Daily Analysis

Today’s US Dollar Trading
•    USD falls after early strength, stops drive trade
•    Equities rally lifts EURO
•    Volumes remain light

Overnight Preview

•    Look for follow-on USD selling
•    Two-way action likely as technical’s dominate

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

After starting overnight Asia better the USD reversed to continue mostly lower as US equities attempted to rally to start the week. Traders note that volumes thinned out after the London fix but the majors continued to hold gains and advance. GBP rallied into stops placed above the 1.5000/10 area for a high print at 1.5085 as stops above the 1.5050 area also were triggered; large investment house bids and sovereign bids were seen in earlier trade helping to hold the rate firm. As equities advanced into their highs EURO found additional stops above 1.2710 area for a high print at 1.2743 before backing off as equities deflated but not before two attempts at stops above the 1.2750 area were turned back. Poor economic data in the US also helped to keep the majors firm and tomorrows data is likely to remain unfriendly to the USD, traders expect additional upside pressure in both EURO and GBP after today’s upside action scored above near-term resistance. USD/JPY tracked stocks as expected and lifted to an intraday high at 97.57 before dropping back later in the day; traders note that two-way action and Yen cross spreading continue to dominate action and further losses are likely this week. Upside resistance is high above the 98.00 handle suggesting that the USD may be finding willing sellers on rallies. USD/CHF continued to hover at or near the two-year high around the 1.1950 area with thin conditions exaggerating the moves but high prints at 1.2010 went unchallenged in New York trade. In my view, the USD is setting up for a long-liquidating break near-term. Technical trade and low volumes likely have helped the Greenback hold recent gains but additional US data and overbought conditions suggests that at least a correction is due. Failure of the USD to score new highs this week make a correction to end the month more likely in my view. Aggressive traders can look to sell USD/CHF above the 1.2000 handle and sell USD/CAD above the 1.2375 area; expect volatility and always run your stops.  


Resistance 3:  1.5200/10
Resistance 2:  1.5150
Resistance 1:  1.5080
Latest New York: 1.5028
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, 1.5000, and 1.5050 areas; 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; expect a pullback of some kind. 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.  
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:  1.2850
Resistance 2:  1.2800
Resistance 1:  1.2750
Latest New York:  1.2670
Support 1:  1.2520/1.2500
Support 2:  1.2450/60
Support 3:  1.2400


Rate follows GBP higher from overnight; attempts highs late 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

Join us for the Afternoon US Dollar Wrap-Up daily at 3:15 pm Central/Chicago time (GMT -6)

Forex Analysis by: – Written by Jason Alan Jankovsky

Trading Futures and Options on Futures and Cash Forex transactions involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.