Daily Analysis – 07.10.08

Today’s US Dollar Trading
• Stops and active selling drive majors to new lows
• USD/JPY falls to parity
• Volumes only moderate

Overnight Preview
• More follow-on selling expected
• USD likely to consolidate

Looking Ahead to Tuesday
All times EASTERN (-4 GMT)
• 11:00am USD FOMC Member Stern Speaks
• 1:15pm USD Fed Chairman Bernanke Speaks
• 2:00pm USD FOMC Meeting Minutes
• 3:00pm USD Consumer Credit m/m

Traders are buying USD in size as flight to quality fears pervade a global meltdown in the financial sector. Equities were off over 800 points in late trading as the DJIA drops under the 10,000 level; NASDAQ off under the 1800 area leaving that market at a ten-year low. Oil off as well trading under the $90.00/BBL level as traders fled commodities as well. Of course the USD rallied as value was re-adjusted leaving the major currencies falling hard with the exception of USD/JPY; USD/JPY dropped over 600 points for a low print at 100.22 as equities fell off leaving the Yen as the reserve currency today. GBP and EURO fell hard as well with both pairs well below technical levels considered important for continued gains against the USD suggesting that the USD has more upside to go; although that is remote as there are few buyers left after a move like this. GBP fell to a low print at 1.7335; EURO low prints at 1.3453. Traders note that sentiment is so overwhelmingly fearful of counterparty risk that there are no buyers for the majors despite price levels that only six months ago would be considered dirt-cheap. In my view, the USD is acting as a flight-to-quality recipient to the point that no one will buy anything else. In a situation like this it is almost impossible to find a bottom in the majors as traders have little to base a price fix on because the markets are trading with so little common-sense; everyone is panicking to the point that no one will let go of their USD and will only look to buy more. I think it is important to remember that in a trading environment like this there will be some incredible values coming around the block soon. When the process of USD flight to quality ends the USD will become more vulnerable than it likely has been in 50 years. No matter your personal point of view today, this rally in the USD is not sustainable in my view and you need to be ready to sell the Greenback soon.

Resistance 3:  1.8180
Resistance 2:  1.8050
Resistance 1:  1.7880
Latest New York: 1.7433
Support 1:  1.7340
Support 2:  1.7280
Support 3:  1.7200

Rate is two-way on the way down to trade under support around the 1.7300 area; volumes lighter and traders note large names absent. Rate is likely heavily over-sold. Follow-on selling likely to attract short-covering on further weakness. Follow-on selling likely from technical’s and spillover from EURO. Aggressive traders can buy this dip; look for a recovery back to the 1.8000 handle near term. Two-way action likely near-term; heavy focus on bailout plan. Possible sovereign interest on the dip as semi-officials seen on dips in both EURO and GBP recently. Some stops triggered along with active selling; traders note profit-taking bids. Major support has held for two weeks now, any weakness likely to be bought hard. OK to buy any time in my view.
Data due Tuesday: All times EASTERN (-4 GMT)
Tentative GBP Halifax HPI m/m
4:30am GBP Manufacturing Production m/m
4:30am GBP Industrial Production m/m
7:01pm GBP Nationwide Consumer Confidence

Resistance 3:  1.3900/10
Resistance 2:  1.3880
Resistance 1:  1.3800/10
Latest New York:  1.3518
Support 1:  1.3440
Support 2:  1.3400
Support 3:  1.3380

Rate fails overnight at the two-year 50% fib defense at 1.3850 after a volatile start; pullback to the 1.3400 handle on lighter volume. Rate is an absolute screaming buy in my view. Aggressive traders can buy anytime under the 1.3900 handle in my view. Traders note stops triggered on the way down along with technical selling. Oil weaker helps pressure also. Traders note stops building above the market but those likely remain out of range today. Expect more two-way action with upside bias; traders note the rate is finding profit-taking bids on dips so far despite the uncertainty in the market. Traders suggesting that the rate is continuing to trade technically. A bottom is due soon but the question is where.  
Data due Tuesday: All times EASTERN (-4 GMT)
6:00am EUR German Factory Orders m/m
9:30am EUR ECB President Trichet Speaks

Analysis by: – Written by Jason Alan Jankovsky

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