Daily Analysis – 11/06/08

Today’s US Dollar Trading
• USD continues to advance but volumes slow
• Traders report thin order books
• US data today benign

Overnight Preview
• Look for two-way trade
• USD to consolidate

Looking Ahead
All times EASTERN (-5 GMT)
• 10:35am USD Crude Oil Inventories -4.8M
• 11:30am USD FOMC Member Kohn Speaks
• 12:15pm USD Fed Governor Kroszner Speaks
• 2:00pm USD Beige Book

The USD continued to advance against the majors today as benign Balance of Trade data was ignored in favor of rhetoric from major sources. Overnight comments by US Fed chair Bernanke suggested that the US fed was ready to raise rates sooner-rather-than-later to combat inflation; traders took this to mean the Fed could move as early as the next month or two and bought USD across the board. Tripping stops placed close-in; all the major pairs dropped dramatically against the Greenback putting the USD into strong S/R to end the day. Profit taking by the shorts also helped propel the USD higher and for the most part the USD is holding strong gains on light volume. In my view, it is the volume issue that makes this rally a concern for me. Light volume rallies are almost always followed by a retracement and I think USD bulls need to be ready for a break lower. Supporting the USD also today were lower crude prices but as I have said before, I don’t see the overwhelming economic impact of oil at $128/BBL saving the economy as opposed to $136/BBL; the fact is energy costs TWICE what it did a year ago so where is the benefit to the USD? For the record, GBP fell back assisted by cross-spreaders from the highs at 1.9760 with low prints under previous support at 1.9517. The important issue with Cable in my view is that despite the grind lower in EURO all day posting low after low; GBP did not fall in tandem suggesting that perhaps the GBP is on near-term lows. EURO reversed from highs at 1.5655 to post lows late in the day at 1.5439 before drawing bids. Traders say the EURO saw bids all the way down and volumes were light. In my view, the EURO is bottoming again from the exact area it started from last week. Aggressive traders can buy EURO if not holding longs already. Swissy rallied along with USD/JPY and both pairs posted near-term highs; USD/JPY at 107.46 and Swissy at 1.0441. Both rates struggled to the highs and volumes were thin; traders say order boards were empty into the highs. Offers in both pairs said to extend a reasonable 50 pips higher and the upside may be exhausting itself. A surprise move by the Bank of Canada reversed the Loonie against the Greenback; falling back under the 1.0200 handle for a low print at 1.0194 before staging a slight recovery. Traders note the USD/CAD will have a hard time extending gains after the news. Look for the USD to remain two-way and quiet overnight. Technical trade may develop in which case a drop in the USD is more likely.

Resistance 3:  1.5900
Resistance 2:  1.5880
Resistance 1:  1.5850
Latest New York:  1.5460
Support 1:  1.5480/90
Support 2:  1.5440/50
Support 3:  1.5390/5400

Rate grinds lower all day as order boards thin out and sovereign bids are absorbed. Support under the 1.5440 area appears solid but no bounce on thin volumes. OK to hold longs for a return to the 1.5800 area this week. Stops and bids noted at the 1.5580 area. Trichet hints at a rate hike for July but today’s rhetoric a bit softer; I think that is only to stem a rapid rise too quickly. Overhead resistance appears firmer on the approach to the 1.5800/20 area which is a likely to offer upside resistance through the rest of the week. Now that the break is out of the way we will re-enter our longs. Look for inside range day closing higher tomorrow.     
Data due Wednesday: All times EASTERN (-5 GMT)

2:45am EUR French CPI m/m 0.4%

Resistance 3:  108.20
Resistance 2:  107.80
Resistance 1:  107.40/50
Latest New York:  107.30
Support 1:  106.20/30
Support 2:  105.80
Support 3:  105.40/50

Rate grinds higher after the London fix, traders report thin conditions. Technical traders note a fib defense area around today’s highs and never forget that the fundamentals haven’t changed one bit in the last 72 hours; USD likely not this strong but more benefiting from Yen weakness. Still showing signs of a top, offers by exporters all the way to the overnight high traders say suggesting that the strength may be short-lived. Stops likely rolled up under the 106.20 area again for today so if a break happens—look for a drop to new monthly lows fairly quickly. Aggressive traders can sell anytime over the 107.00 area but I want to wait through the Tokyo open tonight.

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


Analysis by: written by Jason Alan Jankovsky

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