Daily Analysis – 07/05/08

Today’s US Dollar Trading
• USD two sided, ends flat-to-mixed
• Reverses early weakness
• Traders waiting for tomorrow’s data

Overnight Preview
• Expect consolidation.
• USD likely to range trade on light volumes ahead of data tomorrow

Looking Ahead to Wednesday
All times EASTERN (-5 GMT)
•  9:00 AM CDT Pending Home Sales forecast -0.6%,  Look for weak housing data.

Aside from some early fireworks on the sell side this morning the USD was relatively subdued for most of New York trade. Starting slowly in Asia overnight as the last day of Golden Week slowed the pace of early action the USD remained two-sided in technical trade until New York got underway. A “stop-fest” in the USD/CAD as early USD weakness spilled over into all the pairs; the majors all rallying into resistance with stops the other side for almost everybody creating a near-term break in the Greenback. Loonie sliding under the 1.0050 area and finding lots of action as expected, low prints at .9996 on the second attempt at par. After the lows in USD/JPY and the highs in EURO and GBP all held resistance the USD mounted a turnaround that extended a full handle higher in Swissy and back through the opening ranges in the other pairs. On the day the USD has put in a buying wick in most pairs suggesting that today’s early weakness was only weak shorts. GBP managed a high print at 1.9775 just barely above the 1.9750 pivot area before falling back to trade through the opening range at 1.9725; Cable looks set up for a rotation lower as the EURO also failed and these two are trading in sympathy together. EURO highs at 1.5596 attracted a lot of active offers once the stops were cleared traders say; the rate stays positive on the day but with a long wick at resistance. Across the board the volumes were modest as traders complained of thin conditions due to the various minor holidays this week. With no real news on the boards today the action today is most likely random noise between existing S/R levels; most agree the recent USD strength has a bit more to go before a correction so possibly today was an opportunity to get long from some recent lows. In my view, the USD closed higher than I would like to see for an extended correction and I suggest getting out of USD/JPY shorts and waiting on selling the Greenback until after the news is out tomorrow. Price action is always correct and the drop today needed to stay under pressure if the fire was out of the rally but due to the swift turnaround in thin conditions I think the USD has a bit more to go to the upside yet.

Resistance 3:  1.9820
Resistance 2:  1.9780
Resistance 1:  1.9740/50
Latest New York: 1.9730
Support 1:  1.9650/60
Support 2:  1.9620/30
Support 3:  1.9600

Rate stays two-way all day, closes above the 1.9700 handle, still in the “sell zone” with existing S/R still active. Look for a test of the 1.9600 area within 24 hours; likely after the news Wednesday.  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.
Closes over the MA’s likely not to last so a rally over the 100 bar MA a good sell in my view. Still 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.

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

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


Resistance 3:  1.5650
Resistance 2:  1.5590/1.5600
Resistance 1:  1.5550/60
Latest New York:  1.5536
Support 1:  1.5450
Support 2:  1.5400
Support 3:  1.5380

Two-way action all day, weaker close after push to resistance, look for rotation lower tomorrow. Rate clears close in stops both ways again and attracts active selling above the 1.5500 handle. 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; missed it today unless actively watching.  

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

3:30am EUR ECB President Trichet Speaks
4:00am EUR Services PMI 51.8
5:00am EUR PPI m/m 0.6%

Analysis by: written by Jason Alan Jankovsky

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