USD falls back for the most part

Today’s US Dollar Trading
•    USD falls back for the most part
•    Volumes a bit better late
•    Traders note a correction is likely

Overnight Preview

•    Look for more weakness near-term
•    USD likely to correct on good volume as equities rally

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
•    2:15pm USD FOMC Statement
•    2:15pm USD Federal Funds Rate

The USD is two-way into the New York close as traders continue to fear global recession and potential intervention from our trading partners. Rumors that the BOJ was ready to sell Yen to stop the recent sharp rally against most major pairs helped the USD score gains against the Yen but the potential correction has likely run its course and sellers of the rate will return near-term once the US FOMC releases the latest interest rate policy tomorrow; traders feel that the recent volatility in the majors has likely run its course near term as volumes begin to show signs of improving. Rallies in most of the worlds equity bourses certainly helped the majors but there is concern that the equities markets can’t hold gains as a “sell the rallies” sentiment continues to offer sellers in the indexes. In my view, the USD is likely due for a correction lower and I would look for the majors to rally through the end of the week making this month a consolidation month after the recent strength in the Greenback. For the day the GBP had a high print in New York trade at 1.5831 finding stops and solid buying off the overnight lows seen in early Asia overnight. Traders note that stops were about where expected after the recent sell-off. EURO also rallied for a high print at 1.2628 in late New York trade; although both rates were inside ranges it clearly shows the majors are under upward bias near-term. USD/JPY sold off overnight on follow-through for a low print at 92.47 before a rally brought new buying; high prints at 97.79 into late New York. In my view, it should be apparent that the USD is overbought and due for a correction. Look for the Greenback to weaken through the end of the week. It is likely that the market is voting positively to  an FOMC rate cut tomorrow; likely to be followed by more rate cuts from our partners as well. Look for the USD to continue lower by the end of the week.

Resistance 3:  ?
Resistance 2:  ?
Resistance 1:  1.6330
Latest New York: 1.5859
Support 1:  1.5400
Support 2:  1.5250
Support 3:  ?


Volatility decreases a bit as today is another inside range day but trading higher. Traders note stops and unwinding of cross-spreads supporting the rate. Follow-on selling finds bids at prior low. Bounce off the lows yesterday and today leaves a healthy bid wick suggesting some upside coming soon but volatility is still high. Traders note liquidity is still thin. Rate at new support level but ranges appears wider. Traders note quality bids on the dip suggesting a bottom is in here somewhere but buyers have been stepping up for 1000 points now; many likely sidelined.  Aggressive traders can buy anytime but expect more whippy action. Two-way action likely to continue. Confirmed sovereign interest on the dip last night as semi-officials seen on dips in both EURO and GBP recently; lately middle-east names. Traders report cross-spreading for Sterling crosses likely driving the rate near-term.  
Data due Wednesday: All times EASTERN (-4 GMT)
5:30am GBP Net Lending to Individuals m/m
5:30am GBP Mortgage Approvals
2:00pm GBP MPC Member Blanchflower Speaks

Resistance 3:  1.3050
Resistance 2:  1.3000/10
Resistance 1:  1.2800
Latest New York:  1.2646
Support 1:  1.2330
Support 2:  ?
Support 3:  ?


More lows overnight; but buyers show up. Hook reversal showing from the toolbox today suggests aggressive traders can buy the rate soon. Rate possibly getting spillover effect from GBP. Overnight news shows inflation not as bad as expected also helping to lift the rate a bit. Support possibly from option trades; but those are cleared. Official interest noted traders say but rate continued to sell-off. Rate is an absolute screaming buy in my view—I can’t see further weakness being ignored by the buyers but conditions are not right I think; possibly overnight tonight into Wednesday. Oil pressure likely spills over into pricing and if oil rallies it might take EURO with it. 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.  
Data due Wednesday: All times EASTERN (-4 GMT)
All Day EUR German Prelim CPI m/m

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Analysis by: – Written by Jason Alan Jankovsky


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