Dollar: back to the range but not to ‘square one’

EUR USD (1.2870)
To anticipate some short-sales of euro by short-term traders near $1.29 yesterday required very little detective work. This has been day-traders’ favourite strategy since the start of the month. And it has also worked splendidly – on more than one occasion. Similarly, given the high visibility of the 1.2910 level in the market, no sleuth work was required to guess that stop-losses on shorts may lie somewhere beyond there. That is precisely what happened on Monday. It was for this reason that we were reluctant to interpret an uptick as bullish until at least 1.2940 was overtaken. This level proved to be the peak.

But this was not all that happened yesterday. The modest upmove in implied volatility suggests that the euro’s strength was not only causing discomfort for those who had sold spot since the European open, but, at least initially, also for those who had been selling options over the last fortnight. We therefore believe that a renewed price advance will not get stuck again; 1.2940 is weaker now and we cannot expect it to hold a second time, but it remains the trigger point for gains to 1.3090 (the risk-limit to a bullish view must subsequently be set at 1.2890). In the meantime, be warned that the good supports are far away at the moment. The first good demand point only comes in at 1.2710.

USD JPY (116.00)
Yesterday’s muted gains were largely attributed to a pick up in carry-trading activity – the catch-all explanation for every uptick since the ‘seasonal demand for yen’ theory fell out of fashion. On Monday, there was also a suggestion that the new basket used for calculating Japanese inflation would yield a lower figure and thereby restrain the BOJ’s room for manoeuvre on monetary policy. However, the dollar was still not able to leave the familiar range. The situation remains neutral therefore. The first resistances stand at 116.50 as well as at 117.05. The first demand levels are now at 115.20 and at 114.70.

EUR JPY (149.30)
The euro’s surge to yet another new high has accelerated the upswing and opened the potential for a near-term move to 150.65. The development also means that we must refrain from any dip-buying attempts. Indeed, a renewed decline below 148.90 now would actually be a worrying sign that would suggest a broader correction to 147.70 in the pipeline.

GBP USD (1.8930)
Yesterday’s revival was enough to lift the Pound beyond some of the better nearby supply points. As a result, despite the modest overnight setback, we currently target further gains to 1.9400. The first intermediate point to the upside now comes in at 1.9050. The risklimit to the new bullish scenario must be set at 1.8870. We continue to note, however, a critical downside point at 1.8800.

AUD USD (0.7620)
A new sideways consolidation for the AUD was already on the cards yesterday morning. The outlook remains the same today. The supports at 0.7565 and at 0.7545 and resistances at 0.7675 and at 0.7710 represent the best chances to define the borders of the current range. Only beyond the higher of these will the two-month uptrend be resumed (0.7805).