Jason Alan Jankovsky Morning Currency Briefing Feb 26th
The USD is mixed this morning after a modest two-way overnight session focusing on risk-aversion; equities are firmer on most bourses with a quiet day so far into US data due out shortly and traders are closely watching for more clues on the Greek debt situation.
Overnight Greek bond spreads tightened a bit helping to lift EURO; UK revised GDP numbers were better than expected lifting Cable but the rate is making lows now in early New York as “sell the rallies” traders take advantage of higher prices. Most analysts remain bullish on the near-term prospects for the USD but some remind that the technical picture for the Greenback is overbought and warn of a potential correction that may be triggered by better US data this morning creating a “risk-on” day for the majors.
GBP high prints at 1.5320 on UK data were turned back and fast-money longs took gains off the table quickly once the rate retreated to the 1.5250/60 area; low prints in early New York at 1.5211 but the rate is holding off the lows and some desks report semi-official names and good buyers on the dips. Stops are said to be in size under the 1.5200 handle as longs set recently have a lower tolerance for risk; upside stops are said to be in size closer to the 1.5350 area.
EURO is firm and pressing into highs overnight; high prints as Cable rallied at 1.3629 finding stops over 1.3600/10 area. Offers are said to be waiting on a lift to 1.3650 area with stops beyond; low prints a distant 1.3529 this morning. Traders report reserve manager interest on the buy side overnight as well as some sightings of sovereign names. A lift over the 1.3650 area with a close above 1.3680 area opens the door to a short-squeeze some desks warn.
USD/JPY is holding firm in a tighter range after yesterday’s sell-off; low prints at 89.03 with highs so far this morning at 89.51 and traders note large stops likely above the 89.80 area. Better equities today likely to inspire a round of short-covering as most analysts suggest the repatriation needs are mostly done for the year-end.
USD/CHF is weaker dropping to a low print overnight at 1.0736 but still holding the 1.0720/30 area of S/R; highs at 1.0819 are under S/R from recent trade suggesting that a downside move may be brewing. Traders are looking for a close under 1.0720 to signal a potential liquidation break with trade on the 1.0600 handle today a solid sign.
USD/CAD is also testing downside action with high prints at 1.0621 going offer easily; low prints in late Europe at 1.0559 and the rate is near lows to start New York. Traders note stops likely under the 1.0520/30 area with a close today under the 1.0520 area likely to encourage a liquidation break next week.
In my view, the USD is a bit “toppy” after panicky trade and risk-aversion pushed the majors lower; the important technical thing to remember is that both equities and commodities were bought off their respective liquidation lows and only a few pairs moved into new territory against the Greenback. Likely this means the USD has exhausted the upside potential near-term and if equities end on a strong note today a USD sell-off might be coming early next week. Look for US data to support stocks today putting downside pressure on the USD early.
Jason Alan Jankovsky
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Trading in off-exchange foreign currency transactions (FOREX) involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading in FOREX is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, or trade discussion are subject to change at any time.
Jason Alan Jankovsky Morning Currency Briefing Feb 25th
The USD is higher but off earlier highs from overnight as traders continue selling the major pairs; Yen cross-spreaders were the main focus in Asia as EURO/JPY cleared under major support taking most Yen pairs with it. Equities were mixed in Asia and are flat in Europe to start New York suggesting more risk-aversion to start the day.
US data is due this morning with some analysts suggesting a flat reading on Durable Goods; the bulls suggesting that the dip in equities is a buying opportunity with the bears pointing to weak data so far this week as indicative of a potential double-dip building. US Fed Chair Bernanke continues testimony on Capitol Hill today but most fed watchers expect no market-moving news. Issues over Greek sovereign debt continued with Moody’s closely monitoring a resolution but stating they see no change in their ratings for Greece at this time; other rhetoric was supportive but EURO was under pressure through reported stops.
Low prints in EURO at 1.3450 found the usual assortment of Asian CB’s on the buy side under 1.3500 traders say; macro account selling was also seen under the figure. High prints in early Asia at 1.3549 as the New York session closed weaker likely encouraged the follow-on selling pushing the EURO into key S/R overnight. Pressure from EURO spilled over into Cable with the rate dropping through several layers of support for a new nine-month low at 1.5270 before regaining the 1.5300 handle; traders note that stops were a large driver with sovereigns seen on the bid under 1.5330 most of the evening. High prints were from the New York close at 1.5424 with stops noted above 1.5380 today; offers likely ahead from the “sell rallies” crowd now that the rate has probed for a new low.
USD/JPY also was under pressure but saw good bids from large names and Japanese Lifers offsetting offers from a large US Investment house traders say; low prints at 89.19 is on long-term tech support area of 89.20/30 area. High prints after the New York close at 90.33 went unchallenged overnight; traders are wary of a short-squeeze anytime now that Yen repatriation may be winding down for the fiscal year end.
USD/CHF lifted to a high print at 1.0881 where offers capped overnight the rate easing back to the 1.0840 area into early New York; low prints at 1.0803 from New York’s close likely to be challenged today if equities lift around the news.
USD/CAD continues to hold above the 1.0500 handle with high prints at 1.0585; lows at 1.0511 on early follow-on selling into Asian trade. Traders note that the rate is likely coiling for a larger move and stops are likely building above 1.0620 area from the shorts and under 1.0480 from the bulls.
In my view, the sentiment for the Greenback is reaching into severe overbought as are most pairs. There has been little meaningful correction for the Greenback on the strength seen from late last year and traders are noting caution flags for further strength such as the record EURO futures short reported twice already. If the Greenback cannot build into further strength today a long-liquidation break may develop ahead of US data into next week. Look for more two-way trade with a corrective tone; buy the dip traders likely will be active in USD today.
Jason Alan Jankovsky
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Trading in off-exchange foreign currency transactions (FOREX) involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading in FOREX is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, or trade discussion are subject to change at any time.
Jason Alan Jankovsky Morning Currency Briefing Feb 24th
It was a quiet evening for the greenback overnight as traders continue to digest recent price action and changing fundamentals; German GDP data came in unchanged giving a bit of a floor to the European currencies while the Greek debt situation continued to evolve with the Fitch downgrade of four Greek banks high on the list for things getting worse.
Traders note that in both EURO and GBP semi-official and sovereign accounts were on both sides of the markets providing little in the way of new clues as to where big money is getting positioned after the recent decline to 2010 lows. Equities continued to remain under pressure for the most part with most bourses near unchanged to lower with a few slightly higher after the drop seen in New York Tuesday; commodities under pressure as well most notably Gold back under the $1100/OZ level in early New York.
Traders note that the recent rise in the USD has put some longer-term tech levels back in play and it might take a few days of two-way action before the Greenback finds direction. Adding to today’s uncertainty is Fed Chair Bernanke’s testimony on Capitol Hill where traders will be analyzing every word for clues to an exit strategy and if last Friday’s discount rate hike was a step toward tightening rates; although most fed watchers suggest the fed remains on hold at least until 2011.
In the major pairs action was mostly two-way and consolatory, GBP high prints at 1.5478 with lows at 1.5411 make for a tight inside range day so far; traders note dips attracting Asian CB buying.
EURO remains a bit more buoyant with early lows at 1.3501 going bid in Asia with semi-official names on the offer into the highs at 1.3573; the rate is holding 1.3550 area in early New York with dips looking to be bought if the rate tests the lows again.
USD/JPY is range-trading at the lows with low prints at 89.93 finding buyers in some size under 90.00 traders report; high prints at 90.37 making for a tight range.
Traders look for further bids deeper into the 89.00 handle with stops likely above the market closer to 90.50/60 from late sellers. A lift in equities would certainly help this pair.
USD/CHF continues to flirt with the 1.0850 area; high prints at 1.0845 with lows at 1.0787 challenged in New York early; traders note the rate is in the technical sell zone with a lift over 1.0860 likely to find close-in stops mixed with offers. If the rate were to drop closer to the 1.0750/60 area downside stops are expected.
USD/CAD continues to grind sideways to higher lifting to a new high print at 1.0596 before dropping back but the rate is challenging highs in early New York suggesting a try for the 1.0620 resistance area next. Traders note that the rate has covered a lot of ground in a very short time and remain wary of further strength without a lot of help from new buyers.
If the rate closes on the 1.0600 handle this week further lift may be due but a close back under 1.0480 for the week really argues for a head-fake on this lift. In my view, the USD is consolidating gains but is a bit overdone to the upside. A lot of current strength has been on risk-aversion and fear that the equities markets will struggle near-term along with the potential that sovereign debt defaults are a real threat.
I think once the markets calm down a bit traders will sell USD to resume the longer term downtrend. We may be near the end of the upside correction in the Greenback with the longer term fundamentals of a protracted US recovery due to take center stage soon.
Jason Alan Jankovsky
FOREX Analyst and Trader
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Trading in off-exchange foreign currency transactions (FOREX) involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading in FOREX is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, or trade discussion are subject to change at any time.
Jason Alan Jankovsky Morning Currency Briefing Feb 23rd
The USD started Asia weaker probing to overnight lows into Mid-European trade as reserve manager buying of Cable and EURO lifted those rates through stops noted above last Friday’s highs accelerating losses for the Greenback ahead of BOE King comments and German IFO data. IFO came out weaker-than-expected and profit taking hit the EURO dragging Cable lower as well; traders note “smart names” on the offer into the highs suggesting a correction was coming.
The USD rallied back hard lifting through close-in stops reversing losses to trade higher on the day against most pairs as official interest was seen in EURO/CHF adding a bit of fear to the market that possible SNB intervention may be in the works; no rumors either confirmed or denied at this point. Equities dropped back as risk-aversion again had a day on the boards but most indices are off only slightly so far this morning leaving the technical picture still constructive.
Traders note that the USD reaction to overnight news and subsequent volatility may be overdone a bit and sharp moves are always indicative of a market processing changing sentiment. Should the Greenback give back gains to end closer to unchanged the argument could be made that the whipsaw was all stops and fast-money traders with cooler heads likely to fade USD strength. \
GBP rallied into BOE King comments and IFO clearing stops above 1.5550 for a high print at 1.5578 before turning lower; once 1.5500 handle gave way the rate accelerated through close-in stops into the 1.5300 handle for a low print at 1.5391 before finding bids. Traders note reserve managers and semi-official names on the bid again under 1.5420/30 as in previous sessions.
EURO lifted through 1.3650 area to find stops climbing for a high print at 1.3692 before finding offers. Weaker IFO data prompted early longs to cover back dropping the rate to 1.3630 area where reserve managers were seen on the bid. The rate continued to fall through stops under the 1.3580 area for a low print at 1.3550 before bouncing; traders note “smart” names seen on both sides at the extreme end of the range suggesting the bulls and bears are setting up positions on a longer time frame.
USD/JPY lifted to a high print at 91.31 before dropping lower as interest turned to other pairs; low prints at 90.83 is on recent S/R area with bulls suggesting a dip to 90.50 would show additional bids.
USD/CHF rallied hard on the lift in EURO/CHF and rumors but stalled at tech resistance for a high print at 1.0820 before stabilizing; low prints at 1.0714 found light stops under the 1.0740/50 area as expected and without the official interest in the market it is likely the rate would have probed a bit deeper suggesting that the lift is a selling opportunity.
USD/CAD lifted as well more so in sympathy posting a high print at 1.0467 before holding; low prints at 1.0379 also likely to have extended further. In my view, the sharp reversal in the Greenback on whipsaw is likely an opportunity to sell strength. None of the news items were fundamentally a game changer and the market may have over-reacted. Look for the USD to give back a lot of these gains during New York.
Jason Alan Jankovsky
FOREX Analyst and Trader
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Trading in off-exchange foreign currency transactions (FOREX) involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading in FOREX is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, or trade discussion are subject to change at any time.
Jason Alan Jankovsky Morning Currency Briefing Feb 22nd
It was a mostly quiet start to FX trading in Asia, the Chinese Lunar New year celebrations are over and traders were getting back to work in earnest after last Friday’s US Fed inspired whipsaw. The Greenback is mixed in early New York to start US trading after being on both sides of unchanged in overnight action; traders remain nervous over the Greek sovereign debt issue and that is helping to keep a bit of pressure on the USD against the European pairs.
There is no fundamental news due from any major economy today suggesting that action will remain quiet and technical; two-way action is likely as the Greenback tests both ends of recent S/R.
Cable is holding around the 1.5450 area after printing a 1.5506 high against a 1.5429 low; traders note cross-spreading for EURO and a bit of upside bias after the attempted recovery seen end-of-week. Offers expected in the rate around 1.5550 area with bids expected closer to 1.5400 on further range extension.
EURO is holding the 1.3600 handle in early New York after staying mostly firmer all evening; high prints at 1.3655 found offers from a US investment house with dips supported by semi-officials and at least one Asian Sovereign traders report. Low prints at 1.3591 looking to be challenged soon with bids expected at 1.3580 area with stops below. Stops also noted above the 1.3660/70 area; long-term tech traders note that the rate is holding the 50 month MA after Friday’s rejected low perhaps suggesting the dip from the 2009 highs is about over and a resumption of the longer-term uptrend may be developing.
USD/JPY is softer as exporters and large names took advantage of last week’s 92.00 high prints; low prints in late Europe at 91.16 found light stops under 91.20/30 area with more likely under the 91.00 handle. High prints at 91.91 also found solid sellers to start Asia some desks report.
USD/CHF is holding in a very tight range; likely at a point of indecision. High prints at 1.0780 with lows at 1.0737; traders expect a lift to 1.0800/20 to meet with offers with stops likely under the 1.0700/20 area should a top be trying to form. Bids likely ahead of 1.0730 making for a technical consolidation so far this morning.
USD/CAD is holding firm on the 1.03 handle after closing under 1.0400 Friday; low prints at 1.0369 failed to find additional stops rumored to be in size under 1.0370/80 before bouncing back. High prints at 1.0408 found the previous floor to be solid resistance now; a rally over the 1.0440 area would likely be needed for the bulls to regain control but holding under 1.0400 all day today would likely give the bears confidence to attempt a move for 1.0350 area where stops are also rumored to be in size.
In my view, we can expect a lot of two-way action and consolidation after the USD was rejected off the highs seen on the Fed news last week. A lack of follow-through suggests that the move was all panic and late buyer with an equally volatile sell-off likely in the works. Look for tech trade today.
Jason Alan Jankovsky
FOREX Analyst and Trader
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Trading in off-exchange foreign currency transactions (FOREX) involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading in FOREX is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, or trade discussion are subject to change at any time.
Jason Alan Jankovsky Morning Currency Briefing Feb 19th
The USD is sharply higher to start New York after an overnight rush to buy Greenbacks was started by a surprise move by the US Fed; the Fed announced a 25 BP increase in the discount window leading traders to believe a Fed rate hike was in progress. Although several members of the FOMC announced that the change in the discount window was merely a move to normalizing operations ahead of the exit strategy hoped to be put in place before the end of the year and no change in policy was expected before 2011 traders rushed to sell the majors across the board lifting the Greenback through stops and attracting active buying. Most Fed watchers agree that the Fed had signaled this move weeks ago and that nothing has changed the markets reacted with panic adding to the already overbought condition of the USD.
Overnight news was light with most expecting a quiet end to the week but with the volatility seen overnight it is expected that more whipsaw will be seen as traders attempt to work through the overblown situation.
Equities were lower in Asia but close to flat in Europe, US DJIA index futures are lower but well off the lows in pre-opening trade. Commodities also whipped around but are off their lows as well lending credibility to the argument that the market reaction to the Fed move was overdone.
GBP fell through support at the 1.5500 handle to find stops and panic sellers all the way to 1.5420 area; a further drop into the 1.5300 handle on poor UK retail sales data for a low print at 1.5345 before regaining the 1.5400 handle. The rate is holding around 1.5400 t start New York with rumors of sovereign and semi-official bids supporting.
EURO broke lower clearing stops under the 1.3500 and 1.3450 area quickly for low prints at 1.3442 after closing closer to the 1.3600 handle ahead of the news; traders note that Asian CB bids and semi-official bids were seen on the drop as well as model account buyers suggesting that shorts are covering as well as new bids supporting. The rate is holding the 1.3500 handle in early New York.
USD/JPY broker through offers above the 91.80 area for a high print at 92.10 before dropping back; traders report bids likely on a dip under the 91.40/50 area but warn that stops from panic buyers are likely in size under 91.20/30 area.
USD/CHF rallied to a high print at 1.0901 before dropping back under the 1.0850 area; traders note that offers above 1.0880 were larger suggesting smart money taking advantage of the panic to find a top.
USD/CAD rallied in sympathy and is the only rate holding near the highs; high prints at 1.0532 are just below tech resistance at 1.0550 and the rate is taking a back seat to action elsewhere. In my view, the sharp rally in the USD is a knee-jerk reaction to a presumably bullish piece of news. The fact is, nothing at the Fed has changed and they are not signaling a change in policy. For the markets to react this aggressively to a well-signaled minor move by the Fed shows that sentiment is growing increasingly panicky. The USD will likely fall back just as aggressively and cooler heads will prevail; smart traders can look to sell USD on strength today as this move will likely fade within 48 hours.
Jason Alan Jankovsky
FOREX Analyst and Trader
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Trading in off-exchange foreign currency transactions (FOREX) involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading in FOREX is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, or trade discussion are subject to change at any time.
Jason Alan Jankovsky Morning Currency Briefing Feb 18th
The USD lifted again in overnight trade rising to the top end of the recent trading range putting the majors into key S/R with the exception of Loonie; follow-on buying from yesterday’s large move was cited for the initial push where stops and fresh buying seen as the USD rose to the best levels of the day in Europe. Greece bond spreads widened out putting pressure on EURO which spilled over into Cable; UK data was seen as negative for Sterling also adding weight but both pairs held above previous weekly lows and are currently drifting higher in light volumes ahead of US data due this morning. For the most part the majors have tested their recent lows and a round of short-covering is likely if US data is seen as unfriendly to the greenback. Traders note the Russian central bank intervening to stem the rise of the Ruble likely added upside to the USD but expect a round of EURO buys to re-balance their reserves. Equities are flat to slightly higher with commodities lower suggesting a bit of profit-taking from at least one side of the risk trade.
Traders note that sovereign bids were seen in Cable and EURO into the lows in areas seen before suggesting that momentum shorts may be late arguing for stops in-range in those pairs.
GBP high prints at 1.5690 in early trade dropping through stops under the 1.5600 handle into deeper S/R on the 1.5500 handle for low prints at 1.5573; the rate regained the 1.5600 handle briefly and is still under pressure into early New York.
EURO dropped through support at 1.3570/80 area to find stops under the 1.3550 area for a low print at 1.3538 before bouncing; high prints in Asia at 1.3615 were on low volume. Traders note the rate may find stops under the 1.3530 area but expect bids ahead of 1.3500 on further weakness.
USD/JPY is under the 91.00 handle with overnight high prints at 91.29 before turning lower; low prints at 90.72 have not tested breakout support expected at 90.50 so far today. Traders note heavy selling by Japanese names into the highs countered by spec longs suggesting hedgers against everyone else at the weekly highs. Stops expected in the 90.30/40 area with offers ahead of 91.50 as well.
USD/CHF rallied to test the 1.0820/30 area with a high print at 1.0828 before turning lower; low prints at 1.0771 with the rate holding around 1.0790/1.0800 area into early New York. The rate is attempting a technical double top today and sellers are likely to have taken a stand above 1.0820 with buyers likely to have stops closer to 1.0740/50 for longs set today.
USD/CAD continues to lag USD strength elsewhere with high prints at 1.0500 the figure and low prints again at the 1.0440 area at 1.0446. Traders expect continues pressure on any lift to the 1.0500/20 area with stops said to be building under the 1.0440 area with bids likely ahead of 1.0400 and 1.0380 areas. Canadian CPI released overnight was seen as bullish for Loonie and the rate is testing lows in early New York.
In my view, since the USD hasn’t gone anywhere new since the sharp rise seen last week current price action could be seen as range-trade with the opportunity to sell USD at the best levels of the range. A failure to advance from here would likely dent bullish optimism and increase bearish sentiment. Should US data be seen as negative for USD today a correction lower to end the week could be in the works.
Jason Alan Jankovsky
FOREX Analyst and Trader
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Also available my first book: Trading Rules that Work
Currently an Amazon.com top 100 bestseller under Finance/Futures
Trading in off-exchange foreign currency transactions (FOREX) involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading in FOREX is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, or trade discussion are subject to change at any time.
Jason Alan Jankovsky Morning Currency Briefing Feb 17th
The USD is as bit firmer this morning after reaching new lows overnight against most pairs in European trade before turning higher as technical buyers took a stand at deeper S/R levels; traders note a lot of interest in the Yen crosses helping to drive trade in EURO and GBP after those pairs reached tech resistance.
Overnight news was light with UK claimant count reaching a six-month high putting some downside pressure on Cable; news regarding the Greek debt situation was not seen keeping traders wary of further gains in the EURO. Equities were higher overnight with the Nikkei 225 adding almost 3.0% in Asia; commodities were two-way and holding yesterday’s gains for the most part suggesting that the USD is remaining under pressure net despite coming on the board a bit firmer in New York.
GBP high prints at 1.5818 found offers ahead of 1.5820 after clearing stops above the 1.5800 handle; traders note that demand for Sterling against the crosses helped lift the rate to resistance but UK unemployment numbers were the catalyst for fast-money longs to bail dropping the rate to a low in Europe at 1.5734 before bouncing.
Traders expect more bids under the 1.5720 area should the rate make for lows around US data this morning; stops likely on a move over 1.5820/30 area. EURO high prints at 1.3790 capping with offers expected ahead of 1.3800; low prints as Cable slipped at 1.3713 before bouncing. Traders note that the rate is seeing a lot of active selling into rallies suggesting the rate is still attracting longer-term sellers working against the stops from late sellers. Longs are likely to take a stand on a pullback closer to 1.3680 some desks report.
USD/JPY cleared resistance at the 90.50 area for a high print at 90.75 in early New York as the equities markets show solid risk acceptance overnight; low prints at the Asian open at 90.12 now put the rate solidly on the 90.00 handle with some analysts suggesting the next stop is exporter offers at the 91.00 figure.
USD/CHF dropped to a low print at 1.0646 before finding bids lifting to a high print at 1.0701 in early New York; traders note offers likely stacked ahead of 1.0720 for the day with stops from late longs likely closer to 1.0640 area.
USD/CAD continues to grind lower remaining the weakest in the major pairs; low prints at 1.0422 still holding the 1.0400 handle but highs were closer at 1.0461 making for a tight range. Traders note the rate is likely to see additional stop-loss selling on a break of 1.0400 with bids still expected at 1.0380 area.
In my view, the lift in the USD overnight is a selling opportunity. The Greenback remains in overbought territory and with US news taking a back-seat to positive flows into risk trades it is unlikely that the Greenback will find the same upside FTQ enthusiasm seen to start the month. Investors are happy to view the dip in equities and commodities as a buying opportunity and the Greek debt crisis is becoming old news now suggesting that traders will move out of USD as a safety net putting additional pressure on. Look for the greenback to remain two-way with a downside bias through New York action today.
Jason Alan Jankovsky
FOREX Analyst and Trader
Toll Free in the US: 1-866-435-9959
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Join me for my daily FOREX newsletters and LIVE FOREX briefings; click here for details
Check out my latest book: The Art of the Trade
Currently an Amazon top 100 bestseller under Business and Futures.
Also available my first book: Trading Rules that Work
Currently an Amazon.com top 100 bestseller under Finance/Futures
Trading in off-exchange foreign currency transactions (FOREX) involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading in FOREX is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, or trade discussion are subject to change at any time.
Jason Alan Jankovsky Morning Currency Briefing Feb 16th
After a three-day US holiday the USD is back on the defense after starting better overnight; traders are closely watching the Greek debt situation and the pricing of equities for near-term direction of the majors into important US data due this week. Although the USD is a bit lower this morning the majors haven’t gotten into new weekly territory despite better equities and commodities pricing overnight; traders are seeing a lot of interest on both sides with a consolidation-tone mostly apparent as the Greenback continues to attract light FTQ buying offset by profit-taking from fast-money longs.
Light economic news from Europe held little inspiration for traders; German ZEW index out at +45.1 vs. +47.2 last month put some pressure on EURO but the rate is holding firm into early New York. UK House prices were higher as was CPI but the GBP stalled near previous resistance keeping the lid on the rate under the 1.5750 area so far today. GBP high prints at 1.5732 found technical sellers some desks report; low prints at 1.5652 making for a somewhat tighter range to start New York.
EURO high prints at 1.3684 in late Europe after ZEW; low prints at 1.3587 on whipsaw overnight. Traders note large names on the bid under the 1.3600 handle with rumors of semi-official buyers; sellers continue to be tech traders and model accounts some desks report.
USD/JPY continues to consolidate with a positive bias after grinding higher last week; high prints at 90.08 with lows at 89.70 make for a very tight range so far this morning. Traders note that rumors of China revaluing the Yuan continue to keep a lid on the rate but the PBOC is making no show of any increased tightening leaving the rate in a holding zone.
USD/CHF is off the overnight high prints at 1.0792 dropping back to the middle of the range; low prints at 1.0716 drew late buyers as the rate is in overbought territory leaving the fast-money crowd willing to step in on dips. Traders note that the rate is failing at the 1.0800 handle on several tries suggesting that a long-liquidation break is in the works near-term.
USD/CAD high prints at 1.0502 with lows at 1.0444; traders note the rate has reached the first technical objective on a sell-off and a short-squeeze could result quickly. The Loonie is the only rate that has corrected back to a reasonable buy point suggesting that if the complex suffers a USD pullback the Loonie could back a retreat all the way to the 2009/2010 double bottom. Should that be the case the rate is likely to make a new low in my view. Across the board the USD is failing to extend further after the early rally to start the year. Despite the FTQ buying there is a lack of follow-on bidding suggesting that the Greenback is ready for a long-liquidation break. Aggressive traders can look to sell any USD strength as the highs for the month may be in. Look for the USD to continue in a slow grind sideways to lower today.
Jason Alan Jankovsky
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Trading in off-exchange foreign currency transactions (FOREX) involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading in FOREX is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, or trade discussion are subject to change at any time.
A resource for traders who need qualified tax counsel
Today is a holiday in the US and markets in the currency arena are a bit quieter than normal. This becomes an appropriate day to share a word or two on tax considerations for traders.
The following content is directly from Green Company. The work of Robert Green and his firm are the creators of the following content and it is some of the most thorough on the topic of taxation on spot forex trading.
Executive summary
Foreign currency futures contracts on U.S. exchanges are reportable on Section 1256 with lower 60/40 tax treatment. Conversely, all forex (foreign exchange interbank) contracts are subject to Section 988 ordinary gain or loss treatment by default. Traders, but not manufacturers, may file an internal election to “opt out” of Section 988 (the “capital gains election”) into capital gains and loss treatment. With that capital gains election, forex forward contracts in major currencies are treated as Section 1256(g) capital gains and losses with the lower 60/40 tax treatment.
It is our belief that spot forex is treated as a forward if the taxpayer closes out the position. Therefore, we often advise reporting forex spot contracts in major currencies on Section 1256(g), after a capital gains election has been duly made.
However, forex over-the-counter (OTC) options must stop on Schedule D (capital gains and losses); they are not eligible for Section 1256(g) treatment (per IRS Notice 2007-71).
Professional forex traders vs. online forex traders
There are key differences between professional forex traders and this newer breed of online forex traders. Professional forex traders often trade “forward contracts” (rather than spot forex) because forwards have more transparency and better pricing than spot.
Forward forex traders trade major currencies (for which regulated futures contracts [RFCs] exist); therefore, after filing an internal capital gains election, they can use Section 1256(g) 60/40 tax treatment. Most professional forward forex traders make their living trading forwards and count on lower 60/40 tax rates each year — currently up to 12 percent lower tax rates (in 2008 and 2009). (More on Section 1256 below.)
Compare the professionals to the online forex trader. Most online forex traders are new to forex; some moved from the online securities or futures trading space. Many have very low account sizes ($2,000 to $25,000) and lack the capital, clout, and connections to trade forwards in the (non-retail) interbank market.
The online forex-trading marketplace did not pick up steam until the early 2000s. When the online securities trading revolution suffered a bear market in the 90s, brokers and traders stepped into the forex market. This became possible when larger banks democratized interbank-market access with new retail platforms.
The key difference: Online forex traders mostly trade spot contracts, whereas professional traders have access to lower-priced forward contracts. But are spot and forward forex contracts given the same tax treatment?
The conflict between Section 988 and Section 1256
Before we go any further, let’s identify the two alternatives for reporting forex trading income and losses. Section 988 has ordinary gain or loss treatment. Losing traders prefer Section 988 because it eliminates capital-loss limitations, allowing full ordinary loss treatment against any type of income. Section 1256 has lower 60/40 capital gains tax rates. Profitable traders prefer Section 1256 because it reduces their tax rates on trading gains. Section 1256 has a three-year carry-back feature, but only against 1256 gains in those years.
Section 1256 and Section 988 have always conflicted, especially when it comes to currency traders. Each section was written for different types of taxpayers (manufacturers vs. traders/dealers), by different IRS groups, in different decades.
In 1982, Congress added “foreign currency contracts” to the Section 1256 definition (Section 1256(g)). Congress wanted to accommodate currency traders, putting forex (OTC interbank off-exchange markets) on par with RFCs — the original 1256 contracts (like currency futures). This created a conflict because Section 988 already included “foreign currency transactions” and “forward contracts” in the interbank market.
Congress was clear about including forward forex contracts in Section 1256, but it did not mention spot forex. Foreign currency contracts under 1256 must be in a foreign currency for which there is regulated futures currency contracts trading (i.e., major currencies). For example, forward contracts in the Euro qualify because there are Euro currency futures traded on futures exchanges. However, the IRS hasn’t clarified the rules, so there is room for much interpretation.
Congress gave the IRS the right to figure out tax reporting abuse and to bar certain instruments from the coveted Section 1256 60/40 treatment. This is exactly what happened with IRS Notices 2003-81 and 2007-71. Notice 2003-81 was issued to combat tax cheating; the notice applied a literal reading of foreign currency contracts. Notice 2007-71 later corrected 2003-81, and unfortunately it barred forex OTC currency options from 60/40 treatment. (More on Notice 2007-71 below.)
Spot and forwards may or may not have different tax treatment
Although forward contracts are mentioned in Section 1256(g), they are also mentioned in Section 988 and therefore, they receive ordinary 988 treatment; unless a trader makes a contemporaneous internal election to opt out of 988 for 1256. Some tax professionals treat spot contracts as part of Section 988 (with no ability to elect 1256), whereas other tax professionals think spot contracts in major currencies (that also have regulated futures contracts) may also be treated like forwards with Section 1256(g) treatment.
Section 988 states that if a trader does not “take or make delivery” of the actual currency – and most traders don’t make or take delivery – then the spot contract can be treated like a forward contract. Traders don’t make or take delivery in non-functional currencies for the spot forex contracts they trade. Rather, they trade the contracts before settlement in the same way they trade forward forex. The only difference is spot settles in less than 48 hours and forward settles in more than 48 hours. These are some of the reasons for a “substantial authority” argument to treat forex spot in major currencies like forwards for purposes of electing into Section 1256(g).
How to proceed with tax filings
We believe a “substantial authority” position (which is weaker than a “more likely than not” position) supports treating spot the same as forwards, provided the spot is in a major currency that also has a RFC . To claim Section 1256 60/40 lower tax rates on spot trading gains, it’s wise to receive a “substantial authority” legal opinion. The Internal Revenue Code allows relying upon “substantial authority” to avoid penalties.
Our firm works closely with a tax attorney who can provide these legal opinions for our clients.
OTC currency options
IRS Notice 2007-71 narrowly (yet definitively) addresses the tax treatment for “over-the-counter currency options,” stating they may no longer be treated as “foreign currency contracts” in Section 1256; instead they are part of Section 988.
This notice reversed IRS Notice 2003-81, which had ruled that OTC currency options (on major currencies) are “foreign currency contracts” in Section 1256 (with 60/40 tax treatment).
Even after 2007-71, forex tax law remains too vague and confusing for most traders and brokers.
Opting out
There are various “opt out” elections for Section 988 and Section 1256, which can help navigate between the two tax treatments. Section 988 allows a trader (but not a manufacturer) to opt out of Section 988 ordinary gain or loss treatment into capital gains treatment. This is referred to as the “capital gains” election. If traders have large capital-loss carryovers, they may want to report their forex gains as capital gains (rather than ordinary gains) in order to use their capital-loss carryovers. Conversely, if investors (who lack trader-tax status business treatment) have large forex losses generating net taxable losses, their forex ordinary losses can be permanently wasted. The capital gains election converts wasted (non-business) ordinary losses into useful capital loss carryovers.
The opt-out election [Section 988(a)(1)(B)] is a little different for forwards. Both Section 988 and Section 1256 include the term “foreign currency contracts” which is defined as forwards. This raises the question: Can a forwards trader simply choose Section 988 or 1256, or does Section 988 apply by default, requiring the trader to opt out of Section 988 in order to report with 1256? Our tax attorneys think the latter case applies.
Section 988(a)(1)(B) “special rule” defined:
Special rule for forward contracts, etc. Except as provided in regulations, a taxpayer may elect to treat any foreign currency gain or loss attributable to a forward contract, a futures contract, or option described in subsection (c)(1)(B)(iii) which is a capital asset in the hands of the taxpayer and which is not a part of a straddle (within the meaning of section 1092(c) , without regard to paragraph (4) thereof ) as capital gain or loss (as the case may be) if the taxpayer makes such election and identifies such transaction before the close of the day on which such transaction is entered into (or such earlier time as the Secretary may prescribe).
Notice this election is on a transaction-by-transaction basis and a taxpayer can use Section 988 for the first part of the year, then learn about this election later on, and make the election for the balance of the year. The election can be done transaction-by-transaction or for a period of time, such as a “good to cancel” order.
“Opt out” capital gains election resolution
The trading company hereby elects pursuant to Section 988(a)(1)(B) of the Internal Revenue Code of 1986, as amended, to treat any foreign currency gain or loss attributable to a forward contract, a futures contract, or option described in subsection 988(c)(1)(B)(iii) thereof, as capital gain or loss, as the case may be, to the extent that such provision applies to contracts entered into by the taxpayer on or after the date hereof. This election will remain in force until affirmatively revoked by the taxpayer and is hereby entered into the books and records of the taxpayer’s foreign exchange trading activity.
Will forex brokers ever be required to report forex on 1099s?
A retail forex broker recently consulted with us about whether or not 1099s should be issued for its forex trading retail accounts. Industry practice and tax law dictates that forex accounts are exempt from 1099 reporting, as they are not “covered securities” for purposes of 1099 reporting rules. Only interest income on forex accounts is 1099 reportable.
Most forex retail brokers do not report forex trading on Form 1099 in compliance with the rules. However, a few forex brokers do provide their clients with 1099s for net forex trading gains or losses. We understand one broker does not file these 1099s with the IRS, but we haven’t confirmed this. We recently learned that another forex broker did file a 1099 (for Section 1256 contracts) with the IRS and it caused an IRS tax notice/inquiry; because the taxpayer used ordinary loss treatment rather than Form 6781 Section 1256 treatment (as called for on the 1099).
What should you do if you have forex trading losses reported on a 1099 for Section 1256 contracts (the ones the brokers usually use)? If your position is that your forex loss should be ordinary (see above), consider filing the forex trading loss first on Form 6781 (so the IRS can match the 1099 reporting with their records), and then transfer the forex trading loss to another area of the tax return (Form 1040, line 21 for investors, or Form 4797 part II for business traders). Make sure to explain this reporting treatment (along with the transfer to another form) in a tax return footnote. We did this for one client and they still got a tax notice requiring further explanation before closure.
Using line 21 “Other Income or Loss” on Form 1040 for Section 988 transactions is industry-accepted practice for investors, although it’s not stated in the IRS tax-form instructions.
Note that Section 988 writes about interest income and expense for reporting Section 988 transactions. Forex traders do not borrow money and they don’t pay interest to lenders, so using interest expense makes little sense. Reporting forex-trading losses as interest expense would be a problem for many investors, but not business traders. Investors may only deduct investment interest expense up to their investment income, with the rest carried over to subsequent years. Conversely, in all cases, business traders are allowed full business interest deductions, whether they have income or not.
Business traders (with trader tax status) should consider using Form 4797 (Sale of Business Property Part II ordinary gain or loss) rather than line 21 of Form 1040. Securities traders who elect and use Section 475 mark-to-market (MTM) accounting should also use Form 4797 Part II, which is automatically picked up in net operating loss (NOL) calculations. Line 21 (Other Income or Loss) can be a red flag to the IRS.
Is forex trading a tax shelter?
No, but traders need to file a Form 8886 (Reportable Transaction Disclosure Statement) if they have “transactions that result in losses of at least $2 million in any single tax year ($50,000 if from certain foreign currency transactions) or $4 million in any combination of tax years.” Other transactions mentioned on Form 8886 mostly relate to tax shelter transactions. If the forex trading loss is reported as a capital loss, we think you can skip the Form 8886 reporting, as we believe the rule relates to ordinary loss treatment.
Forex traders should consult a forex tax expert (such as our firm) for further discussion and advice on tax reporting forex transactions. We also recommend forex traders include a tax-return footnote with their filing to explain this treatment.
Suggestions for how to proceed
Traders should consult a forex tax expert. GreenTraderTax (Green & Company CPAs, LLC) provides consultation and tax preparation services. Our independent tax attorneys provide legal opinions when needed. Our Web site (www.greentradertax.com) is for educational purposes only. We are not responsible for any positions you extrapolate and take on your own.
We have not seen the IRS disallow forex tax treatment based on our positions to date; however, it’s difficult to know how the IRS will react in the future. Its possible one IRS agent will deny ordinary loss treatment for forex trading losses whereas another will deny lower 60/40 tax rates on forex trading gains. Although that appears to be mutually exclusive, it’s entirely possible.
