until we stick our heads back above 1.1940 in EUR/USD again.. Meanwhile, the downside is the bigger risk, and risk of treacherous moves in general is high in these thin holiday markets. Again, because this is an "employer's Christmas/New Year", there will be several trading days close to the weekends with abnormally low volume and market moves may be tough to catch or read intraday.
Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
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