Daily Analysis – 26.08.08

Today’s US Dollar Trading
• The USD unable to hold gains in NY
• Volume a bit better than Friday, stops drive a lot of trade
• Oil pushes Greenback around as do equities

Overnight Preview
• Look for tow-way action overnight
• USD may be overextended to the upside so expect downside bias

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
• 9:00am USD S&P/CS Composite-20 HPI y/y
• 10:00am USD Consumer Confidence Index
• 10:00am USD New Home Sales
• 10:00am USD HPI m/m
• 10:00am USD Richmond Manufacturing Index
• 2:00pm USD FOMC Meeting Minutes

The USD is weaker against the majors to end New York after starting a bit better overnight Asia. Traders note that volumes were thin overnight and most of the day but once the USD began to move lower after the London fix the volumes increased a bit. The lack of economic news certainly helped with the thinner conditions and today’s Housing Data was no help for the USD bulls even though sales were better-than-expected; after an initial brief rally the USD fell to lows on the day after the release of the news. Cable rallied to a high print at 1.8592 making for a large range on the day and creating a hook reversal but gave back some of those gains to end near the 1.8520 area in slower trade. Earlier stops were under the 1.8500 and 1.8450 area for lows in Asia but professional buying was noted off the lows traders say suggesting that the near-term bottom is in for the rate. EURO fell and rallied in tandem with GBP today but remaining in a tighter range; low prints in Europe at 1.4695 were never challenged in New York and the rate rallied to make highs at 1.4809 before falling back to the 1.4750 area; stops have been triggered at the 1.4750 area on the rallies and on the dips suggesting that the 1.4750 area is the near-term pivot point. Aggressive traders can look to add to their open EURO longs the next 24 hours or so as the two-way action is likely to continue making dips under the 1.4750 area and above the 1.4690 area solid buying opportunities. USD/JPY found stops as expected on a break of the 109.40 area for a low print at 109.01 but the rate was able to recover a bit and close near the 109.30 area. Although the USD is lower and expected to make more lows should additional US data this week remain weak; the USD/JPY needs a significant move under the 108.00 handle for a monthly reversal to form. In my view, the Greenback will likely remain two-way the next several days providing a lot of opportunity for short-term traders. The recent rally in the USD is over-extended I think and a correction is overdue. Look for the USD to remain two-way overnight and into tomorrow’s data. 

Resistance 3:  1.8720
Resistance 2:  1.8680
Resistance 1:  1.8620
Latest New York: 1.8515
Support 1:  1.8400/10
Support 2:  1.8350
Support 3:  1.8320

After all of today’s action the rate ends about where it started this morning after making highs later in the day. Rate falls to a new low overnight but volumes are thin due to the holiday; likely an exhaustion dip and the rate will recover soon. Hook Reversal on the day, look for a bottom the next 48 hours. OK to stand aside but I want to wait just a bit before buying. EURO holding firmer despite a lower open. So far suggesting GBP is overextended. Rumors of a Lehman Brother’s bailout from a Korean source may be blowing over. Close above the 1.8580 area argues for further gains; aggressive traders can buy the close but again I would wait just a bit. Stop-driven break is likely a head fake in my view. 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.
Data due Tuesday: All times EASTERN (-5 GMT)
4:30am GBP BBA Mortgage Approvals

Resistance 3:  1.4880/1.4900
Resistance 2:  1.4850
Resistance 1:  1.4800/10
Latest New York:  1.4748
Support 1:  1.4690/1.4700
Support 2:  1.4650
Support 3:  1.4620

Although rate is off the highs it is holding firm against the USD. If oil retreats expect a pullback but that is a buying opp in my view. Stops in the 1.4750 area cleared on the way lower but holding above there suggests a “buy the dip” mentality; next level is still above the 1.4900 handle most likely. Support solid in my view at 1.4700 area now; grind in two-way action is good but we want higher volumes on rallies to form this bottom. Traders suggesting that the rate is vulnerable to a short squeeze. Market is heavily short now so expect a rally. Aggressive traders can continue buying 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 Consumer Confidence
2:00am EUR German Final GDP q/q
4:00am EUR German Ifo Business Climate Index
4:00am EUR German Ifo Business Expectations Index

Analysis by: written by Jason Alan Jankovsky

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