Daily Analysis – 18.08.08

Overnight Asia/Europe
• Quiet start overnight, USD range-bound
• Volumes lower
• Technical trade dominates due to lack of news

Today’s Economic Reports
All times EASTERN (-5 GMT)
• 1:00pm USD NAHB Housing Market Index
Very light start to the week, light news from overseas as well.

Looking Ahead
All times EASTERN (-5 GMT)
• 8:30am USD Building Permits
• 8:30am USD PPI m/m
• 8:30am USD Core PPI m/m
• 8:30am USD Housing Starts
• 10:00am USD FOMC Member Fisher Speaks

The USD is mixed to open New York after a relatively quiet start in Asia last night; no real economic news was released leaving the Greenback to trade on mostly technical factors. Now that the panic-buying of USD has largely subsided from late last-week traders are holding the majors in a consolidative pattern to start the week. Normally seen on the bid for EURO during the sharp sell-off recently, major Swiss names seen on the offer overnight around the 1.4650 area traders say; high prints in the rate at 1.4769 in Asian trade. US investment houses seen on the bid this time most likely covering recent shorts; traders note cross-trading for non-USD pairs pressuring EURO as well. Normally following EURO lower but firming today, Cable has held last week’s low so far today with a low print at 1.8624 and the toolbox is flashing an exponential buy this morning. Aggressive traders can buy GBP/USD at the 1.8680 area or better during the day. Tuesday will likely be a big day for both EURO and GBP due to the fundamentals being released making Monday a set-up day. With the heavy selling pressure in both pairs recently a short-squeeze is overdue; in my view getting a position on today ahead of potentially negative news for the USD with corresponding positive news from overseas makes for a good probability of higher EURO and GBP pricing mid-week. USD/JPY is lower making lows under the 110.00 handle in Asia overnight; bids seen from US names traders say as well as importers. The rate is currently holding inside range on light volumes suggesting the rate is still seeing a potential top under the 110.50 area. OK to hold shorts through the day. USD/CAD opened lower and dropped to a 1.0542 low print; if holding shorts you would have added to the rate on the break to 1.0560 area. Currently a bit higher on the day around the 1.0600 handle traders note a lot of technical trade keeping the rate two way to start New York. After taking losses this month, the sucker-rally in the USD appears to be finally faltering putting us in a position to recover during the second half of the month. Look for the USD to weaken during the week but still place stops on open positions; volatility has increased so be protected from whipsaw. 

Resistance 3:  1.8780
Resistance 2:  1.8750/60
Resistance 1:  1.8720/30
Latest New York: 1.8671
Support 1:  1.8620/30
Support 2:  1.8600
Support 3:  1.8580

After all said and done the rate ends off the lows with a strong buying wick Friday, today’s open shows net bid follow-through. Look for more upside this week. Possibly shorts covering ahead of the news due Tuesday. Rate bouncing off 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. Get ready for the rally.
Data due Tuesday: All times EASTERN (-5 GMT)

Resistance 3:  1.4850
Resistance 2:  1.4820/30
Resistance 1:  1.4770/80
Latest New York:  1.4716
Support 1:  1.4700/10
Support 2:  1.4650/60
Support 3:  1.4620/30

Stops-driven sell-off scores new low last week but rate bounces smartly suggesting at least a small interest in bottoming. Traders report large bids on the drop, lower oil pricing pressures prices all day. Traders report model/macro accounts continue selling the rate. Traders suggesting that the rate is vulnerable to a short squeeze. Market is heavily short now so expect a rally. Larger names buying last week traders say. Likely the rate has flushed all longs. Aggressive traders can buy this dip for a return to resistance. 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 Tuesday: All times EASTERN (-5 GMT)
2:00am EUR German PPI m/m
5:00am EUR German ZEW Economic Sentiment
5:00am EUR ZEW Economic Sentiment

Analysis by: written by Jason Alan Jankovsky

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