Daily Analysis

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Today’s US Dollar Trading

•    USD recovers from early lows
•    Two-way action driven by stops and cross-spreaders
•    Equities and Oil volatility an issue

Overnight Preview

•    Look for a quiet overnight session
•    USD to stabilize ahead of US data in the morning

Looking Ahead to Wednesday
All times EASTERN (-5 GMT)
•    7:30am USD Challenger Job Cuts y/y
•    8:15am USD ADP Non-Farm Employment Change
•    8:30am USD Revised Nonfarm Productivity q/q
•    8:30am USD Revised Unit Labor Costs q/q
•    10:00am USD ISM Non-Manufacturing PMI
•    10:15am USD FOMC Member Kroszner Speaks
•    10:35am USD Crude Oil Inventories
•    2:00pm USD Beige Book

Despite a weaker open and a test of near-term S/R the USD has recovered to post highs against some pairs as intraday volatility continues. Equities faded into the middle of the day unable to hold early gains helping to push the majors to lower prices in two-way volatility. Crude giving up gains also was a factor for lower EURO pricing traders say but for the most part the majors are struggling to hold support against negative sentiment as traders continue to wait for signs that the financial crisis is mitigating. GBP had early highs at 1.5072 before dropping two full handles in late trade; traders note selling sympathy with EURO and cross-spreaders adding to the volatility. EURO high prints looking for stops at 1.2767 but traders note they were not in size over the 1.2750 area suggesting that stops are higher up or that they were cleared last week making for a potential rotation lower in the works as the rate failed to advance past the weekly opening range.  USD/CHF continued to sketch out a tight range failing to extend in either direction as early highs and lows held all day. Traders note that stops are likely building in size on both sides of the rate as other pairs extend ranges suggesting more volatility may be due soon. USD/CAD rallied through upside resistance for a high print at 1.2585 clearing stops above the 1.2540/50 area; traders note that uncertainty in the new Canadian government likely has pressured Loonie lower against the USD. Traders note that the rate has had really thin volume and today’s moves may have been exaggerated but the fact is the rate has extended above near-term resistance suggesting that the rate may try for the next resistance level above the 1.2700 area. In my view, today’s action is two-way within existing ranges with a few exceptions but volumes haven’t been that impressive.  Most likely the USD is continuing to trade in a consolidation bias until Friday’s NFP report. Tomorrow’s data will likely provide a bit of volatility but I think the market is waiting to see the extent of the employment data this week. Look for the USD to quiet down overnight as the market prepares for US data in the morning.

GBP/USD Daily  

Resistance 3:  1.5680
Resistance 2:  1.5620
Resistance 1:  1.5550
Latest New York: 1.4898
Support 1:  1.4770
Support 2:  1.4700/10
Support 3:  1.4650


Rate forced lower into early Asia overnight but reverses into Europe. Analysts suggest 100 BP rate cut coming on Thursday; probably already fully factored in. 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; OK to buy if flat on a dip. Profit-taking likely to result in a squeeze on the further strength. Technical trade overnight again. BOE rate cut 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 Wednesday: All times EASTERN (-5 GMT)
4:30am GBP Services PMI
5:30am GBP BRC Shop Price Index y/y

Resistance 3:  1.2950
Resistance 2:  1.2880
Resistance 1:  1.2750/60
Latest New York:  1.2709
Support 1:  1.2580
Support 2:  1.2550
Support 3:  1.2480


Late break with spillover from GBP clears stops under the 1.2700 area and 1.2620/30 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 initial try for stops misses with a high print at 1.2767. 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 Wednesday: All times EASTERN (-5 GMT)
4:00am EUR Final Services PMI
5:00am EUR Retail Sales m/m

Forex Analysis by: – Written by Jason Alan Jankovsky

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