Forex analysis

 •    USD has a technical day, holds S/R
•    Volumes continue to remain off
•    Traders remain unsure how to play the bailout

Today’s US Dollar Trading
•    USD has a technical day, holds S/R
•    Volumes continue to remain off
•    Traders remain unsure how to play the bailout

Overnight Preview

•    Look for continued two-way trade
•    Economic news tomorrow may encourage some USD selling

Looking Ahead to Wednesday

All times EASTERN (-4 GMT)
•    8:30am USD Core Retail Sales m/m
•    8:30am USD PPI m/m
•    8:30am USD Retail Sales m/m
•    8:30am USD Core PPI m/m
•    8:30am USD Empire State Manufacturing Index
•    10:00am USD Business Inventories m/m
•    1:15pm USD Fed Chairman Bernanke Speaks
•    2:00pm USD Beige Book

The USD had a uneventful day of mostly technical trade with only the USD/JPY stretching outside established overnight ranges to the downside and USD/CAD suffering a rally to the upside. Most pairs made early highs or lows on the news of additional government-sponsored bailout options provided by the US and other G-7 nations as the prop of the financial system continues to remain center-stage. With additional economic news due tomorrow expected to be USD bearish, it is likely that traders will see a bit of long-liquidation in the USD but the fact is most sentiment remains supportive of the USD near-term. Traders are expecting more two-way action similar to today’s trade at least through the end of the week. Aggressive traders will likely have the more short-term opportunity as the majors are likely to cover the same ground twice the next few days. Although initial reaction to the G-7 support was USD bearish the majors have not seen an increase in volumes and order-flow has been patchy some desks report. In my view, the majors will continue grinding sideways in a broader range the next few days as details begin to emerge that might break the Greenback one way or the other. GBP fell back from an early high at 1.7634 to trade back under the 1.7500 handle into the close. Traders note a lack of fresh buying after a round of short-covering lifted the rate in early trade. Cross-spreaders for Yen appear active again and a dip into the 1.7300 handle might be a buying opportunity near-term. EURO dipped a bit in sympathy as traders saw solid offers appear on the move to the 1.3700 handle; most desks are looking for a pullback to the 1.3500 area soon although good bids were seen around the 1.3620/30 area and above today. USD/JPY held near the 103.00 handle for most of the morning then began to slide off as equities retreated from their early gains. Most desks report that the volumes were light on the rally suggesting a “dead cat bounce’ may be developing in the rate. Low prints in late New York at 101.49 no doubt left the late longs stinging. USD/CHF failed to extend gains past the recent highs around the 1.1400 area; high prints at 1.1388 were turned back to close around the 1.1320 area. USD/CAD bounced higher after the 8-figure slide from Friday’s highs to trade the 1.1600 handle into the close; again traders have no reason to support such a move other than continued panic buying of USD by someone. Look for the rate to remain volatile. In my view, the whippy nature of the majors underscores the current lack of confidence traders continue to operate under. With a rally in equities fizzling into the close it underscores the lack of real progress made despite the promises of help from the powers that be. Look for the USD to remain two-way again overnight with a slightly higher bias into tomorrow’s news.  


Resistance 3:  1.7720
Resistance 2:  1.7680
Resistance 1:  1.7630/40
Latest New York: 1.7438
Support 1:  1.7440
Support 2:  1.7380
Support 3:  1.7300


Rate falls back after recovery to trade flat; likely to pullback to support around the 1.7380 area for a buy point. Cross-spreading liquidation likely supporting the rate but two-way action adding to volatility. New Lows around the 1.6800 area likely to draw additional bids and will likely hold on further weakness, traders note quality bids on the dip suggesting a bottom is in here somewhere. A solid close over the 1.7300 handle will likely help the longs. Aggressive traders can look to the buy side again on any dip the next day or so. Volumes lighter after the open. Follow-on selling likely to attract short-covering on further weakness. Follow-on selling likely from technical’s but spillover strength from EURO likely to be better to end the week. Look for a recovery back to the 1.8000 handle near term; two-way action likely to continue. 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. Traders report cross-spreading for Sterling crosses likely driving the rate near-term.  
Data due Wednesday: All times EASTERN (-4 GMT)
4:30am GBP Claimant Count Change
4:30am GBP Average Earnings Index y/y
4:30am GBP Unemployment Rate


Resistance 3:  1.3880
Resistance 2:  1.3820
Resistance 1:  1.3780
Latest New York:  1.3653
Support 1:  1.3580
Support 2:  1.3520
Support 3:  1.3480


Cross-spreading is mitigating and EURO/JPY is recovering driving support for EURO; bailout plan is likely to fuel recovery. Dip from highs holds technical support and should attract a rotation higher. Two-year low on a Friday likely a bottom near-term. Rate at a buy point, OK to buy the next dip. Aggressive traders can add to open longs on a close over the 1.3700 area. Pullback under the 1.3400 handle this week on lighter volume would be a great buy in my view. 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 two-way spills over into pricing; weaker oil helps pressure also. Traders note stops building above the market along with offers. 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. Traders note official names on the bid.
Data due Wednesday: All times EASTERN (-4 GMT)
2:00am EUR German Final CPI m/m
5:00am EUR CPI y/y
5:00am EUR Core CPI y/y

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