Daily Analysis

Overnight Asia/Europe
•    USD gaps lower in Asia, rallies in Europe
•    Two-way technical action, stops drive trade
•    Traders note cross-spreaders in GBP active

Today’s Economic Reports
All times EASTERN (-4 GMT)
•     NONE

Looking Ahead to Tuesday
All times Eastern (-4 GMT)
•    7:30am USD Fed Chairman Bernanke Speaks
•    9:00am USD IBD/TIPP Economic Optimism
•    9:00am USD Wholesale Inventories m/m

The USD is higher this morning after a slow start on the defense in Asia, the majors making the best levels of the day ahead of European trade. The Greenback is making fresh highs against the majors in early New York as technical trade and cross spreaders pressure to the upside. Overnight equities markets were lower adding to the upside as well. The big mover this morning is GBP dropping through several levels of technical support finding stops layered underneath recent lows as EURO/GBP traders sell the GBP side of the cross. Stops under 1.4050 and 1.4000 area gave way to a test of the 1.3950 area and stops were larger on the dip traders say suggesting that lots of bulls came to the table near the 1.4000 area last week. Low prints in GBP at 1.3874 dropping the rate to levels not seen since last year; high prints at 1.4185 in the Asian session. EURO is testing the downside as well, low prints at 1.2573 with highs at 1.2726 and traders note stops under the 1.2620 area and tech support holding initially at 1.2580 area. Cross-spreaders on the buy side supporting into the dip traders say but it is still under pressure with large names and semi-official buyers usually active at these levels but no reports of such buying as yet. USD/JPY high prints at 99.18 with exporters active into the Asian highs above 98.50 traders say; volumes have been light with stops in-range lifting the pair over the 99.00 area. The rate is expected to meet headwinds above the 99.00 area most think but warn that a test of the 200 day MA around the 100.00 area can’t be ruled out. USD/CHF is back on the 1.1600 handle with highs at 1.1654; lows at 1.1533 attracting technical buying off the 100 day MA. Traders note that the EURO/CHF cross active on the buy side today after reports that a SNB governor mentioned that the Swiss Franc is “being constantly monitored” suggesting that intervention is a possibility but most traders see that as unlikely. USD/CAD is also higher lifting into stops above the 1.2880 area for high prints at 1.2939; the rate is holding the 1.2900 handle in light trade in early New York but offers are expected to be heavy on any further advance. Stops in all pairs likely to drive trade during the day as technical levels intraday have likely attracted both sides so a whipsaw in the Greenback can’t be ruled out. With the USD’s propensity to cover the same ground twice daily the past few weeks it would be reasonable for USD bears to sell into this overnight action; high volatility is a usual thing when a market is at a potential turning point and in my view the USD is simply remaining in two-way trade into its recent highs once again. With a light economic calendar due through tomorrow I would expect more two-way technical action and I would look to sell rallies in the Greenback. Today’s closing levels will likely be more significant into tomorrow’s action so if we get a neutral close in the USD today I would look for a rotation lower for Tuesday.

Resistance 3:  1.4440
Resistance 2:  1.4380
Resistance 1:  1.4300/10
Latest New York: 1.3870
Support 1:  1.3850
Support 2:  1.3820
Support 3:  1.3780/90


Rate follows-on lower on stops under the 1.4050 area in size, cross-spreaders selling the GBP side of the spreads. Buy point around 1.4000 area in my view. Reversal off weekly highs a negative technical; is it a bear trap? Likely an upside rally is still in the works but the rate needs to hold the 1.4000 area with some confidence early this week. Middle East names likely on the bid on this dip but no confirm yet. Traders report stops in-range adding for two-way action. Long-term tech resistance now at 1.5000 area likely to cap near term but stops are building above and the 1.5000 handle is a big psychological number. 23 year lows are very likely to hold on any break with initial support now at 1.3900 in play. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom.  Short squeeze may be on hold.
Data due Tuesday: All times EASTERN (-4 GMT)
4:30am GBP Manufacturing Production m/m
4:30am GBP Industrial Production m/m
7:01pm GBP NIESR GDP Estimate


Resistance 3:  1.2780
Resistance 2:  1.2750
Resistance 1:  1.2720
Latest New York:  1.2580
Support 1:  1.2550/60
Support 2:  1.2480
Support 3:  1.2450


Rate follows GBP in two-way action, holding support now at 1.2550 area once again. Aggressive traders can add to open longs on this dip. Cross-spreaders supporting rate as GBP drops. Stops building on both sides as the rate tests for stops on the downside first. Upside stops likely building in the 1.2630/50 area again, overhead resistance at 1.2720 area now with stops likely the other side. Key 1.3030 area likely next; failure to hold 1.2900 likely going to be the test for the bulls this week. Close above key 1.3030 area needed for further upside until then rallies likely to be sold so expect more two-way action. Bulls are still attempting to find a bottom. 100 day MA falling to key resistance area of 1.3030 area by next week likely to add to overhead resistance. Technical levels around the 1.2920/50 area now likely to offer resistance so expect two-way action and consolidation underneath.  
Data due Tuesday: All times EASTERN (-4 GMT)
2:00am EUR German Trade Balance
2:00am EUR German Final CPI m/m
2:45am EUR French Industrial Production m/m
2:45am EUR French Gov Budget Balance
2:45am EUR French Trade Balance
5:00am EUR PPI m/m
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Analysis by: – Written by Jason Alan Jankovsky

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