Daily Analysis

Today’s US Dollar Trading
• USD starts lower in Asia, rallies in Europe
• Rallies on Durables data then fades
• Ends New York Mixed

Overnight Preview

• Look for the USD to continue under pressure ahead of GDP tomorrow
• Volumes should drop off also

Looking Ahead
All times EASTERN (-5 GMT)
• 8:30am USD Prelim GDP q/q 0.9%
• 8:30am USD Prelim GDP Price Index q/q 2.6%
• 8:30am USD Unemployment Claims 370K
• 10:30am USD Crude Oil Inventories
• 10:30am USD Natural Gas Storage
• 2:30pm USD Fed Chairman Bernanke Speaks
• 7:00pm USD Fed Vice Chairman Kohn Speaks

The USD ends the day mixed after a slow start in Asia; initial early strength after Durable Goods data hit the street fades into the London Fix. The USD went nowhere after the fix and traders complained of low volumes, thin conditions and dull ranges. After the better-than-expected Durables data provided a solid rally the sellers came out at expected resistance and the USD never challenged those prices again all day making for a toppy chart formation. Model and Momentum accounts were seen in some pairs on the bid for USD suggesting that the potential top may actually be in place across the board. Some price action after the best levels of the day for the USD offer compelling reasons to stay on the short side through the end of the week. Cable advanced to the 1.9830 area overnight Asia only to be met with selling that found close-in stops at the 1.9770 area and below for a low print after durables at 1.9703; bids lifted the rate back over the 1.9800 handle to trade firm all day in less than two hours. A 100 point move in both directions whipsawing both sides to finish higher on the day; not a good sign for the bears. EURO also stopped short on support, holding the 1.5600 handle after a sharp stop-driven break for a low print at 1.5603 before sovereign names were seen on the bid. The 50 bar MA comes in as support at the 1.5661 and although a technical sign of potential slippage; the fact that the rate found no real stops in size on a break below the MA suggests that there is no one willing to sell under the 1.5660 area. Now that weak longs have been cleared, all the remains is to see if late shorts sold EURO into the hole today. Should that be the case; expect a rally the next 24-48 hours. USD/JPY rallied through stops and resistance for a high print at 105.33 clearing all the weak shorts out before dropping back to trade 104.60 area most of the afternoon. A very long selling wick on USD/JPY today suggests that the rate is due for a retest of the near-term lows under the 103.00 area; some desks report that selling interest at the highs was from exporters and semi-official names. Swissy had a similar day but finished off the highs and nowhere near the real resistance numbers the active bears would like to see. Highs at 1.0426 were never challenged and the rate fell back to under the 1.0390 breakdown number. A close below the 1.0390 area argues for a test of the 1.0280 area again as volumes on the rally were light. Look for a quiet evening ahead of GDP tomorrow.  


Resistance 3:  1.5880
Resistance 2:  1.5850
Resistance 1:  1.5810/20
Latest New York:  1.5645
Support 1:  1.5620
Support 2:  1.5600/1.5590
Support 3:  1.5550

Rate crosses the 50 bar MA with higher volume; more losses on the way but move into the stops finds no one home; selling pressure likely not big enough now to move below the 1.5600 area easily. Support at 1.5550 likely to hold on further weakness. Overhead resistance appears firmer on the approach to the 1.5800/20 area with stops said to be out of range above around the 1.5850 area. Traders note that the rate feels “heavy” to start the week and warn of a potential overhang of stale longs; which may have been cleared on today’s dip to 1.5600. Stops under the 1.5700 area were in size overnight and volume was good. Look for model and momentum accounts active tonight—we need them on the offer as the break lower was negated by the bounce. Adding to the potential is the COT data showing a flip to net long from net short before the holiday; a washout is likely in my view and that may have been the move lower today.

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

3:55am EUR German Unemployment Change -25K
4:00am EUR M3 Money Supply y/y 10.3%
5:00am EUR Consumer Confidence -12

Resistance 3:  105.80
Resistance 2:  105.50
Resistance 1:  105.20/30
Latest New York:  104.62
Support 1:  104.20/30
Support 2:  103.80
Support 3:  103.20/30

Rate powers through offers at the 104.50 area and stops drive the rate to next resistance at the 104.80 area; fails at the highs. After US news is out this morning, expect a rally into the 105.10/20 area to be sold; we opened an aggressive short in that area today. Caution on the potential top is the rate closing over the 100 bar MA today. COT data showing an increase of net JPY longs making the upside potential for the USD a bit higher in my view; but that was likely the pop this morning. Stops the other side of 104.50 were in size suggesting that speculators got heavily short near current market pricing as 104.50 area is in range with the recent weekly highs. This week’s data may support near-term as the USD has had a lot of bad press the past quarter and has managed a firm start to the year; perhaps the Yen has a further downside correction to go before the USD bears are again out in force. 

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

7:15pm JPY Manufacturing PMI 48.6
7:30pm JPY Core CPI y/y 1.0%
7:30pm JPY Core Tokyo CPI y/y 0.9%
7:30pm JPY Overall Household Spending y/y -0.7%
7:30pm JPY Unemployment Rate 3.9%
7:50pm JPY Industrial Production m/m

Analysis by: written by Jason Alan Jankovsky

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