Daily Analysis – 23/07/08

Today’s US Dollar Trading
• USD reverses higher after a lower open in New York
• Traders note stops and liquidation off the lows
• USD/JPY flirts with close above the 200 bar MA

Overnight Preview
• Look for the USD to consolidate
• Two-way action ahead of minor news tomorrow

Looking Ahead to Wednesday
All times EASTERN (-5 GMT)
• 10:35am USD Crude Oil Inventories
• 2:00pm USD Beige Book
Continuing the slow start for US data this week.

After a low-volume sell-off this morning to trade at the worst levels of the day the USD rallied back hard to run stops and squeeze shorts all day into the close. Traders note that volumes increased dramatically once the reversal began to gain momentum and across the board the USD rallied through resistance to close at some critical numbers for the USD bulls. Cable tracked EURO lower as expected but found large stops resting in the 1.9930/40 area and traded to a low print at 1.9894 briefly before holding above the 1.9900 handle but well below the trigger point for the stops. EURO had a similar day eventually finding stops under the previous week’s low at 1.5780 area for a low print at 1.5756 before bouncing; the rate unable to regain the 1.5800 handle into the close making for a potential reversal today. Traders note that with the increase in volume on the rally for the Greenback it is possible that the USD has put in the low for the week; the majors have all completed minor reversal patterns suggesting the same. Although there was a bit of profit taking by the longs this afternoon the USD/JPY held onto solid gains above the 107.00 handle and closes around the 200 bar MA; stops were elected above the 107.20 are and high prints at 107.45 before a drop in volume and a fall back to the 107.10/20 area. Traders note that the rate has closed at the 200 bar MA which has ignited volatility in recent trade and more upside is expected to be sold with some traders suggesting offers ready at the 107.80 area. Today’s rally and test of the 107.50 area suggests that the USD has more upside ahead before a fall back making the ranges the Greenback has a bit wider and subject to more whipsaw. In my view, the USD has shown enough strength to look for another add point on the current open trades. I think aggressive traders can look to sell the GBP and the EURO around the closing levels today and look to buy more USD/JPY tomorrow after the Asian session. If oil continues to weaken early in Asia I think the USD/JPY could advance into reported stops above the 107.80 area and possibly challenge the 108.00 handle for the day; an excellent short potential I think. For tonight I look for two-way consolidation with a better bias for the USD. 


Resistance 3:  2.0120
Resistance 2:  2.0100
Resistance 1:  2.0080
Latest New York: 1.9905
Support 1:  1.9880
Support 2:  1.9840/50
Support 3:  1.9820

Sell more into the close, rate drops after low-volume rally stalls. Stops at 2.0050 area, volumes very light. Traders report interest on the sell side from large names and Asian Sovereigns. Rate tracking EURO as expected but unable to break out either way yet. Hold shorts; look to add on further weakness below the 200 bar MA. ADD today for aggressive traders. Bids under the 1.9950 area likely cleared, stops likely now after upper stops cleared. Offers from large names traders say; if 1.9950 fails on the close it could be a big drop. Traders expect GBP to track EURO through this week. Continue to expect a lot of cross-trading. 
Data due Wednesday: All times EASTERN (-5 GMT)
4:30am GBP MPC Meeting Minutes
4:30am GBP BBA Mortgage Approvals
6:00am GBP CBI Industrial Trends Orders

Resistance 3:  1.6000
Resistance 2:  1.5980
Resistance 1:  1.5950
Latest New York:  1.5769
Support 1:  1.5750
Support 2:  1.5700
Support 3:  1.5650

Rate still two-way and extends range to start today; stops above the 1.5900/10 area triggered this morning. Try for highs on very low volume. Aggressive traders can ADD on this rally as volumes are low and this might be a head-fake. Rate closing under the 1.5800 area is another ADD, hold shorts and let it work. Stops under the 1.5800 area likely in size; expect a sharp break and a close under the 1.5800 area. Large names on the offer reported into the highs, look for a top to form. Major support at the 1.5580 area and slightly below. 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; which is a long way away at this point. Exponential reversal still valid.  
Data due Wednesday: All times EASTERN (-5 GMT)

2:45am EUR French Consumer Spending m/m
4:00am EUR Italian Retail Sales m/m
5:00am EUR Industrial New Orders m/m


Analysis by: – written by Jason Alan Jankovsky

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