Daily Analysis

Overnight Asia/Europe
•    G-20 fails to inspire the USD bulls
•    Majors initially weaker then reverse into New York
•    Japan data benign

Today’s Economic Reports
All times EASTERN (-5 GMT)
•    8:30am USD Empire State Manufacturing Index
•    9:00am USD FOMC Member Duke Speaks
•    9:15am USD Capacity Utilization Rate
•    9:15am USD Industrial Production m/m

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
•    8:30am USD PPI m/m
•    8:30am USD Core PPI m/m
•    9:00am USD TIC Long-Term Purchases
•    1:00pm USD NAHB Housing Market Index

Disappointment from the weekend G-20 summit in Washington gave USD bulls a slight advantage in early Asian trade but the Greenback is off marginally against the majors by the start of New York trade. Initially expecting strong rhetoric or even an agreement of some kind to give traders a reason to believe the credit crisis will be resolved quickly, the statement was seen as “more of the same” by most traders. Trading down to recent support and then rallying, GBP and EURO are still inside-range to start the week. Low prints in Cable at 1.4650 encouraged a round of short-covering and traders report large investment groups on the bid as the rate rose through stops around the 1.4850 area; high prints so far at 1.4966 with the rate holding the 1.4900 handle in early trade. EURO fell to tech support at 1.2513 holding the important 1.2500 handle on the dip with light stops reported under the 1.2550 area; high prints on the recovery at 1.2702 with stops reported around the 1.;2630 area in light trade. The two-way action suggesting that both pairs are tracking each other with the main interest seen in the crosses; Yen continued to remain stronger despite the drop in Q3 GDP estimates released overnight. High prints in USD/JPY at 97.57 in Asia before profit-taking hit the rate along with exporter selling traders say; low prints at 95.92 with the rate holding firm around 96.50 in early New York. USD/CHF rallied to a new two-year high before reversing; high prints at 1.2010 with lows at 1.1886. Making yet another hook reversal on the daily charts the USD/CHF is really trying hard to find a top and aggressive traders can sell the rate over the 1.1950 area today looking for the reversal to hold. Following the Swissy higher was Loonie making a try for highs over the 1.2400 handle; high prints at 1.2426 before reversing for lows at 1.2220; the rate holding early New York a full handle off the highs at 1.2320. With a light economic calendar for the start of the week the USD is likely to continue in two-way trade with the technical’s mostly driving trade. Late buyers will likely have stops close-in suggesting some whippy action is also possible. To start the week it is apparent that the USD bulls are getting tired at current pricing; I think the potential for a long-liquidating break is building and if the USD can’t extend gains by mid-week I would look for a drop in the Greenback to end the week.

Resistance 3:  1.5150
Resistance 2:  1.5080
Resistance 1:  1.4990/1.5000
Latest New York: 1.4918
Support 1:  1.4650
Support 2:  1.4580
Support 3:  1.4480/1/4500


Rate rallies off technical support on G-20 news; potential short-squeeze with more likely coming. Cross spreaders continue to hold interest near-term; profit-taking likely to result in a squeeze on the further strength. Rate rejecting trade inside previous wick is a sign of bid pressure taking the lows; likely some spillover from EURO.  Thin conditions continue to exacerbate moves. Some stops noted on the break back over the 1.4850 area and the rate continues two-way on the move. Technical trade overnight as traders decide near-term action with little to go on but the charts.  Resistance now at the 1.5000 area likely to cap near-term. BOE rate cut next month increasingly likely but that is likely completely factored in at this point. 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 needed to find a bottom and we saw some of that last week near the lows.
Data due Tuesday: All times EASTERN (-5 GMT)
4:30am GBP CPI y/y
4:30am GBP Core CPI y/y
4:30am GBP RPI y/y
10:30am GBP MPC Member Besley Speaks

Resistance 3:  1.2900
Resistance 2:  1.2850
Resistance 1:  1.2820/30
Latest New York:  1.2645
Support 1:  1.2520/1.2500
Support 2:  1.2450/60
Support 3:  1.2400


Rate follows GBP higher from overnight but still an inside range despite two-way action. Still suggesting a point on indecision; traders note stops building above the market around the 1.2630 area or so cleared after the lows suggesting short-term traders active. New weekly low rejected fairly hard suggesting a re-test is a solid buy if not already long on the dip. Traders report some semi-official interest the past 24 hours. Resistance is still formidable but large names on the dips traders say. On a rally, traders note large stops at the 1.2950 area with more over 1.3000 but offers likely to cap. 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)
4:00am EUR Italian Trade Balance
1:30pm EUR ECB President Trichet Speaks

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Analysis by: – Written by Jason Alan Jankovsky

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