Daily Analysis – 30/06/08

Overnight Asia/Europe
• USD starts firm, weakens into Europe
• Stops triggered on the way down
• Traders report good volume

Today’s Economic Reports
All times EASTERN (-5 GMT)
• 9:45am USD Chicago PMI

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
• 10:00am USD ISM Manufacturing Index
• 10:00am USD ISM Manufacturing Prices
• 10:00am USD Construction Spending m/m
• Tentative USD Domestic Vehicle Sales
Expect ISM to remain weak.

The USD started Asia on the defensive as most of the major pairs rallied again to new near-term highs against the Greenback; Cable and EURO finding previous resistance a bit tougher to break and stalling at previous monthly highs. Cable high print at 1.9968 roughly in line with previous highs in the same area from late April and reversing to go negative on the day shortly after the European open. Disappointing UK mortgage approvals put the pressure on Sterling again and the rate made lows just ahead of the US open at 1.9894. EURO made a high print in Asia at 1.5837 before reversing along with GBP; low prints in early New York at 1.5745 before light bids supported the rate off the lows. Both GBP and EURO are tracking each other as cross-spreaders continue to work the Yen side of the crosses; speculation is high that the Yen will continue to weaken against most pairs but today appears to be a profit taking day as the reversals are in all Yen crosses.USD/JPY was pressured into new monthly lows completing a reasonable fib retracement target for a low print in Europe at 104.98 before bids were seen and a short squeeze resulted. The rate has recovered to the 105.60 area in light trade as New York gets underway. Stops reported at the 105.50 area on the way down and again on the way up suggesting late traders are getting whipsawed. USD/CHF dropped in tandem with other USD weakness falling to a low print at 1.0130 before a short squeeze took the rate back over the 1.0200 handle; traders note that across the board in all pairs stops were elected from what appears to be the late USD long. That being said, the probability of additional volatility and likely recovery now that the stops have been run is higher; aggressive traders can look to short EURO above the 1.5770 area and take gains on the Short USD/JPY and USD/CHF positions around current pricing if still in from the weekend. Although the trend is lower for the USD I expect a lot of potential volatility this week and the next thing is to re-short on strength if we get it. Look for the USD to rally into previous resistance across the board and we can re-short it there. Today’s PMI data likely to inspire a bout of volatility. 

Resistance 3:  1.5900
Resistance 2:  1.5880
Resistance 1:  1.5830/40
Latest New York:  1.5768
Support 1:  1.5720
Support 2:  1.5680
Support 3:  1.5650

Rate not supported by higher Oil today suggesting a near-term top. Stops noted under the previous lows layered under 1.5700 traders say. Closes near the 1.5800 handle from last week, more upside likely but a pullback is needed. Asian sovereign selling seen overnight. US news today likely to create volatility so be ready for whipsaw or a reversal. Should cable break—EURO could go with it. Watch for model accounts on the bid today; those guys love to buy highs. The 50 bar MA likely to offer support should the rate fall back; close over the 50 bar likely to draw more buying to end the week. Bids will likely be in the 1.5580 area or so on any meaningful correction. COT data show a flip to EURO longs; could be a clue for a top.   
Data due Tuesday: All times EASTERN (-5 GMT)

3:55am EUR German Unemployment Change
5:00am EUR Unemployment Rate


Resistance 3:  107.80
Resistance 2:  107.20/30
Resistance 1:  106.50
Latest New York:  105.56
Support 1:  10500/104.90
Support 2:  104.50
Support 3:  104.20

Rate continues on follow-on weakness, strong bids noted suggesting a whipsaw bounce is coming. Today’s dip under the 105.00 handle lacked conviction and a potential rally may develop early; sell that rally early next week if we get it. In the meantime, OK to liquidate shorts and wait. Exponential reversal signal still valid, rate is two-way but weaker each day. Stops in the 105.80 area cleared overnight; traders note stops were both ways. Cot data show a flip to Yen longs suggesting a bottom is in.

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

7:50pm JPY Monetary Base y/y

Analysis by: written by Jason Alan Jankovsky

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