Daily Analysis – 14.08.08

Today’s US Dollar Trading
• USD whipsaws hard
• Volumes patchy
• GBP falls to new lows

Overnight Preview
• USD likely to consolidate
• Volumes likely to drop ahead of US data tomorrow

Looking Ahead
All times EASTERN (-5 GMT)
• 8:30am USD Core CPI m/m
• 8:30am USD CPI m/m
• 8:30am USD Unemployment Claims
• 10:35am USD Natural Gas Storage
• 2:30pm USD FOMC Member Stern Speaks

Despite the lack of serious fundamental news the USD whipsawed today taking out stops on both sides today. Initially weaker overnight the Greenback rallied a bit on follow-through buying but ran into ample supply as Yen-crosses dominated trade forcing USD longs to take a breather for a bit. After US data was out the USD rallied against the Yen breaking into stops above the 109.30 area for a high print at 109.75 before dropping back. Most of the USD pairs rallied with the Yen but once stocks declined and oil rallied a bit the luster wore off the Greenback and the majors began to recover. Making a fresh US high late in New York EURO rallied through stops at the 1.4940 area for a return to the higher ranges seen overnight. Traders note that the big stops to protect the shorts start around the 1.4990/1.5000 area and perhaps a little higher. The rate will no doubt make a run for those as EURO now looks like a reversal is in the works. Cable had another break lower as the bears would not quit just yet making a low print at 1.8638; almost a two-year low. With conditions dramatically weaker now in the US than they were in 2006 it makes you wonder where this USD strength is coming from. Most traders are looking for the Greenback to fade near-term and point to the technically oversold readings as a clue that a rally is due. Non-USD crosses for Sterling were also whipsawed suggesting that the market is full of late traders who are likely to get spanked. In my view, this morning’s additional romp higher against GBP as well as the other pairs later in the day is simply evidence of a reactionary market and not an orderly one. Today’s USD data was not favorable to the Greenback and the whipsaw during the day points to a market driven by emotion rather than reflecting market conditions. Once the weak traders are scared out the USD will likely resume a steadier pace of regular depreciation near-term. Look for consolidation tonight and US data to be unfriendly in the morning.

GBP/USD Weekly
Resistance 3:  1.8950
Resistance 2:  1.8900/10
Resistance 1:  1.8880
Latest New York: 1.8707
Support 1:  1.8630
Support 2:  1.8600
Support 3:  1.8580

Rate falls hard on dovish BOE report; highs ahead of there at 1.9038 suggesting bid interest was there but was panicked. Rate on two-year lows and is an excellent buy in my view. Rate has likely flushed out every long now and shorts will likely take gains soon leaving the rate vulnerable to a sharp rally. Possible buying from semi-official names so watch the news. Offers above the market mixed with stops from late shorts so be ready for whipsaw the next few days. Traders expect GBP to track EURO through this week. Continue to expect a lot of cross-trading. Stopped out on new lows, OK to look at the long side again tomorrow
Data due Thursday: All times EASTERN (-5 GMT)

Resistance 3:  1.5050
Resistance 2:  1.5000/10
Resistance 1:  1.4980
Latest New York:  1.4921
Support 1:  1.4800/10
Support 2:  1.4760
Support 3:  1.4720/30

Rate usually tracking GBP lower but unable to extend losses despite good selling. Russians and Swiss names buying on the dip; inside range day suggests rate is near a bottom. Model accounts selling in EURO and GBP traders say suggesting that the rate is vulnerable to a short squeeze. Market is heavily short now so expect a rally. Larger names buying traders say. Likely the rate has flushed all longs. Macro accounts seen selling on the break Friday. Aggressive traders can buy this dip for a return to resistance although we were stopped out of first attempt at a long. Rate continues to track Cable and vice-versa. Now that stops are cleared a rotation higher is coming. US data this week likely to be unfriendly so be ready for whipsaw.
Data due Thursday: All times EASTERN (-5 GMT)
2:00am EUR German Prelim GDP q/q
2:00am EUR German Final CPI m/m
2:45am EUR French Prelim Non-Farm Payrolls q/q
2:45am EUR French Prelim GDP q/q
4:00am EUR ECB Bulletin
5:00am EUR CPI y/y
5:00am EUR Core CPI y/y
5:00am EUR Flash GDP q/q

Analysis by: written by Jason Alan Jankovsky

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