Daily Analysis – 12/05/08

Overnight Asia/Europe
• USD opens mixed
• Firms into Europe
• Sovereign demand seen

Today’s Economic Reports
All times EASTERN (-5 GMT)
• None in the US
• Treasury Budget during the day

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
• 08:30 Export Prices ex-ag 
• 08:30 Import Prices ex-oil
• 08:30 Retail Sales forecast 0.0%
• 08:30 Retail Sales ex-auto forecast 0.5%
• 10:00 Business Inventories 0.3%

The USD is rallying back after Friday’s sell-off but action is quite choppy and volumes only modest. Overnight Asia saw the best levels on the day for most pairs and two-way chop and whipsaw is driving some traders to the sidelines. Technical trade is evident as S/R areas are testing in both directions and some pairs have seen stops run intraday so far this morning. Starting New York the USD is on the offensive against Yen and Swissy but losing ground against Cable; slightly better against EURO. Traders note that the Greenback is reacting to a US-positive WSJ article published in Asia overnight although rhetoric and fundamentals may not support the USD through the week. Trading to a low of 1.9441, cable rallied off the lows in European trade as better-than-expected UK PPI data muted the USD’s gains; high prints at 1.9605 are well shy of expected major offers so the rate may have more upside to go before strong selling is seen. EURO is marking time with mostly sell-side action overnight. Never challenging the opening range on the day at 1.5486 the rate broke down on active selling for a low print at 1.5365 before bouncing smartly to open New York within striking distance of the highs at 1.5440 area; traders note Asian sovereign buying as well as model-accounts on the bid. Aggressive traders can look to buy the dips as EURO likely has more upside to go in my view. USD/JPY continues to attract importer demand and rumors of semi-official names on the bid continue to underpin the pair. Low prints in Asia at 102.56 were enough for shorts to cover once the rate passed back through the 103.20 area lifting the rate to a high print at 104.00 ahead of New York; rate currently on the highs to start US trade. For the most part, stops were seen close-in in all pairs suggesting that the whipsaw will continue until the weak hands on both sides are cleaned out. Look for the USD to weaken at existing technical levels seen from last week. I would look to be a USD seller within the next 24-36 hours; a rally could easily be a low-volume affair by short-covering that would fit nicely with expected bearish fundamentals due starting Wednesday.

Resistance 3:  1.5600/10
Resistance 2:  1.5550
Resistance 1:  1.5490/1.5500
Latest New York:  1.5435
Support 1:  1.5380/90
Support 2:  1.535060
Support 3:  1.5300/10

Bounce is developing nicely, rally over the 1.5400 handle significant. Rate holds opening range on the fall-back; solid sign of no sellers left. Rally back from dip under the 1.5400 on stops suggests more losses are coming but a corrective bounce is needed (which is developing now) Support at 1.5280 is firm near-term. Look for rotation higher to continue into next week. Rate clears close in stops again. Strong long-liquidation break is still coming; Watch for two-way volatility. Be ready to re-short quickly when the rally ends, look for a short-covering rally to stall around the 1.5550/1.5600 area again; look to re-short in that area.

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

Tentative EuroGroup Finance Ministers Meeting

Resistance 3:  104.80
Resistance 2:  10450/60
Resistance 1:  104.10/20
Latest New York:  103.90
Support 1:  102.50/60
Support 2:  102.00
Support 3:  101.80

Rally back from the Friday lows likely a Head-Fake; double –top has formed and a strong sell signal suggests a potential short is now confirmed at the 105.00/50 area again. Rate has broken trend line support. Traders note that the market continues to trade technically and expect stops to be run in both directions near-term; expect more volatility. Looking for the rate to briefly follow through higher for a short-covering rally through Tuesday but fall harder into mid week. Day traders may get a lot of opportunity as the rate will likely cover a lot of the same ground twice on the hourly time frame. Stops could be in size at the 102.50/80 area. Resistance at 104.80 area remains significant now and rallies should be sold.

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

7:50pm CGPI y/y 3.6%
7:50pm Current Account 1.95T

Analysis by: written by Jason Alan Jankovsky

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