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Forex Analysis - Daily

Today’s US Dollar Trading

• USD starts weaker, stops drive majors higher
• Upside resistance holds and the majors drop hard
• Volumes high on the move


Overnight Preview

• Look for the USD to follow-on higher early overnight
• Should get quiet ahead of US data


Looking Ahead to Thursday
All times EASTERN (-5 GMT)
• 8:30am USD Unemployment Claims
• 10:00am USD Philly Fed Manufacturing Index
• 10:00am USD CB Leading Index m/m
• 10:35am USD Natural Gas Storage
• 2:00pm USD Treasury Sec Paulson Speaks


Summary
After early US data was unfriendly to the USD and the greenback suffered losses the USD roared back from lows and scored new highs against most major pairs in mid-day trade. Traders note that stops above the major pairs gave early strength a boost but once the buying dried up the majors reversed hard and fell back into lows. GBP failed to challenge overnight lows at 1.4903 but dropped to the low 1.5000 handle making for a hard reversal from the high prints at 1.5252. Traders note that semi-official selling and potential sovereigns near the highs likely turned the rally back. EURO suffered a harder turn as high prints at 1.2815 on high volume were turned back and the rate made new lows on the day at 1.2545 before regaining the 1.2600 handle in late trade. Both EURO and GBP appeared to be tracking each other suggesting that the move was a coordinated short-squeeze before falling back. Traders also note that volumes were high in both pairs and that stops did attract new buying but once the opening ranges fell to selling pressure late longs bailed on intra-day longs. USD/CHF made early lows under the 1.2000 handle at 1.1943 before reversing; the open hook reversal was negated as the rate crossed the 1.2050 area and scored new highs at 1.2148 before falling back to the 1.2090 area. Swissy appears to be getting a lift from weakness in Oil some traders say. Equities lower on the day after erasing losses on the open gave most of the pairs additional pressure traders say and USD/JPY remained lower on the day after an early rally failed to score new highs. High prints in the rate at 97.16 went unchallenged and as equities gave up gains the rate fell into lows; low print at 96.00 was unable to trigger resting stops as other pairs had done. Late data included the FOMC minutes of the latest meeting and traders note that the minutes show no real news but the pressure on the USD to rally likely was done ahead of the news suggesting that the move may have been technical to start; once the volatility hit the market it was unlikely that news would be in focus. In my view, the upside move in the majors was due to be sold as it was the first attempt at the overhead resistance area recently broken; the speed and depth of the retracement was unexpected and no doubt will inspire additional follow-on selling overnight. Should the USD fail to follow-through with any conviction it is likely the upside bounce may be the exhaustion rally. Look for the majors to consolidate ahead of US data in the morning which again is expected to be USD unfriendly.


GBP/USD Daily

Resistance 3: 1.5300/10
Resistance 2: 1.5280
Resistance 1: 1.5250
Latest New York: 1.4975
Support 1: 1.4900
Support 2: 1.4820/30
Support 3: 1.4700


Comments
Overhead resistance around 1.5100 gives way to stops above lifting the rate to highs at 1.5250; failure and reversal suggests rate is set to rotate lower and test support around the 1.4820 area. Traders note stops above the 1.5100 handle we in size but new buying turned back. Traders also note the same names seen in size on the bid the past few days. Resistance is expected to hold rate for a pullback and aggressive traders can buy that dip if it comes. Cross spreaders continue to hold interest near-term; profit-taking likely to result in a squeeze on the further strength. Technical trade overnight as traders decide near-term action with little to go on but the charts. BOE rate cut next month increasingly likely but that is likely completely factored in at this point. Traders note liquidity is only moderate and still on the lower side. Aggressive traders can look to buy the next dip.
Data due Thursday: All times EASTERN (-5 GMT)
4:30am GBP Retail Sales m/m
4:30am GBP Prelim M4 Money Supply m/m
4:30am GBP Public Sector Net Borrowing


EURO/USD Daily

Resistance 3: 1.2880
Resistance 2: 1.2850
Resistance 1: 1.2800/10
Latest New York: 1.2535
Support 1: 1.2520/1.2500
Support 2: 1.2450/60
Support 3: 1.2400

Comments
Rate reverses after highs at 1.2815 area attract profit-taking by the longs and selling by the shorts; rate dips to lows into the 1.2500 handle again. Bids support to hold rate firm after whipsaw. Two-way action still suggesting a point on indecision; traders note stops building above the market around the 1.2750 area in size suggesting short-term traders active; stops cleared and new buying turned back. Traders report some semi-official interest the past 48 hours with possible sell interest at the highs today. Resistance is still formidable but large names on the dips traders say. On a rally, traders note large stops at the 1.2950 area with more over 1.3000 but offers likely to cap. 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. Traders note the rate is finding profit-taking bids on dips so far despite the uncertainty in the market.

Data due Thursday: All times EASTERN (-5 GMT)
2:00am EUR German PPI m/m

Join us for the Afternoon US Dollar Wrap-Up daily at 3:15 pm Central/Chicago time (GMT -6)

Analysis Provided by: Forexpros - Written by Jason Alan Jankovsky


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