oday’s US Dollar Trading
•G8 Summit begins
•USD gives back early gains
•Technical trade dominates
•Expect two-way action with the USD to cover a lot of the same ground again
Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
•8:00am USD Fed Chairman Bernanke Speaks
•10:00am USD Pending Home Sales
•10:00am USD Wholesale Inventories
The USD whipsawed traders again today initially coming on the board higher from light overnight trade but then falling off hard to make lows on the day in some pairs. Equities prices fell back after a strong early start underscoring the overall weakness of the US economic situation many feel; the USD is under threat this week as more Equities losses are likely and the G8 will likely not offer any real help to the Greenback near-term. Traders note that the G8 summit will be long on rhetoric and short on action with the most likely agreement to be some kind of announcement that the US will open the SPR soon to reduce the price of oil. Should that be the case expect a wild ride for the major pairs as the euphoric rally in stocks, USD, and bonds will likely see a major correction in the major pairs. That not-withstanding, no mention of any help for the USD will likely further accelerate losses into the end of the week. On the day, the GBP started weaker for a low print at 1.9647 but once stocks fell off the GBP rallied along with EURO and reversed a full handle to trade in the 1.9760/70 area after the London fix. EURO also reversed hard after making a low print at 1.5610 the rate rallied to the 1.5724 area after posted a new daily high at 1.5755; stops in both EURO and GBP were noted on the way higher as late shorts got crushed. In my view, day traders had the best clue for a EURO long this morning on the announcement that model accounts were on the offer at 1.5640 area; those guys are almost always a sure bet for a reversal. USD/JPY topped at 107.75 this morning on thin volumes before turning lower; traders note stops at the 107.20 area and 107.00 area helped push the rate to a new daily low at 106.65 before a slight bounce was seen. Closing back over the 107.00 area a pause for the bears and if you have shorts working expect the rate to rally back to the highs before turning lower again. Lots of whipsaw likely the next few trading sessions as USD traders try to make sense of the conflicting rhetoric and fundamentals. Tomorrow’s data likely to be a non-event but expect some volatility around the release of homes sales data. Overnight expect a quiet two-way session with the USD likely to be slightly better in the morning on follow-on volatility.
Reversal after the fix as stocks lose ground, stops hunted to the upside. Bids around the 1.9660 area from “large names” cushioning the break; rally clears a lot of weak shorts as the week starts. Traders expect GBP to track EURO this week. Low prints at 1.9660 area attracted some short-covering. Traders now expect a top to form as the rate had thinner volume on the rally into the reported option defense last week and overnight. Rate fails at high prints near previous resistance so a correction is still developing. Spillover weakness/strength from EURO still likely all week this week. Continue to expect a lot of cross-trading. G-8 data may create some whipsaw again.
Data due Tuesday: All times EASTERN (-5 GMT)
7:01pm GBP Consumer Confidence Index
Tentative GBP Halifax HPI m/m
4:30am GBP DCLG HPI y/y
Rate rallies back hard on falling stocks and USD malaise, aggressive selling by model accounts at the 1.5630/40 area absorbed as the rate rallies; those guys are gone now so look for the rate to top in the next 24 hours or so. Major support at the 1.5580 area and slightly below. Stops elected under the 1.5700 area but option defense reported at 1.5650 area. Highs were sold aggressively by Asian sovereigns Wednesday traders say and it looks like they will attempt it again this week. Stops noted under the previous lows layered under 1.5600 to 1.5550 traders say. Should cable break—EURO could go with it. The 50 bar MA likely to offer support should the rate fall back; bids will likely be in the 1.5580 area or so on any meaningful correction. Exponential reversal still valid. Looking for a sell on this strength.
Analysis by: Forexpros.com written by Jason Alan Jankovsky
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