Morning Report: Playing For USD Correction

Is the wave of USD buying finally about to roll back out? If it is, here is how I am looking to trade it.

USDJPY found some support overnight on the first meaningful retest of demand sub 108, with reports that Japanese importers have decent bids layered below 108 down to 107.50 levels. The price action was a replication of the Importer bid which was witnessed in the low participation session at the Asian open Sunday.

The lack of follow through during the Asian session stop run will buoy bulls who will look for this level to hold on any subsequent retest during LDN or NY sessions today. An hourly close breach of that level will likely see bullish bids into 107.50 heavily pressured. Offers are anticipated to be in decent size on any move back to the 109 level.

USDJPY is also receiving added pressure from the current risk off tone of US asset markets with equities pulling back again yesterday during the US session, with most Asian indexes following suit over night. With Daily Order Book Regression and Psychology Indicators having both crossed lower, there could be good opportunity for counter trend trades, playing on the likelihood of a mild USD correction.

This move will of course be dependent on what we hear from the FOMC minutes this evening, but should it be highlighted that there is no chance of an early rates rise, we should see a corrective move at least retesting the breakout from 105 area highs. I will be looking for Order Book Regression & Psychology indicators to cross lower on the H1 chart in line with price breaking yesterdays low to initiate short positioning.

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EURUSD continued to hold a consolidation pattern against Mondays recovery form the NFP low print, remaining relatively bid against a backdrop of falling US yields, profit taking and short covering. Again it remains important to view the current phase of EURUSD price action in the context of the significant decline we have witnessed since Draghi’s early summer presser. It is anticipated that we will witness a further consolidation and corrective phase that will ultimately fall prey to the weight of fundamental money flow. The contrast between the US and European economies and central bank posturing remains stark.

Near term technicals will initially focus on a correction against the September high at 1.2992. The bull/bear battle at the 1.27 level will give more clues as to whether the September peak is in focus or we are in for a more extended correction against the decline from the May highs. Again with Daily Order Book Regression & Psychology Indicators having crossed higher (albeit against a heavily Down On Balance Volume) I will be looking to the H1 indicators to cross higher with price to set longs.

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GBPUSD continues to take solace from the pause in the single currency’s decline. Bullish players will remain focused on support at 1.6050 an hourly close below here will likely prompt a fairly rapid retest of bullish bids at the key 1.60 level if these are easily filled the subsequent stops should fuel a stern test of the NFP lows at 1.5951 failure here will open the field for a bear run to 1.59.

If bulls can successfully hold and defend the 1.6050/30 zone then we could see stops at 1.6130/50 become the focus – if these get hit there is a clear technical path for a move to 1.61. With Daily Order Flow indicators suggesting the same counter trend opportunities, I will be looking for the H1 Order Book Regression & Psychology Indicators to break higher with price with a view to setting longs. Should the FOMC minutes tonight reveal there to be no chance of an early rate rise, GBPUSD could be the strongest beneficiary in light of recent Hawkishness out of the BoE.

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Domestic calendars in Europe are light today and the focus for the majors will be the FOMC minutes released later in the US session.

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