Overnight Asia/Europe

• USD initially firmer in Asia, breaks lower in Europe

• Traders note stop-driven trade

• Demand for EURO from Middle-East accounts noted

Today’s Economic Reports

• None of note in the US

Looking Ahead

• All eyes on US CPI Friday forecast +0.3%, core +0.2%

• Speculation growing for 75 BP rate cut next week by FOMC


The USD is lower to start New York after a firm start in Asia evaporated into European trade. Despite firmer equities overnight and follow-through from Tuesday’s strong rally the Green back failed to hold onto gains and the majors reversed back into their highs on mostly stop driven trade. Overnight desks report that demand for EURO was seen by Middle-Eastern accounts and rumors of some semi-official buying off the lows around the 1.5350 area helped push the rate into stops at the 1.5390 area. Once those stops were triggered the rate saw waves of stops layered between 1.5400, 1.5430, and 1.5450 for a high print at 1.5479 before offers capped the move again under the 1.5500 psychological barrier. Stops being triggered close-in within range is often a sign of weak hands liquidating suggesting there is a lot of early interest in the short side from the highs; I think the two-way action and covering the same ground twice is a good sign of a top trying to form. Aggressive traders can ADD to short EURO positions from the 1.5450 area. In my view, the EURO continues to be severely overbought and a top is inevitable sooner or later. If this is the top forming for the correction then there should be more clues by the end of the week and with US CPI on Friday. Market tops don’t need much of an excuse to break so be nimble if you are on the long side of EURO. Cable followed EURO higher into strong resistance at the 2.0200/20 area and found it tough going at the triple-top; high prints at 2.0218 were quickly sold and the rate is on the 2.0160/60 area to open New York. USD/JPY held firm most of the overnight session first holding on to the 103.20/30 area through Asia and resisting the sell-off seen in the other pairs until late in the European session; lows eventually found at 102.43 after stops under the 102.80 area were triggered. Traders note that across the board the interest in the majors appears thinner than previous highs suggesting that large names may be staying away from the long side or trying to buy dips; in either case that argues for a more limited upside near-term. Look for the USD to continue two-way ahead of CPI on Friday as the news is light until then. Expect a bout of profit taking by the shorts soon.