Daily Analysis 11.11.08

Today’s US Dollar Trading
•    USD holds gains despite thin conditions
•    Equities fail to advance, oil rallies but fades
•    China news not enough to inspire confidence

Overnight Preview

•    Holiday trade will make for thin conditions
•    Look for continued two-way action in thin trade

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
•    10:00am USD IBD/TIPP Economic Optimism
•    All Day USD Bank Holiday—Veterans Day
US data continues light tomorrow.

The USD ended near the highs of the day in late New York as the major pairs failed to hold early overnight gains. Despite a higher opening on Wall Street equities gains fizzled as investor confidence started the week on a down note; early excitement over the Chinese stimulus package announced over the weekend did not attract further buying. Traders note that continued concerns over emergency funding requested for the car makers weighed on investors as well as volatility in energy prices; crude oil had near a $6.50 range on the day before giving back gains and closing slightly better. With a US bank holiday due tomorrow liquidity in the markets was light and many desks only had skeleton crews as traders made a long weekend out of the Tuesday holiday. FX markets will be closed in the US for most of the day tomorrow and overnight action is expected to be very light as well; traders say that the exceptionally lower volumes and thin conditions likely exaggerated moves in the Greenback again today after early volumes died post-fix today. After a better start overnight despite cross-spreading for other pairs, the GBP made marginal lows late in the day for a low print at 1.5582 with volumes described as dismal.  EURO/GBP cross made lifetime highs overnight before correcting but the focus remains centered on the EURO side of the cross; traders note that despite pressure from GBP EURO held up technically well and analysts note technically bullish developments point to a potential short-squeeze coming soon. Tomorrow’s action is expected to be light and tight-ranged with EURO likely to remain within existing ranges barring any unforeseen fundamental developments. High prints in EURO at 1.2928 were not challenged in New York after the open; low prints came late in the session at 1.2739 before bids showed up. USD/JPY failed to advance as equities advanced on the open leaving the 99.49 highs intact and slowly deflated lower all day; low prints at 97.59 remain under threat into the close. On the day the USD is trading inside established ranges with more of the same expected in holiday trade tomorrow. In my view, any dip in the majors is a buying opportunity and aggressive traders can buy further weakness in EURO and GBP; under the 1.2700 handle in EURO and under the 1.5500 area in GBP. Look for a bit of follow-on selling of the majors overnight but due to holiday trade conditions will likely be thin and whippy.

GBP/USD Daily 

Resistance 3:  1.6320/30
Resistance 2:  1.6250
Resistance 1:  1.6100/10
Latest New York: 1.5578
Support 1:  1.5550
Support 2:  1.5520/30
Support 3:  1.5420


Cross-spreaders on the sell side of the sterling pairs kept the rate under pressure overnight; rate gives back gains against USD in thin two-way action. Stops noted on the move back through the 1.5800 area on the way higher with offers mixed in; resistance at 1.6000 likely to cap near-term. UK PPI data was weaker but not as bad as expected; likely more bad news also due this week which will pressure calls for another BOE rate cut next month. Traders note unwinding of Yen cross-spreads driving a lot of trade after the open. EURO/GBP reaches a record high encouraging a round of profit taking soon I think. Traders note liquidity is only moderate and still on the lower side. Aggressive traders can look to buy the next dip. Expect more whippy action. Two-way action likely to continue. 
Data due Tuesday: All times EASTERN (-5 GMT)
4:30am GBP Trade Balance
4:30am GBP DCLG HPI y/y

Resistance 3:  1.3200/10
Resistance 2:  1.3150
Resistance 1:  1.3030
Latest New York:  1.2728
Support 1:  1.2680
Support 2:  1.2550
Support 3:  1.2480


Rate drops back in thin conditions; resistance is sold but large names on the dips traders say; likely they will be gone for the holiday so more losses likely. Aggressive traders can buy the next dip under the 1.2700 handle. Traders note large stops at the 1.2950 area with more over 1.3000 but offers likely to cap on first try if a bounce from potential pennant bottom holds. Russians buying EURO around the 1.2860 area last week traders say; offers from same likely were seen in GBP this morning. Bids on dips from profit-taking shorts some desks report. Rate possibly getting spillover effect from GBP and vice-versa suggesting both pairs may track each other near-term. 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. 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)
All Day EUR French Bank Holiday
2:00am EUR German WPI m/m
5:00am EUR German ZEW Economic Sentiment
5:00am EUR ZEW Economic Sentiment

<a href=""> Forex </a> Analysis written by Jason Alan Jankovsky, featured by

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