Daily Analysis – 14/5/08

Today’s US Dollar Trading
• USD extends rally during New York
• Flows described as light and disorderly

Overnight Preview

• Look for book-squaring
• USD may have gotten ahead of itself

Looking Ahead to Wednesday
All times EASTERN (-5 GMT)
• 8:30am USD Core CPI m/m 0.2%
• 8:30am USD CPI m/m 0.3%
• 9:15am USD Fed Governor Kroszner Speaks
• 10:30am USD Crude Oil Inventories

The USD is higher to end New York after a volatile session after the release of US data. Although the Retail Sales data came in about as expected, upwardly revised data from last month sparked a swift rally in the greenback sending it to the best levels of the day. The USD managed to hold gains against the Yen and Swissy but gave back some gains against EURO and Cable to end the day; traders note that volumes were very patchy on the move and order-flow was sporadic and directionless despite the firm pricing. USD is likely setting up for a rotation lower and the technical picture looks a bit supportive of that view. Cable made a new monthly low at 1.9417 before rotating higher to eventually print 1.9496 for the New York high but well off the European high at 1.9589; traders note the reversal was unexpected after the release of higher than expected UK CPI data this morning. Cable settled around the 1.9450/60 area in quiet trade. EURO fell in sympathy with GBP as cross-spreaders lifted EURO off the post-data lows of 1.5429 and EURO gained the 1.5500 handle again before settling back as flows became confusing after the London Fix. Traders note that EURO appears to have found a near-term bottom and believe support is firm around the 1.5380/1.5400 area. The rate will likely draw some short-covering by late shorts this morning during the next 24 hours so expect a continued grind higher ahead of US data in the morning tomorrow. USD/JPY continued to grind higher all afternoon on light volume; making the high for the day ahead of the close at 104.93 touching the 100 bar MA in the process. Sellers said to have plenty of offers waiting at the 105.00 area and it will be important to see if those offers show up overnight in Japan this evening. Given the recent strength in the Yen this correction higher by the USD is likely to attract sellers and the key is how thick they are at this level. Aggressive traders can look for a short on any further USD strength in my view. Tomorrow is US CPI data and with the recent information tending to support the Fed is not done easing yet, I would expect that a weaker than expected number could ignite a bout of USD long-liquidation in the morning. The market seems prepared for that and recent strength despite weak volumes appears to be an opportunity to sell.


Resistance 3:  105.80
Resistance 2:  105.50
Resistance 1:  105.00/10
Latest New York:  104.72
Support 1:  104.20/30
Support 2:  104.00
Support 3:  103.80



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. Today’s test of the highs stalls on light volume just under the 100 bar MA. Late sell-off significant as longs likely threw in the towel. Stops above 104.30 area drove trade today; they are gone so look for the rate to rotate lower overnight. Rate has broken trend line support and Tuesday’s attempt to score a high over the 104.00 handle may be the test of the trend line break. Traders note that the market continues to trade technically and expect stops to be run in both directions near-term; some of which likely happened overnight Tuesday. Continue to 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 under the 103.00 handle. 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 Wednesday: All times EASTERN (-5 GMT)

7:50pm JPY Core Machinery Orders m/m -5.2%

Resistance 3:  1.0610/20
Resistance 2:  1.0580
Resistance 1:  1.0550/60
Latest New York:  1.0524
Support 1:  1.0470/80
Support 2:  1.0410/20
Support 3:  1.0380



Rally overnight may be expected in sympathy with YEN and/or weaker commodities but upside appears limited. Pullback from 105.00 area gained some credibility as offers appear from big names traders say. Monday’s failure above the 1.0500 handle significant in my view. Likely this rally overnight Tuesday is testing the break-down; be ready to sell. Upside is limited and the volumes aren’t that great so far today again. Be nimble though as a break below 1.0380 likely to draw aggressive selling. Rate continues to attract dip buying; next dip will likely be bought around 1.0250 area again; but last three dips have failed to create significant rally. Failure last week at 1.0550/1.0600 area is setting up a short; look to sell the next rally; around 1.0500/20 I think. Highs above the 1.0500 area may keep the rate two-way action before a move in either direction. Close under the 1.0400 area sets up a loss to 1.0250 near-term.

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


Analysis by: written by Jason Alan Jankovsky

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