Daily Analysis

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Overnight Asia/Europe
•    USD opens weaker, rallies a bit
•    Majors mixed in solid two-way action
•    UK data unfriendly to the GBP

Today’s Economic Reports
All times EASTERN (-5 GMT)
•    10:00am USD ISM Manufacturing PMI
•    10:00am USD Construction Spending m/m
•    10:00am USD ISM Manufacturing Prices

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
•    All Day USD Total Vehicle Sales
•    12:30pm USD FOMC Member Plosser Speaks

The USD is mixed in early New York after trading two-way and technical during the holiday shortened week. Traders note that a weak start to the week in Gold and Crude Oil is helping to support the USD overnight. Traders note the USD is holding roughly within existing ranges but that some stops were noted as the EURO and GBP crossed last weeks’ opening range suggesting some technical trading continues in two-way action.  Poor UK economic data pressured GBP in overnight action pushing the rate to a low print of 1.5010 in late European trade; traders note stops on a break of the 1.5120 area in size. EURO is spilling over some pressure on the day; low prints at 1.2620 after stops were seen around the 1.2700 handle. High prints at 1.2713 suggesting that stops were above the market and sold by traders; some pressure seen from CTA-type accounts traders say. Firmer equities last week are giving way to weaker equities this week as USD/JPY remains under pressure; low prints at 93.51 breaking under the 93.70 area but bids are currently supporting the rate just hovering off the lows. USD/CHF is unable to hold the 1.2200 handle as some traders expected as the rate has only shown modest signs of a top after firming a bit last week; high prints at 1.2156 attracted selling with lows in late Europe at 1.2059. USD/CAD continues to flirt with the technical 1.2420/30 area; high prints at 1.2478 with lows at 1.2359. Traders note that the rate continues to attract bids on the dips and offers on the rallies suggesting more two-way action in the pair near-term. USD/CAD is technically the one most likely to pull back in my view with a firm double-top in place; recent action appears to confirm more two-way action before a move one way or the other. In my view, now that the “silly season” is in play through the end of the year I think we can expect more two-way action and a lot of aggressive moves that reverse. The USD has a seasonal tendency to firm into the end of year as well as rally during the first few months of a new president in office. I think the financial crisis is holding the USD artificially high and that any seasonal or residual USD strength is already factored in. Look for the USD to continue two-way into overnight trade and more two-way action tomorrow ahead of the news.
Resistance 3:  1.5680
Resistance 2:  1.5620
Resistance 1:  1.5550
Latest New York: 1.4976
Support 1:  1.4700/10
Support 2:  1.4650
Support 3:  1.4550


Rate forced lower to start the week after consolidating gains last week. Good bids reported but supply seen from semi-official names. Stops in range helps to pressure but support has failed at 1.5050 area. Traders note solid two-way action with stops cleared across several levels. Sellers hold control above 1.5100 area so far but how the rate trades into US news today will tell more. OK to buy if flat on a dip. Profit-taking likely to result in a squeeze on the further strength. Technical trade overnight as traders decide near-term action with little to go on but the charts.  BOE rate cut next meeting 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 Construction PMI
7:01pm GBP Nationwide Consumer Confidence

Resistance 3:  1.3200
Resistance 2:  1.3120/30
Resistance 1:  1.3100
Latest New York:  1.2631
Support 1:  1.2600/10
Support 2:  1.2550
Support 3:  1.2480


Late break with spillover from GBP clears stops under the 1.2700 area. Possible reversal now in play but the rate needs to firm above the 1.2850 area in my view.  Bids are building under the 1.2600 area as expected; sell-off likely to be bought hard now. OK to try the long side again on a dip. Traders note stops building above the market around the 1.2750 area in size likely to help create some two-way action but rate is well off those numbers to start. Support also from cross-spreaders as they unwind Yen. 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)
5:00am EUR PPI m/m

Forex Analysis – Written by Jason Alan Jankovsky

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