Daily Analysis – 06/05/08

Today’s US Dollar Trading
• Major pairs two-way, end stronger
• Volumes light due to minor holidays
• USD ends near lows

Overnight Preview
• Look for more two-way and consolidation trade

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
• None in the US, very light start to the week; housing data Wednesday likely to carry more weight.

A very quiet two-way session left the USD slightly lower from Friday’s closing levels against the majors; traders note that the holiday thinned conditions contributed to the lack of interest either way. On the day, after what would have been the London fix, the USD fell into some active selling as the rate cleared below initial opening levels seen in Asia; traders suggesting that model and momentum accounts were liquidating late long positions when the USD saw no follow-through after the initial push higher on the day seen around the release of the ISM Services numbers this morning. Coming out a bit better than forecast the USD rallied on the news but was unable to hold gains and quickly fell back to test lows. EURO was able to clear above the 1.5500 handle for a high print in late trade at 1.5520 recovering a full handle off the 1.5422 low print; traders say there was no real reason for the move other than short-covering and that was likely exacerbated by the thin conditions. Cable initially broke to fresh lows at 1.9653 but then began a slow-steady march until reaching the opening range before popping higher on technical trade; closing above the 1.9700 handle leaves a “doji” point of indecision today suggesting the rate is poised to rotate higher near-term. If short the GBP; I would cover and re-set shorts after the rally that seems sure to happen overnight. USD/JPY tried again for the 105.60/80 area with a post-news high print at 105.63 but was again turned back; even with Japan closed today exporters were no doubt on the offer. The rate fell into support at the 105.10/20 area for most of the day before falling to pressure seen in other rates; low prints at 104.72 continue to support the 104.80 area but traders feel confident the stops seen under the 105.00 are only the early longs getting out. Traders feel bids extend to 104.50 area with large stops likely in the 104.30/40 area; look out below if those trigger this week as a technical top would form in the USD. Swissy and Loonie both lower as well with Loonie holding above the 1.0100 handle again despite good offers all the way down to the lows at 101.18; most likely stops are under the 1.0100 area. Swissy is well off the overnight highs of 1.0598 making lows in New York at 1.0509 and closing near the lows. In my view, the USD is off to a defensive start and if you are holding shorts from last week look to add on any strength; it’s my view the Greenback is headed for support by the end of the week.


Resistance 3:  1.9820
Resistance 2:  1.9780
Resistance 1:  1.9740/50
Latest New York: 1.9722
Support 1:  1.9650/60
Support 2:  1.9600
Support 3:  1.9550

Rate drops under the 1.9700 handle to start, look for a test of the 1.9600 area within 24 hours.  Close under the 1.9700 handle again needed to wash out the longs. Bounce back to trade at or near the 1.9720 area into the close suggests a rally is coming.
Upside remains limited in my view but ranges can be wide as evidenced by the past few days of trade. Sell rallies if not short; buying dips dangerous.
Drop to under the MA’s very important, long selling wick makes sell side attractive for further losses. Need down bars with higher volume to confirm; not getting that today.
Some pressure from EURO remains. Cross-spreading for Yen, Swissy and EURO evident; look for additional sell-off to end the week. NFP today increased volatility and negative close is great for follow-through Monday

Data due Tuesday: All times EASTERN (-5 GMT)

4:30am Services PMI 51.7
7:01pm Consumer Confidence Index 74

Resistance 3:  1.5600/10
Resistance 2:  1.5550/60
Resistance 1:  1.5520
Latest New York:  1.5492
Support 1:  1.5400/10
Support 2:  1.5350/60
Support 3:  1.5300

Additional selling to new low early, Rate clears stops again and attracts active selling after 1.5400 area falls; Strong long-liquidation break is still coming; test of the lows as expected. Watch for two-way volatility. Be ready to add quickly if a rally happens; close under the 50 bar MA could attract active selling. Continue to hold shorts and look for a short-covering rally to stall around the 1.5550/1.5600 area; look to add to open shorts in that area.  

Data due Tuesday: All times EASTERN (-5 GMT)

4:00am Services PMI (r) 51.8
5:00am PPI m/m 0.6%

Analysis by: written by Jason Alan Jankovsky

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