daily analysis 4.11.087

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Today’s US Dollar Trading
•    Japan closed for minor holiday
•    US data shows recession potential growing
•    USD holds gains into the close

Overnight Preview

•    Look for some follow-on USD buying
•    Two-way action likely on election day

Looking Ahead to Tuesday  
All times EASTERN (-5 GMT)
•    10:00am USD Factory Orders m/m
•    All Day USD Presidential Election
•    10:45am USD FOMC Member Fisher Speaks

The USD continued to advance today against the majors with the exception of the Yen; making new highs in New York trade into the end of day after the London fix. Traders were expecting potential for more month-end USD buying although not on the scale seen last week and with weaker energy and equities the USD firmed all day. Finding stops below Friday’s lows the GBP and EURO both slide to session lows amid light volumes as has been the case; low prints in Cable at 1.5779 after breaching the 1.6000 psychological level with more losses due on follow through. Low prints in EURO were more subdued holding above the 1.2580 area with low prints at 1.2595 before staging a modest rebound to the 1.2640/50 area. Traders report stops helping to drive trade in the rate but also note weaker energy. Both pairs are under interest rate watch as both Central Banks meet this week with cuts across the board expected. Some analysts have the BOE cutting a full 100 BP but a 50 BP cut is likely factored in to current pricing suggesting that a 50 BP cut will disappoint the market into the end of the week. Not so well anticipated in the ECB cut with most analysts calling for a 50 BP cut but given Trichet’s hawkish rhetoric a 25 BP cut is more likely leaving the EURO/USD differential favoring a firm EURO for the month. Not so clear is what the Fed will do at the December meeting where another 50 BP cut is rumored. Despite all the potential rate moves today’s US data was decidedly bearish leaving more underlying fundamentals the USD will have to eventually price in. PMI was down and so was Construction spending although both numbers were better than expected which might have provided a bit of upside support. USD/JPY held to established overnight ranges leaving the 99.66 high print unchallenged today. Cross spreaders appear willing to buy Yen to start the week but the rate is firm into the end of day around the 99.00 area. USD/CHF rallied to the 1.1700 handle for a high print at 1.1750 before backing off as stops above the 1.1720 area get triggered. The rate is now back to the earlier highs and due for a correction lower. Aggressive traders can look to sell the rate soon. Looking ahead to tomorrow the US Presidential election will dominate trader interest. Analysts are divided as to near-term direction depending on who wins; look for more two-way action overnight with an early USD rally in Asia overnight.


Resistance 3:  1.6550
Resistance 2:  1.6480
Resistance 1:  1.6400
Latest New York: 1.5835
Support 1:  1.5775
Support 2:  1.5700
Support 3:  1.5650/60


Rate falls back on cross-spreading reverses and fears of a large rate cut loom over traders; rate continues to correct into buy zone. Stops noted on the move lower during the day suggesting some bid interest is early. Traders note unwinding of Yen cross-spreads driving a lot of trade after the open. Large range suggests more volatility coming soon. Traders note liquidity is better than last week. Aggressive traders can buy anytime on weakness but expect more whippy action. Two-way action likely to continue. Confirmed sovereign interest on the dip as semi-officials seen on dips in both EURO and GBP recently; lately middle-east names. Traders expect follow-on selling into Asia and then possibly the bottom.
Data due Tuesday: All times EASTERN (-5 GMT)
4:30am GBP Construction PMI
7:01pm GBP Nationwide Consumer Confidence

Resistance 3:  1.3150
Resistance 2:  1.3030
Resistance 1:  1.2900
Latest New York:  1.2648
Support 1:  1.2600
Support 2:  1.2550/60
Support 3:  1.2500


Rate two-way in solid action; bids on dips from profit-taking shorts some desks report. Drop through early support finds stops and new lows attract technical selling. Semi-official names on the offer near the highs with stops reported on a move over the 1.2900 area. 1.2700 handle fails to hold on a dip and stops likely cleared. Hook reversal showing from the toolbox suggests aggressive traders can buy the rate on dips. Rate possibly getting spillover effect from GBP. Support also from cross-spreaders as they unwind Yen. Official interest noted traders say. Rate is an absolute screaming buy in my view—I can’t see further weakness being ignored by the buyers; conditions are right to buy on the next pullback in my view. OK to buy on a limit order. If oil rallies it might take EURO with it. 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 Tuesday: All times EASTERN (-5 GMT)
5:00am EUR PPI m/m
All Day EUR ECOFIN Meeting
Join us for the Afternoon US Dollar Wrap-Up daily at 3:15 pm Central/Chicago time (GMT -6)

Analysis by – Written by Jason Alan Jankovsky

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