Daily Analysis – 12/06/08

Today’s US Dollar Trading
• USD fails to hold gains
• Stops run early
• Two-way action suggests offers building

Overnight Preview
• Look for consolidation with a downside bias
• USD likely to open lower in New York tomorrow

Looking Ahead to Thursday
All times EASTERN (-5 GMT)
• 8:30am USD Core Retail Sales m/m 0.7%
• 8:30am USD Retail Sales m/m 0.5%
• 8:30am USD Import Price Index m/m 2.5%
• 8:30am USD Unemployment Claims 370K
• 10:00am USD Business Inventories m/m 0.3%
• 10:35am USD Natural Gas Storage
• 11:30am USD Fed Chairman Bernanke Speaks

The USD was unable to hold gains earned yesterday as the Majors rallied across the board leaving the USD bulls with losses today. Although the rally by the GBP was muted compared to the rally seen in EURO traders remind that the week is not over yet and that the US data due the next 48 hours could easily be seen as unfriendly to the Greenback. GBP was unable to test highs made in Europe overnight as spillover strength from EURO supported the rate despite offers layered above the 1.9620 area. High prints at 1.9670 were offered by cross-spreaders and the rate held the 1.9620 area into the close. EURO made a new high in New York at 1.5588 before offers capped the move but the rate continued to firm all day and managed a close at the 1.5565 area suggesting that the EURO has some teeth to the bounce near-term. Volatility has been large in both pairs and traders expect that to continue. Both pairs may cover a lot of the same ground twice the next few days but at least in EUR I expect a firm close back over the 1.5600 handle to close the week. The ECB is set to hike rates and will continue to do so for the next few quarters and I don’t see the EURO falling back any more than a reasonable correction—which may have already happened with the trade action seen since February this year. USD/JPY is lower and failed to hold the 107.00 handle on the day; low prints at 106.55 were bought as rumors of official demand were seen but the rate closes lower on the day and more losses are coming in my view. Swissy is also under pressure and low prints in New York at 1.0307 are decidedly below stops seen at the 1.0350 area earlier in the day. Forex Trader’s note that in all pairs light stops were elected as the USD lost ground but the larger stops are still working; look for more USD pressure near-term as technical trading dominates ahead of US data tomorrow and Friday. Look for book-squaring tonight ahead of Retail Sales data; not normally a market-mover but with unemployment on the hook tomorrow there is a chance of aggressive action by the USD bears if they like the data.


Resistance 3:  108.20
Resistance 2:  107.80
Resistance 1:  107.40/50
Latest New York:  107.02
Support 1:  106.40/50
Support 2:  106.20/30
Support 3:  105.80

Rate grinds higher after breaking into support today; traders note model and momentum accounts buying USD Monday and Tuesday—good sign a top is forming. Traders report thinner 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 at 107.77 traders say suggesting that the strength may be short-lived. Stops likely rolled up under the 106.80 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. Close over the 107.00 area a caution to the bears.

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

Tentative JPY Overnight Call Rate


Resistance 3:  1.0520
Resistance 2:  1.0480
Resistance 1:  1.0440/50
Latest New York:  1.0321
Support 1:  1.0300/10
Support 2:  1.0250/60
Support 3:  1.0220

Rate continues to rotate up to and fail at the 100 bar MA area; the 1.0480 area looks to be poised to offer resistance again. Today’s close under the 1.0350 area suggests further losses to end the week. Buyers appear to be technical traders and expect some momentum accounts on the bid soon. No doubt some bids are profit-taking from the shorts but that won’t last in my view. Any rally likely to attract selling so be ready for a short; if we get a sell signal on the day today likely to enter a short. In my view, the rate needs to be sold on any strength. Look for a sell signal again overnight. Light volumes suggest whipsaw coming.

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

6:00am CHF SNB Board Member Jordan Speaks

Analysis by: written by Jason Alan Jankovsky

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