Daily Analysis – 13/05/08

Today’s US Dollar Trading
• USD opens mixed, ends lower
• Technical levels hold gains in check
• Stops in range

Overnight Preview
• Look for two-way action to continue
• Technical trade likely

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%
This data likely to be a non-event. Markets are really watching for the larger data due on Wednesday.

The USD is ending the day heavily mixed to start the week. Initially firmer in overnight Asia the Greenback gave back hard-won follow-on gains from European trade at previous S/R areas against most major pairs. Cable advanced on cross-spreading demand to post a high print in New York for the day at 1.9635 making the day an outside-range engulfing bar on the daily; a strong potential reversal signal from the two-month lows at 1.9441 earlier in the day. Although the trade was considered a strong signal the volumes were not impressive suggesting the rate will follow-through only modestly the next 24-36 hours. EURO rallied back to the potential sell-zone in the 1.5550 area for a high print at 1.5572 before dropping back a bit on the close. Traders note stops in range triggered on the rally over the 1.5450/60 area overnight; lows at 1.5365 went unchallenged in New York. Model account demand also seen suggesting that momentum traders are coming in on the buy side. Also active in USD/JPY, model traders likely had their stops too close to protect themselves against a reversal suggesting that the EURO and the Yen will whipsaw traders the next 24-36 hours. Look for a pullback in both pairs; EURO/JPY also active overnight suggesting the USD will remain under pressure against the Yen near-term. Highs in USD/JPY at 104.05 were offered rumored by semi-official names and the rate is off the highs to finish New York. For the most part, the Greenback had a solid two-way day against most of the majors and despite the two-way action is holding between established support and resistance. The GBP likely will follow-through to the upside a bit but sellers are expected to show at the 1.9680/1.9720 area. EURO has likely made the high for the week seeing as no real stops over the 1.5550 area were seen today and that is precisely where they would have been if shorts were active over the weekend; aggressive traders can look to ADD to open shorts in EURO at the 1.5550 area OB today and tomorrow. Looking ahead, expect technical trade to dominate ahead of Wednesday’s CPI data; Tuesday’s data likely no factor. 

Resistance 3:  1.5600/10
Resistance 2:  1.5570/80
Resistance 1:  1.5550
Latest New York:  1.5535
Support 1:  1.5500/1.5490
Support 2:  1.5450
Support 3:  1.5400

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 end about now—the next 24-36 hours. Rate clears close in stops again. Strong long-liquidation break is still coming; Watch for two-way volatility. Short-covering rally stalled where expected in the 1.5550/1.5600 area again; look to re-short in that area now.

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

Tentative EuroGroup Finance Ministers Meeting

USD/JPY Daily 

Resistance 3:  104.80
Resistance 2:  10450/60
Resistance 1:  104.10/20
Latest New York:  103.92
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; likely in the 10460/80 area. 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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