Daily Analysis

Today’s US Dollar Trading
•    USD ends mixed, S/R holds in two-way action
•    Stops noted in both directions intraday
•    Traders on G-20 watch ahead of ECB Thursday

Overnight Preview

•    Look for more two-way action overnight
•    USD likely to remain range bound

Looking Ahead to Wednesday
All times Eastern (-5 GMT)
•    7:30am USD Challenger Job Cuts y/y
•    8:15am USD ADP Non-Farm Employment Change
•    10:00am USD ISM Manufacturing PMI
•    10:00am USD Pending Home Sales m/m
•    10:00am USD Construction Spending m/m
•    10:00am USD ISM Manufacturing Prices
•    10:30am USD Crude Oil Inventories
•    All Day USD Total Vehicle Sales


The USD ends the day mixed after another two-way session dominated by end-of-quarter capital flows. Traders note that GBP and EURO rallied to their highs on anticipation of fixing demand  but then fell off a full handle after the fix only to return to the highs by the end of the day. GBP high prints at 1.4361 before retracing near the low 1.4200 area before returning to the 1.4350 area into the close. Traders note that cross-spreaders on the GBP side of the crosses were selling into the fix but covered into the end of day adding to the upside pressure. EURO high print at 1.3343 ahead of offers said to be resting around 1.3350 before falling back to the 1.3220 area; steady bids and short-covering lifted the rate to 1.3290 area near the close suggesting that the rate is attracting quality names on the dips. Sentiment in the pair remains corrective more so than bearish traders say arguing for further gains in the days ahead. Focus on the G-20 meeting this week is expected to add a bit of uncertainty to both EURO and GBP with rhetoric expected to be USD-supportive but traders are taking a wait and see approach due to the track-record of large government meetings. Traders note that the ECB rate announcement due Thursday morning is also in focus with a 25 BP cut in rates likely fully factored in. Traders continue to see the ECB as “behind the curve” in addressing the global financial crisis but the European model is probably able to move faster in resolving the crisis for their participation suggesting that the ECB will likely remain more cautious rather than have to drop rates too fast only to raise them quickly. USD/JPY rallied through resistance at 98.80 area for a stop-driven lift to the 200 day MA; high prints at 99.38 were offered by exporters with more layered ahead of 99.50 traders say. Upside may be limited and a close back above the 98.00 handle likely will encourage late longs suggesting that a retracement is likely to end the week. USD/CHF failed to follow USD strength early and held below the 1.1400 handle into the close; high prints at 1.1518 went unchallenged in New York and the rate ends around 1.1380 area in thin conditions. USD/CAD rallied for a high print at 1.2655 before dropping back under the 1.2600 handle to end around 1.2590 area; traders note that stops above the market likely have been cleared leaving the rate vulnerable to a sell-off. In my view, the Greenback is continuing to trade within existing ranges despite extending some weekly ranges today; no real technical levels were breached and in fact the USD held below important tech levels violated on the break lower earlier in the month suggesting that this rally was mostly corrective and the majors are likely to hang onto gains by the end of the week. Look for the USD to remain two-way tonight with the USD weaker into the start of G-20 late Wednesday. Should the rhetoric be highly supportive of the USD look for the Majors to retreat but hold support across the board.

Resistance 3:  1.4440/50
Resistance 2:  1.4380
Resistance 1:  1.4350
Latest New York: 1.4348
Support 1:  1.4100/10
Support 2:  1.4050
Support 3:  1.4020


Rate rebounds after holding support on correction back to the 1.4100 area yesterday, stops seen in the rate over 1.4250 and 1.4300 with more likely layered above 1.4350/80 area. Rate ends near highs erasing toolbox signal; support is likely solid. Traders report more stops waiting under 1.4100 with bids around 1.4050 for the day but volatility not expected to be that high as the rate has a rather tight range so far and may be grinding higher. A close back under the 1.4250 area argues for more losses but support is solid around 1.4100 so aggressive traders can buy dips. Traders report large names on the dips last week but they may have been whipsawed out to start this week. Overhead resistance now drops to 1.4380 to 1.4440 area; overhead target of the 1.5000 area likely to be on hold with a test of the lows first possibly creating a range. Traders feel the 23-year lows will likely remain secure. The shorts have taken control of the market above the 1.4440 area for now and if a range is forming a test under the 1.3900 handle is likely; traders report stops in-range adding for two-way action.  
Data due Wednesday: All times EASTERN (-5 GMT)
1st-9th GBP Halifax HPI m/m
4:30am GBP Manufacturing PMI
4:30am GBP Housing Equity Withdrawal q/q

Resistance 3:  1.3400/10
Resistance 2:  1.3380
Resistance 1:  1.3330
Latest New York:  1.3285
Support 1:  1.3150
Support 2:  1.3100
Support 3:  1.3080


Rate recovers to reject the 100 day MA, stops from late shorts seen in the 1.3250 area and above. Traders note strong offers above the 1.3330 area but bids are absorbing those for now with a solid foothold over the 1.3300 handle to start New York. Rate has two-way action and returns to the highs to end suggesting a try for stops above. Rate likely has stops building in both directions but shorts have taken minor control of the market as the rate gives back gains over the 1.3400 area last week late. Action remains two-way; any move lower is likely supported on dips. Overhead resistance of 1.3350 area now back in play; expect sellers in that area on a rally. Possibly more official and semi-official bids overnight and today. Long-term bulls are likely still in control of the market and this significant pullback is a buying opportunity in my view.
Data due Wednesday: All times EASTERN (-5 GMT)
2:00am EUR German Retail Sales m/m
4:00am EUR Final Manufacturing PMI
5:00am EUR Unemployment Rate

Analysis by: – Written by Jason Alan Jankovsky

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