Daily Analysis – 27.08.08

Today’s US Dollar Trading
• USD fails to extend overnight strength
• Volumes better
• Stops close-in result in two-way action

Overnight Preview
• Look for more two-way action
• USD is getting “tired” I think

Looking Ahead to Wednesday
All times EASTERN (-4 GMT)
• 8:30am USD Core Durable Goods Orders m/m
• 8:30am USD Durable Goods Orders m/m
• 10:35am USD Crude Oil Inventories

To finish today the USD is off its highs against all pairs but still in positive territory against EURO and GBP; traders note that volumes were better today but that might have been due to Oil’s wild ride pulling in smaller day-trading type accounts. Volatility was high earlier when the majors made highs against the USD in the New York session but all the pairs are finishing more in the mid-range making today’s trade a bit more inconclusive. Sentiment is still favoring the USD near-term and with a lighter calendar to end the week the potential for continued two-way trade is higher. As discussed yesterday, short-term accounts have had a lot more opportunity while the longer position accounts have had to hold through whipsaw. EURO is lower and unable to hold the 1.4700 handle after a try earlier in the day; traders note that technicians are expecting a further drop into the low 1.4500 handle soon but in my view, that would be a buying signal. Shorts were seen liquidating on the break and should further declines be in the works look for low-volume drops followed by higher volume rallies soon. Tomorrow’s Oil inventory data likely to cause a bit of volatility in that market which will likely spillover into EURO and GBP. Cable was also unable to hold the 1.8400 handle on the earlier recovery making for a bit more challenging trade in that pair from the long side. Today’s FOMC minutes late in the day was little help for the GBP bulls as a recovery in that pair needs a steady-to-dovish Fed policy and no hints of that were seen in the minutes. USD/JPY continues to grind sideways and under resistance after failing at the highs again today; stops as expected were seen on the dip into New York lows on the day but bids supported at the same previous level making for another round of two-way trade. USD/CAD is looking weaker and lows at 1.0410 are just shy of the reported large stops under the 1.0400 handle. Tomorrow’s Durables data may be enough to drop that rate into stops but the recovery back to the mid-1.04’s shows the bulls are still trying to take control after the large drop last week. In my view, it’s another day of business as usual making the USD bulls a bit more bold. If there is no upside follow-through on durables tomorrow the highs for the week may be in and a correction in the majors can continue. 

Resistance 3:  1.8650
Resistance 2:  1.8600
Resistance 1:  1.8530
Latest New York: 1.8391
Support 1:  1.8320
Support 2:  1.8290/1.8300
Support 3:  1.8250

Big drop in sympathy with EURO, negates hook reversal and stops drive trade. Finishes better than the open so there is some bid interest coming in. Drop is drawing profit-taking bids suggesting the bottom is finally finding a low print. Overdue for a short-covering rally. Likely an exhaustion dip and the rate will recover soon. Look for a bottom the next 48 hours. OK to stand aside but I want to wait just a bit before buying. EURO dropping forced rate into stops traders agree. So far suggesting GBP is overextended. Close back 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 Wednesday: All times EASTERN (-4 GMT)


Resistance 3:  1.4880/1.4900
Resistance 2:  1.4800
Resistance 1:  1.4760
Latest New York:  1.4648
Support 1:  1.4570
Support 2:  1.4550
Support 3:  1.4520/30

Rate falls into stops layered close in and accelerates on thinner volumes. Low prints from active selling at 1.4570; rate makes a six-month low and traders report profit-taking bids. Oil retreats also helping to pressure rate, this is a buying opp in my view but we need to wait 24 hours. 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 Wednesday: All times EASTERN (-4 GMT)
2:00am EUR German Import Prices m/m
All Day EUR German Prelim CPI m/m

Analysis by: written by Jason Alan Jankovsky

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