Daily Analysis

Overnight Asia/Europe
•    Early USD weakness gives way to strength
•    Equities mixed, Oil firmer
•    Speculation two-way on what will happen early in the year

Today’s Economic Reports

All times EASTERN (-5 GMT)
•    10:00am USD Construction Spending m/m
•    All Day USD Total Vehicle Sales
•    1:15pm USD FOMC Member Yellen Speaks

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
•    10:00am USD ISM Non-Manufacturing PMI
•    10:00am USD Pending Home Sales m/m
•    10:00am USD Factory Orders m/m
•    2:00pm USD FOMC Meeting Minutes

The USD is on the offense this morning for the most part as the first full day of post-holiday trading gets underway in New York. Overnight was a mixed bag for the Greenback as early weakness in index futures put a bit of downward pressure on the USD/JPY and mixed pressure on EURO and Cable; thin conditions were reported in Asia as a half-day holiday was seen in Japan. The volumes remained thinner into European trade but the main focus was the EURO-Sterling cross as the rate corrected from lifetime highs late last year; rumors that a large investment house would need Cable to meet funding needs as well as repatriation by oil companies supported the GBP into early New York scoring a 1.4581 high print in late European action. EURO is lower of course trading through stops in the 1.3880 area and 1.3820/30 area before losing another two-full handles for a low print at 1.3623; traders note conditions remained thin as many players are sidelined ahead of economic news due out this week. Technical conditions remain mixed in EURO with some seeing the downside as the place to be on the back of a “top-ten trades of 2009” recommendation from GS suggesting EURO will make lows in ’09 under the 1.2000 handle. In my view, that is a ridiculous point of view with US fundamentals so weak and a democrat due in the White House. Governors of five states have already called for a $1.0T USD stimulus package after the new administration takes office and my question is: “Where will the money come from?” In times like these it is an historical precedent that the USD weakens after a “honeymoon” rally once the new president takes office. In my view, the new president isn’t really qualified for the conditions he will have to face leaving the probabilities open for poor government actions which will make the situation more tenuous. USD/CHF rallied to the 1.1000 handle with a high print at 1.1085 as traders saw equities firm up and piggy-backing on USD/JPY strength overnight; traders note that stops were seen driving some trade as the rate broke above the 1.0900 handle. Overnight lows at 1.0706 in Asia are likely to remain in place for a few days as the rate is technically ready to try for the 1.1230 area in my view but I would be a seller up there. USD/JPY rallied as aggressive traders continue to work near-term technical’s; high prints at 93.41 in early New York as stops and short-covering were the rule overnight. Analysts remind that the rate is due for a modest correction after making new 2008 lows during the holiday season suggesting that once a short-squeeze is done the rate will work lower. Some desks report Japanese offers in the current area layered from 92.80 to 93.60 also suggesting the pressure will be from the sell side soon enough. In my view, the USD is off to a great two-way start to the year as the markets await what will happen during the first quarter with economic conditions as they are. Look for the Greenback to continue two-way this week.


Resistance 3:  1.5800/10
Resistance 2:  1.5780
Resistance 1:  1.5710/20
Latest New York: 1.4490
Support 1:  1.4420/30
Support 2:  1.4350
Support 3:  1.4280


Rate is two-way and firmer due to cross-spreaders liquidating EURO-Sterling; repatriation also lending to the firm tone. Rate is likely to have a knee-jerk reaction to more rate cuts due later in the week but with a new 2008 low late in the month last month the probabilities are good that any rate cut is factored in. Rate sees upside stops cleared around the 1.4550 area in light trade but no follow-through as of yet. Toolbox signals a trend sell as active from late in December likely running out of steam around the 1.4400 area so if holding shorts be nimble. Spillover from EURO not there today as spreaders unwind. Traders note solid two-way action. Sellers hold control above 1.5500 area so far but if unable to make a new low or test the low—expect a short-squeeze..  
Data due Tuesday: All times EASTERN (-5 GMT)
2:00am GBP Nationwide HPI m/m
4:30am GBP Services PMI
7:01pm GBP Nationwide Consumer Confidence

Resistance 3:  1.4080
Resistance 2:  1.4020/30
Resistance 1:  1.3960
Latest New York:  1.3583
Support 1:  1.3550
Support 2:  1.3480
Support 3:  1.3420/30


Rate drops to new lows in early New York today, aggressive liquidation by EURO-Sterling cross spreaders likely providing the main selling. Late longs are under pressure and can’t ignore a break of the 50% fib defense numbers. Bears took a stand at 1.4700 area last year  and likely won’t let go of shorts until technical levels are tested around 1.3660 area or lower which we have today. Technical traders will be looking for a test of the 100 day MA near-term to offer support this time after blowing through to the upside. Traders note lots of aggressive active buying getting disappointed. Stops building under 1.3440 area likely in size; the question is will the buyers show up? Traders note some stops within range overnight suggesting longs are late or nervous. Correction lower is likely to continue a bit further but that will likely be a buy point.
 Data due Tuesday: All times EASTERN (-5 GMT)
4:00am EUR Final Services PMI
5:00am EUR CPI Flash Estimate y/y

Forex Trading Analysis brought to you  by: – Written by Jason Alan Jankovsky

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