Daily Forex Trading Analysis

Today’s US Dollar Trading

• US data shows more contraction, equities rally
• USD hit hard but drop may be temporary
• All eyes turn to election results


Overnight Preview

• Look for two-way trade and volatility
• Equities may soften in Tokyo


Looking Ahead to Wednesday
All times EASTERN (-5 GMT)
• 7:30am USD Challenger Job Cuts y/y
• 8:15am USD ADP Non-Farm Employment Change
• 10:00am USD ISM Non-Manufacturing PMI
• 10:35am USD Crude Oil Inventories


Summary
The USD fell hard today as the equities and commodities rallied across the board. Most major pairs were driven by Yen liquidation most desks report making this rally in the majors likely only temporary. GBP rallied for a high print at 1.6108 before liquidation pressure stopped the advance; technical traders note the highs were also capped by aggressive selling by large names likely covering early longs or adding to open shorts. EURO also rallied for a high print at 1.3030 before dropping a full handle ahead of the close. Both pairs saw stops in waves easily overcome selling through the highs. USD/JPY rallied past near-term resistance for a high print at 100.55 before falling back to the 99 handle; Yen crosses dominated lifting the Greenback as it fell against other pairs. Other USD pairs also broke lower; Loonie and Swissy both fell through support but found technical buyers into the lows. Attention now turns to the outcome of the US election with an Obama win looking likely; equities held gains as market participants see a democratic win as mildly supportive at this time. In my view, the USD fallback was likely a book-squaring move and due to the large amount of interest in the Yen today likely to recover overnight. I would look for a two-way Wednesday tomorrow and if holding open USD shorts to remain nimble as volatility is still being exaggerated by thinner conditions; although many desks reported better volumes in GBP and EURO today. Expect the USD to whipsaw the next 24 hours as traders decide what to do with an Obama win or a McCain upset. Aggressive traders could be flat ahead of the Asian open.


GBP/USD Daily

Resistance 3: 1.6320/30
Resistance 2: 1.6250
Resistance 1: 1.6100/10
Latest New York: 1.5961
Support 1: 1.5600
Support 2: 1.5550
Support 3: 1.5500


Comments
Aggressive traders had their buy opp overnight as rate touched then bounced off support around the 1.5600 area; official buyers in the market lifting rate back to the psychological 1.6000 area. Fears of a large rate cut apparently not in play today. Stops noted on the move back through the 1.5780 area and above Traders note unwinding of Yen cross-spreads driving a lot of trade after the open. Large range suggests more volatility coming soon. Traders note liquidity is better than last week but still low. Aggressive traders should be flat ahead of the election results. Expect more whippy action. Two-way action likely to continue. Confirmed sovereign interest on the dip overnight in both EURO and GBP; lately Asian names.
Data due Wednesday: All times EASTERN (-5 GMT)
4:30am GBP Manufacturing Production m/m
4:30am GBP Services PMI
4:30am GBP Industrial Production m/m
5:30am GBP BRC Shop Price Index y/y
10:30am GBP CB Leading Index m/m
7:01pm GBP NIESR GDP Estimate


EURO/USD Daily

Resistance 3: 1.3200/10
Resistance 2: 1.3150
Resistance 1: 1.3030
Latest New York: 1.2990
Support 1: 1.2520/30
Support 2: 1.2500
Support 3: 1.2480


Comments
Rate falls to support and rallies as Asian sovereigns power the rate into stops back above the 1.2700 area; high prints at long objectives so aggressive traders should flatten out. Bids on dips from profit-taking shorts some desks report. Semi-official names on the offer near the highs with stops reported on a move over the 1.2900 area. Stops likely cleared. Rate possibly getting spillover effect from GBP. Support also from cross-spreaders as they unwind Yen. Official interest noted traders say. Rate is an absolute screaming buy in my view—I can’t see further weakness being ignored by the buyers. Oil rallies likely took EURO with it. 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 (-5 GMT)
4:00am EUR Final Services PMI
5:00am EUR Retail Sales m/m

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

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