Daily Analysis – 4.09.08

Today’s US Dollar Trading
• USD fails to extend gains
• Majors make highs in New York
• BOC keeps rates firm

Overnight Preview
• Look for follow-on selling

Looking Ahead to Thursday
All times EASTERN (-4 GMT)
• 8:15am USD ADP Non-Farm Employment Change
• 8:30am USD Revised Nonfarm Productivity q/q
• 8:30am USD Unemployment Claims
• 8:30am USD Revised Unit Labor Costs q/q
• 10:00am USD ISM Non-Manufacturing PMI
• 10:35am USD Natural Gas Storage
• 11:00am USD Crude Oil Inventories
• 1:40pm USD FOMC Member Fisher Speaks

After a firmer start the USD has given back some of its gains today after minor US data failed to inspire further gains; technical factors also likely helped the majors stay the course of further erosion. Despite recent weakness the majors were able to stage an intraday rally during the New York session and close well off their lows after making highs during the day after the London fix today. Although a reversal is not quite underway the signs that the USD rally may at least take a pause during the next 24 hours are beginning to show. Cable rallied off the European lows for a high print at 1.7842 before sellers capped the move. Traders note a potential short squeeze could develop should new highs happen during the next day or two. EURO rallied as well for a high print at 1.4533 before sellers capped the move but the same result is possible should a rally extend past the 1.4550 area traders say. Although no major factors could support today’s action most analysts are suggesting that oversold conditions may result in a relief rally near-term. USD/JPY fell on stops for a low print at 108.09 and failed to attract additional buying on the dip ending the day near the lows and possibly in position to challenge the weekly lows around the 107.70 area. USD/CAD broke back as well printing a low print after the BOC rate announcement at 1.0576 drawing an additional reversal signal from the toolbox; traders note that unless the rate can manage another high above today’s high this week the rate has likely put in a double-top on the longer term charts. Swissy also reversed during the day making the USD a coordinated move lower across all the major pairs. In my view, the USD is overdue for a corrective rally and depending on the quality of that rally it might be resuming the overall longer-term bearish scenario. I would look for a net-lower overnight session in Asia tonight and with a lot of potentially bearish data due during the US session tomorrow it is likely that the USD will end lower on the week from here. 

Resistance 3:  1.7950
Resistance 2:  1.7900
Resistance 1:  1.7850
Latest New York: 1.7769
Support 1:  1.7660/70
Support 2:  1.7620/30
Support 3:  1.7600

Rate showing signs of bottoming, light stops noted above the market. Profit-taking bids continue as well. Price drop likely over-extended on sympathy selling from EURO. Oil no doubt helping to drive trade but rate is becoming severely oversold. Overnight volumes lighter traders say; cross-spreaders active in Sterling and EURO. Drop is drawing profit-taking bids suggesting the bottom is finally trying to form near-term. Overdue for a short-covering rally. Likely an exhaustion drop. Close back above the 1.8020 area needed to take some of the pressure off. This stop-driven break is likely a head fake in my view. Traders expect GBP to track EURO through this week. Continue to expect a lot of cross-trading.
Data due Thursday: All times EASTERN (-4 GMT)
Tentative GBP Halifax HPI m/m
Tentative GBP MPC Rate Statement
7:00am GBP Official Bank Rate

Resistance 3:  1.4600
Resistance 2:  1.4550
Resistance 1:  1.4530
Latest New York:  1.4500
Support 1:  1.4370/80
Support 2:  1.4350
Support 3:  1.4300

Rate showing signs of bottoming as well, likely stops rolled down to around the 1.4550 area. Likely an exhaustion drop as the rate is attracting professional buying. Volumes not impressive on the move traders say. Rate is overdue for a short-squeeze. EX reversals are now negated near-term; 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 Thursday: All times EASTERN (-4 GMT)
6:00am EUR German Factory Orders m/m
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference

Analysis by: written by Jason Alan Jankovsky

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