Daily Analysis – 05/05/08

Overnight Asia/Europe
• USD very quiet
• Holidays in Asia and UK

Today’s Economic Reports
All times EASTERN (-5 GMT)
• 10:00am USD ISM Non-Manufacturing Composite  forecast 49.6

Looking Ahead
All times EASTERN (-5 GMT)
• None in the US , Very light start to the week; housing data Wednesday likely to carry more weight.

The USD is trading sideways to slightly lower to start New York after a very quiet overnight start to the week. Asian trade was very subdued with Japan, Korea and Thailand market centers closed; traders noted good demand for USD/JPY from a UK momentum fund as well as order driven trade in EURO. With the UK closed also for a minor holiday European trade was also on the quiet side; traders note that volumes were very light and trade remained technical in nature. For the most part the USD remained within a few pips either way of the Friday New York close; cable saw downside pressure from light selling around the 1.9720 area and more in sympathy from a weaker EURO. High prints in Cable at 1.9786 were a few pips shy of the 100 day MA suggesting that larger offers are willing to sell rallies despite the thinner conditions. Stops elected under the 1.9700 area gave GBP one more push lower ahead of the NY open for a low print at 1.9660; traders expect a slight bounce from this support area and today’s ISM services may provide the impetus. EURO is a bit better than Friday’s close but still trading two-way and respecting the 1.5500 area of current resistance. Traders note no real market-moving news but mention the cross-spreaders for Yen and Sterling have been active on the Buy side overnight. EURO not expected to extend gains today and rallies are seen as a selling opportunity. USD/JPY continues to hold the 105.00 handle in light trade with the lack of follow-through buying a concern for the bulls. In my view, the fact that momentum accounts were on the buy side of USD to start the week is a great clue the rate is about to reverse; aggressive traders can sell USD/JPY over the 105.20 area if not short already. Swissy and Loonie are also slightly lower but still within established ranges from last week. Looking for a solid break in both pairs this week so any strength will likely be a selling opportunity. After ISM this morning look for the markets to have a brief “Knee-Jerk” reaction to the news and then settle back to pre-report numbers. Without real news in the US until Wednesday and the holidays overseas today should remain fairly quiet without major action.


Resistance 3:  1.9820
Resistance 2:  1.9780
Resistance 1:  1.9720
Latest New York: 1.9684
Support 1:  1.9650/60
Support 2:  1.9600
Support 3:  1.9550

Rate drops under the 1.9700 handle to start, look for a test of the 1.9600 area within 24 hours.  Close under the 1.9700 handle again needed to wash out the longs.
Upside remains limited in my view but ranges can be wide as evidenced by the past few days of trade. Sell rallies if not short; buying dips dangerous.
Drop to under the MA’s very important, long selling wick makes sell side attractive for further losses. Need down bars with higher volume to confirm.
Some pressure from EURO remains. Cross-spreading for Yen, Swissy and EURO evident; look for additional sell-off to end the week. NFP today increased volatility and negative close is great for follow-through Monday

Data due Tuesday: All times EASTERN (-5 GMT)

4:30am Services PMI 51.7
7:01pm Consumer Confidence Index 74

Resistance 3:  1.5600/10
Resistance 2:  1.5550/60
Resistance 1:  1.5500
Latest New York:  1.5453
Support 1:  1.5400/10
Support 2:  1.5350/60
Support 3:  1.5300

Additional selling to new low early, Rate clears stops again and attracts active selling after 1.5400 area falls; bounce sure to happen soon but upside likely limited to 1.5520/30 area. Look to sell a bounce during the next 48 hours. Strong long-liquidation break is still coming; test of the lows as expected. Watch for two-way volatility. Be ready to add quickly if a rally happens; close under the 50 bar MA could attract active selling.  

Data due Tuesday: All times EASTERN (-5 GMT)

4:00am Services PMI (r) 51.8
5:00am PPI m/m 0.6%

Analysis by: written by Jason Alan Jankovsky

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