Daily Analysis

Today’s US Dollar Trading
•    Early USD strength fades after London fix
•    Stops noted driving trade from smaller accounts
•    Two-way action and technical trade dominate, more likely

Overnight Preview

•    Look for continued two-way action
•    Majors likely to grind sideways-to-higher overnight

Looking Ahead to Tuesday
All times Eastern (-4 GMT)
•    6:00am USD FOMC Member Evans Speaks
•    10:00am USD Fed Chairman Bernanke Testifies
•    10:00am USD HPI m/m
•    10:00am USD Richmond Manufacturing Index

After a brief foray into positive territory the USD is back under threat heading toward the low end of the recent ranges in late New York. Traders note that today’s action has been mostly stop driven by small accounts attempting to run with momentum but getting caught both ways. Aggressive buyers of USD from the overnight session were rewarded by new lows in the majors into the London fix but large accounts were using the dip to add to working longs and the majors reversed back toward the mid-to-high end of their ranges today; USD/CAD making lows in the process. Traders report some RHS interest into the fix for GBP and EURO helping to underpin across the board with only USD/JPY holding good gains but off the highs late. Traders also note that a US investment back a good seller of USD/JPY into the high prints around 97.36 and working the sell side through the close. USD/JPY ends around the 96.80 area after a brief dip to 96.50 area in stop driven trade obviously from longs set ahead of the fix. Traders expect the rate to remain two-way but the failure to hold the 97.00 handle will likely work against the bulls through tomorrow. GBP fell to tech support at 1.4449 low print only to recover quickly a full handle; the rate is firm into the 1.4550 area with the 100 day MA under threat on a closing basis near-term. Traders note that solid bids were seen on the break suggesting large names buying GBP. EURO fell to a low print at 1.3484 but spent no time on the 1.3400 handle recovering back to the 1.3630 area in late trade. Stops were noted on the break of 1.3510/20 area but volumes were light into the lows; traders note large names seen on the bid under 1.3500 suggesting the rate is due for further upside. Several shops note that the rate “feels” like it wants to try for the 1.3800 handle and with a strong close back on the 1.3600 handle the door is open for further short-squeeze. USD/CHF rallied along with USD strength elsewhere initially but failed at a high print of 1.1344 before dropping back a full handle; ending the day around 1.1240 area putting the 200 day MA back into focus. Traders warn a close below the 1.1195 area could put the recent rally on hold no matter what the SNB decides to do as a shift in sentiment is likely at that point and no central bank can fight sentiment. USD/CAD is making lows at this writing at 1.2265 putting the real potential for a close under the 100 day MA in play; traders note that the rate “feels” heavy after the fix and with interest in the emerging market currencies today money might move out of USD/CAD and into Aussie, Kiwi and others to take advantage of further strength seen there. In my view, the USD’s failure to extend early strength shows that the underlying strength of the Greenback in recent weeks is failing; aggressive traders can add to open USD shorts within 24 hours in my view. Look for the Majors to remain two-way but mostly higher overnight.

Resistance 3:  1.4730
Resistance 2:  1.4700/10
Resistance 1:  1.4650
Latest New York: 1.4574
Support 1:  1.3860
Support 2:  1.3780
Support 3:  1.3720


Rate firms again overnight; upside extends to new weekly highs before correcting back to zone of bids under 1.4480 area. Overhead resistance now at 1.4650 with the 1.4700 handle likely to trade the next 24 hours. Traders report stops likely over the 1.4710/30 area. The door is open to a rally back to the 1.5000 area. Some in-range stops driving some trade into the 1.4500 area. Lows likely remain secure. The volume needs to come up and I think the shorts have yet to bail as a group; that may be starting in earnest now. Traders report stops in-range adding for two-way action. Long-term tech resistance now at 1.5000 area likely to cap near term. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom.  Next upside target is 1.4800 area, downside is near support at 1.4250 area
Data due Tuesday: All times EASTERN (-4 GMT)
5:30am GBP CPI y/y
5:30am GBP BBA Mortgage Approvals
5:30am GBP Core CPI y/y
5:30am GBP RPI y/y
5:45am GBP Inflation Report Hearings
11:30am GBP BOE Gov King Speaks
2:30pm GBP MPC Member Blanchflower Speaks


Resistance 3:  1.3980
Resistance 2:  1.3820
Resistance 1:  1.3740
Latest New York:  1.3645
Support 1:  1.3480
Support 2:  1.3350
Support 3:  1.3300


Rate follows GBP in two-way action and holds gains but is not advancing as aggressively yet. Stops likely building above the 1.3740 area. Upside stops likely cleared in size and if the rate can close above 1.3650 area more upside is likely. Overhead resistance above 1.3350 area negated so a pullback to there would also be a strong buy. Traders note big names on the buy side on dips overnight; semi-officials and model accounts buying above 1.3400 and likely there today on the dip under 1.3500. Russians seen on the offer overnight in Europe. Bulls are likely in control of the market and any significant pullback is a buying opportunity in my view. Expect two-way action.
Data due Tuesday: All times EASTERN (-4 GMT)
4:30am EUR German Flash Manufacturing PMI
4:30am EUR German Flash Services PMI
5:00am EUR Current Account
5:00am EUR Flash Manufacturing PMI
5:00am EUR Flash Services PMI
10:00am EUR Belgium NBB Business Climate
Analysis by: – Written by Jason Alan Jankovsky


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