Daily Analysis – 20.08.08

Today’s US Dollar Trading
• USD finally weakens
• Volumes a bit lower
• US news no help

Overnight Preview
• Look for consolidation
• USD likely to have a weaker bias mid-week

Looking Ahead to Wednesday
All times EASTERN (-5 GMT)
• 10:35am USD Crude Oil Inventories
Another light day for the Greenback.

After showing subtle signs of topping the past few days the USD finally edged lower in thinner trade after the news was out this morning. Although the fundamental picture was a mixed bag with PPI rising and housing still weak the Greenback is not attracting substantial bids as we head into the close. Cable surprised to the upside printing fresh highs for the day at 1.8681 but has since retreated a bit and remains in positive territory. Headline estimates for UK inflation are on the rise and with the expectations for a BOE rate hike sooner rather than later and unless the USD can mount a formidable advance against the cross-spreaders it appears the GBP has bottomed for the month. Aggressive traders can look to buy any weakness the next 24 hours in my view. EURO found light close-in stops above the 1.4740/50 area for a high print at 1.4793 before falling back to hold the 1.4760/70 area; traders say offers for the “sell rallies” crowd were positioned ahead of 1.4800 with large stops above suggesting that if late sellers were in today a test of further offers is likely. German ZEW and PPI data out overnight were supportive of the rate and with light news due for the rest of the week the EURO is likely to trade technically with support now around the 1.4690 area and resistance at the 1.4800 handle. Expect stops from shorts to be rolled down closer to the market likely in the 1.4820 area; expect a short-squeeze to get rolling above that number if we trade there the next 24 hours or so. Market moving data will include Philly Fed on Thursday so between now and then if EURO can’t break back the upside will likely be the course of least resistance. USD/JPY probed for stops as did USD/CHF; both pairs finding some at 109.60 and 1.0950 respectively for low prints on the day at 109.54 and 1.0907. Traders expect more stops at 1.0900 in Swissy and 109.20 in USD/JPY; both numbers likely to trade overnight in my view. The toolbox executed an exponential reversal today so aggressive traders can sell any bounce in USD/CHF. Loonie continues to hold the 1.0600 handle on fears the government will be recalled in Ottawa but the strength is likely only near-term as the rest of the USD-complex is under threat today. Look for the USD to consolidate with a lower bias overnight.

Resistance 3:  1.8750
Resistance 2:  1.8700/10
Resistance 1:  1.8680
Latest New York: 1.8675
Support 1:  1.8520/30
Support 2:  1.8400
Support 3:  1.8370

Stopped out of longs overnight, rate holding above the lows and showing another large wick. Late highs driven by stops and some active buying; late shorts likely to roll stops close-in. Look for more upside this week. Possibly short covering ahead of the news due Tuesday; some of that may have contributed to the one-figure rally off the lows overnight. 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 (Russians) 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 Wednesday: All times EASTERN (-5 GMT)

4:30am GBP MPC Meeting Minutes
4:30am GBP M4 Money Supply m/m
4:30am GBP Public Sector Net Borrowing
6:00am GBP CBI Industrial Trends Orders

Euro/USD Daily
Resistance 3:  1.4850
Resistance 2:  1.4820/30
Resistance 1:  1.4790/1.4800
Latest New York:  1.4791
Support 1:  1.4620/30
Support 2:  1.4600
Support 3:  1.4570/80

Another stop driven break under the 1.4650 area bought by Russian names traders say; better than expected German ZEW data helps the rate off the lows. Rally over the 1.4750 area likely included some short covering. Today’s US data caused some whipsaw but unable to make new lows. Traders report large bids on the drop but volumes died later. 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 Wednesday: All times EASTERN (-5 GMT)

Analysis by: written by Jason Alan Jankovsky

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