Daily Forex Trading Analysis

Overnight Asia/Europe

• USD weakens after a slow two-way start
• Traders note intervention fears and stops helping the majors higher
• Equities recover and rally


Today’s Economic Reports
All times EASTERN (-4 GMT)
• 9:00am USD S&P/CS Composite-20 HPI y/y
• 10:00am USD CB Consumer Confidence
• 10:00am USD Richmond Manufacturing Index
• Tentative USD Treasury Sec Paulson Speaks


Looking Ahead to Wednesday
All times EASTERN (-4 GMT)
• 8:30am USD Core Durable Goods Orders m/m
• 8:30am USD Durable Goods Orders m/m
• 10:35am USD Crude Oil Inventories
• 2:15pm USD FOMC Statement
• 2:15pm USD Federal Funds Rate


Summary
The USD started Asia firmer as stocks declined initially on follow-through selling from Monday’s weak finish. As intervention fears remained center stage for Asian forex traders the Greenback reversed against the Yen after mid-day and continued to climb as technical traders saw a potential correction developing; traders report stops in-range in the USD/JPY pair as well as upside pressure on the other majors. USD/JPY had an initial low print at 92.47 before rallying with stops helping to lift into a high print at 96.19 before dropping back in late European trade. Overnight intervention by the RBA lifted the Aussie Dollar higher and helped drive fears the BOJ might intervene in the Yen but so far there have been no signs of any selling to stem the Yen’s rise. GBP is higher but under pressure after the release of weak Retail Sales data; high prints at 1.5757 were turned back in late European trade and the rate is now firm around the 1.5650 area to start New York. Traders note cross-spreading for Yen again as well as middle-eastern names seen on the bid as a potential bottom appears to be forming in Cable this week. EURO also saw some upside pressure as EURO/JPY was unwound; high prints at 1.2589 are lower than recent highs due to volatility but still under upside pressure. Traders note stops in range helping to lift the rate suggesting that the shorts are getting nervous that no new lows have traded yet. Aggressive traders can buy a dip in EURO as the lows appear to be holding; if this is a near-term bottom the 1.3000 area may trade to the upside as that was the breakdown point last week. In my view, the majors are trying to bottom and now that things are beginning to look more “normal” as the credit crisis is mitigating a bit, equities are about done selling off and the worst of the financial crisis may be behind us; weak USD fundamentals may be returning to center stage. Today’s the US FOMC begins their two-day policy meeting and if the US FED cuts rates and the other G7 CB’s cut rates I don’t see the USD in a position of strength to end the year. GDP is likely to show a contraction on Friday as well so this week could be a pivotal week for the Greenback.


GBP/USD Daily

Resistance 3: ?
Resistance 2: ?
Resistance 1: 1.6330
Latest New York: 1.5727
Support 1: 1.5400
Support 2: 1.5250
Support 3: ?


Comments
Volatility decreases a bit as today is another inside range day but trading higher. Traders note stops and unwinding of cross-spreads supporting the rate. Follow-on selling finds bids at prior low. Bounce off the lows yesterday and today leaves a healthy bid wick suggesting some upside coming soon but volatility is still high. Traders note liquidity is still thin. Rate at new support level but ranges appears wider. Traders note quality bids on the dip suggesting a bottom is in here somewhere but buyers have been stepping up for 1000 points now; many likely sidelined. Aggressive traders can buy anytime but expect more whippy action. Two-way action likely to continue. Confirmed sovereign interest on the dip last night as semi-officials seen on dips in both EURO and GBP recently; lately middle-east names. Traders report cross-spreading for Sterling crosses likely driving the rate near-term.
Data due Wednesday: All times EASTERN (-4 GMT)
5:30am GBP Net Lending to Individuals m/m
5:30am GBP Mortgage Approvals
2:00pm GBP MPC Member Blanchflower Speaks


EURO/USD Daily

Resistance 3: 1.3050
Resistance 2: 1.3000/10
Resistance 1: 1.2800
Latest New York: 1.2555
Support 1: 1.2330
Support 2: ?
Support 3: ?


Comments
More lows overnight; but buyers show up. Hook reversal showing from the toolbox today suggests aggressive traders can buy the rate soon. Rate possibly getting spillover effect from GBP. Overnight news shows inflation not as bad as expected also helping to lift the rate a bit. Support possibly from option trades; but those are cleared. Official interest noted traders say but rate continued to sell-off. Rate is an absolute screaming buy in my view—I can’t see further weakness being ignored by the buyers but conditions are not right I think; possibly overnight tonight into Wednesday. Oil pressure likely spills over into pricing and if oil rallies it might take EURO with it. Traders note stops building above the market along with offers. Expect more two-way action with upside bias; traders note the rate is finding profit-taking bids on dips so far despite the uncertainty in the market.
Data due Wednesday: All times EASTERN (-4 GMT)
All Day EUR German Prelim CPI m/m

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Analysis Provided by: Forexpros.com - Written by Jason Alan Jankovsky

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