Today’s US Dollar Trading
• USD has volatile day
• US data no help
• EURO sets another record high
• Traders are watching ECB closely, expect hawkish rhetoric
• Book squaring likely
• ECB and BOE rate announcements early Thursday, press conferences to follow
• 9:00 AM CST Pending Home Sales forecast –1.5%
After a solid overnight session of strong gains the USD reversed to trade lower in the New York session blowing through several layers of hard-won resistance. Big news on the day is EURO at a new lifetime high of 1.5304 on average volumes. Traders say that only a few large names were seen bidding the market higher suggesting that everyone else is sidelined. Several shops report that stops again were the first driver triggering at 1.5260 are and again at 1.5290 area but no follow-through at the highs and offers kept the rate dropping all afternoon for a post-London fix low at 1.5254; close in the 1.5260 area is below the previous high suggesting some selling pressure is coming on. Most traders don’t see much more upside despite potentially hawkish ECB rhetoric on Thursday; one trader asks “How Hawkish can Trichet be with EURO at 1.5300?” Today’s US data was disappointing and no doubt helped with the downside reversal today; ADP private payrolls suggest a poor NFP on Friday. ISM data today showed the second month of contraction adding fuel to the argument that the US is in a recession. Both news items contributed to a sharp sell-off from the highs seen ahead of the New York open. EURO rallied from a low of 1.5144 to post lifetime highs, Cable rallied off a 1.9718 low to post a high print at 1.9969, USD/JPY posted a 104.20 high before turning lower to post a low for the day in New York at 103.27. Other USD pairs suffered the same and across the board the USD was unable to hold gains anywhere. Traders remind that the USD is oversold and due for a relief rally. With shorts exposed to potential short-covering it would be reasonable to expect a bout of book-squaring ahead of more US data tomorrow and Friday, Pending home sales likely to be soft again but look for signs of a bottom forming. Bothe the ECB and the BOE have rate announcements tomorrow and traders expect both banks to hold rates steady. The statements will be heavily scrutinized for clues moving forward but no one expects the ECB to lower rates soon. Look for two-way action to consolidate USD ahead of tomorrow.
Current Price: 1.5268
Rate scores another high with no relief in sight near-term. Sentiment getting extreme and regardless of how bullish someone is they are staying away as this kind of price action is very unlikely and unusual. Rally off the lows driven by model and momentum accounts first getting stopped out of longs and then re-setting them traders say. Volumes into the highs not impressive and stops still building on either side making for potentially violent trade. Aggressive traders can sell over the 1.5200 handle.
Current Price: 1.9907
Rate nearly engulfs the past five trading days after starting lower on good volume, upside move just looks unconvincing as resistance caps the rally even after close-in stops were elected. Look for inside range day tomorrow as no one was looking for an upside move like this today. Traders caution that the BOE may say something dovish hinting at a rate cut leaving the GBP vulnerable to a pullback. Stops likely all over the place on both sides as the volatility is getting large.