Daily Analysis

Overnight Asia/Europe
•    USD firmer overnight
•    Stops seen in most pairs lifted USD
•    Liquidation of GBP crosses continues

Today’s Economic Reports
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

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
•    10:30am USD Crude Oil Inventories

The USD is better against most major pairs this morning as traders unwound EURO-Sterling and Yen pairs giving the Greenback a boost by default some desks report. Stops were driving trade as the USD crossed several important S/R levels overnight; most notably in EURO as the rate fell through stops at 1.3500, 1.3440, and 1.3390 for a low print at 1.3330. Traders report that semi-official demand was seen under the 1.3400 handle but the rate is not responding higher at this point as liquidation from the non-USD pairs continues. Aggressive traders can look to buy EURO under the 1.3300 handle as key support starts coming in around the 1.3280 area in my view. GBP is holding the 1.4600 handle after low prints at 1.4548 continued another inside range low for the rate; highs at 1.4737 are just under yesterday’s highs suggesting that the rate is meeting some selling despite the buying to liquidate GBP crosses. Aggressive traders can buy GBP anytime on weakness in my view; most likely a test of the 1.4500 handle.  USD/JPY rallied as shorts continued to get squeezed; high prints at 94.24 in late European trade. Stops were seen above the 93.50 area as expected and Japanese exporters continue to offer strength traders say. In my view, the rate is due to resume falling off but there is still residual short-covering possible so I would be a cautious bear above the 94.00 area. USD/CHF rallied higher as gold weakened again overnight; although the metal is still firmer about the $800/OZ. level trader perception is that a continued fall in the metal will rally the USD against Swiss. In my view, the high print at 1.1257 in early New York trade is follow-on buying from aggressive European trade and likely to fade as intraday longs run out of momentum. In my view, today’s USD strength is technical follow-on from Monday’s firmer start combined with liquidation from non-USD pairs. I don’t think the Greenback has what it takes to continue a prolonged advance and see this action as simple range-trade after last month’s high volatility. I would look to sell USD strength near-term  and like the buy side of EURO under the 1.3300 area.  


Resistance 3:  1.4950
Resistance 2:  1.4880
Resistance 1:  1.4740
Latest New York: 1.4556
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 1.4680 area overnight putting the next level resistance around 1.4780 in play. 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 1.5100 area so far but if unable to make a new low or test the low—expect a short-squeeze..  
Data due Wednesday: All times EASTERN (-5 GMT)
5:30am GBP BRC Shop Price Index y/y

Resistance 3:  1.4080
Resistance 2:  1.4020/30
Resistance 1:  1.3960
Latest New York:  1.3338
Support 1:  1.3300
Support 2:  1.3250/60
Support 3:  1.3200


Rate drops to new lows overnight as cross-liquidation continues. Aggressive liquidation by EURO-Sterling cross spreaders providing the main selling but traders note lots of stops active under the 1.3400 area. 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 have reached technical levels around the 1.3300 area so expect some firmness in this area. 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 Wednesday: All times EASTERN (-5 GMT)
2:00am EUR ECB President Trichet Speaks
3:55am EUR German Unemployment Change
5:00am EUR PPI m/m

Forex Trading Analysis by: – Written by Jason Alan Jankovsky

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