daily analysis

Overnight Asia/Europe
•G8 Summit begins
•USD rallies
•Crude Oil lower

Today’s Economic Reports
All times EASTERN (-5 GMT)
•None in the US

Looking Ahead
All times EASTERN (-5 GMT)
•8:00am USD Fed Chairman Bernanke Speaks
•10:00am USD Pending Home Sales
•10:00am USD Wholesale Inventories

The USD is trading firmer to start New York this morning after a slow start in Asia; traders have been waiting for the return of US trading before large volumes were seen. Cross-spreaders and option defense started the overnight session as EURO/JPY sales initially rallied the majors to highs overnight before the USD began to gain in Europe. Disappointing UK economic data and poor German industrial production numbers pressured both GBP and EURO through the European session knocking both pairs into lows ahead of New York. Cable traded to a low print at 1.9666 as stops fired off under the 1.9700 handle again; traders note that the GBP appears to be trading in a very large triangle/wedge pattern suggesting a lot of potential two-way action over several handles may result. Now that we are in the “summer doldrums” it is possible that the technical picture will remain more viable for short-term traders and it is my view that the GBP will cover a lot of the same ground twice. EURO sold off briefly into stops under the 1.5700 handle for a low print at 1.5610 before solid bids were seen. Traders report that model accounts were on the offer with large orders at the 1.5630/40 area; also of note the 50 bar MA comes in today at 1.5582 which may offer support on further weakness. EURO has a strong exponential sell signal from Thursday last week and the rate is likely going to correct into solid support a bit further down in my view. Good quality buys may be seen in the next 24-48 hours. USD/JPY rallied to our limit entry point overnight and aggressive traders should be short at the 107.50 area; high prints so far overnight 107.72 in line with the 200 bar MA. Traders note that the rate has seen quality buys last week from Asian sovereigns who were seen briefly offering the rate above the 107.50 area overnight suggesting that possibly the rate is capped at the 200 bar MA near-term. USD/CHF and USD/CAD also rallied into near-term resistance but failed to trigger quality sell signals just yet. Look for Swissy to be a sell above the 1.0350 area and the Loonie to be a short above the 1.0230/40 area; CAD data due out today may be of help there. In my view, the USD is off to a firm start into resistance; we need to look at the short side of any strength near-term.

Resistance 3:  1.5780
Resistance 2:  1.5750
Resistance 1:  1.5700/10
Latest New York:  1.5656
Support 1:  1.5600/10
Support 2:  1.5580
Support 3:  1.5550

Rate drops on stops and aggressive selling; model accounts on the offer traders say around the 1.5630/40 area. Major support at the 1.5580 area and slightly below. Stops elected under the 1.5700 area but option defense reported at 1.5650 area. Highs were sold aggressively by Asian sovereigns Wednesday traders say. Lots of stops building under the 1.5770 area were cleared overnight and a further break lower is likely on whipsaw today. Stops noted under the previous lows layered under 1.5600 to 1.5550 traders say. Should cable break—EURO could go with it. The 50 bar MA likely to offer support should the rate fall back; bids will likely be in the 1.5580 area or so on any meaningful correction. Exponential reversal still valid. 
Data due Tuesday: All times EASTERN (-5 GMT)


Resistance 3:  108.40/50
Resistance 2:  108.20
Resistance 1:  107.80
Latest New York:  107.57
Support 1:  106.80
Support 2:  106.50
Support 3:  106.20

Upside limited now that rate clears stops ahead of 107.80 area; option defense ahead of 108.00. 200 bar MA likely to cap the rate near term. Rate firms up on large cross-spreading traders say; resting order at the 107.50 area to sell the rate should be filled. Bids noted at 105.70/80 area suggesting a firm bottom is in near-term. Exponential reversal signal still valid, rate is two-way but a correction is coming and should be a low-volume affair. Offers layered to 107.50 some desks report so upside may be labored above the 106.50 area; Expect more two-way action.

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

1:00am JPY Economy Watchers Current Index
7:50pm JPY Core Machinery Orders m/m


Analysis by: written by Jason Alan Jankovsky

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