Daily Analysis

Today’s US Dollar Trading
•    TICS shows coverage, weak Empire fails to discourage USD bulls
•    USD holds gains but volumes are lower
•    Majors hold key support initially

Overnight Preview

•    Look for more two-way action
•    Volumes likely to be light ahead of US data tomorrow

Looking Ahead to Wednesday

All times Eastern (-5 GMT)
•    8:30am USD Building Permits
•    8:30am USD Housing Starts
•    8:30am USD Import Prices m/m
•    9:15am USD Capacity Utilization Rate
•    9:15am USD Industrial Production m/m
•    2:00pm USD FOMC Meeting Minutes

The USD continued to climb overnight but stalled off the highs in New York showing some signs of topping again as the long-awaited government “stimulus” bill failed to encourage investors today. At this writing President Obama is signing into law a record spending bill that has serious flaws and serious short-sighted programs in my view which will lead to a breakdown in economic recovery and a protracted recession/depression. Proponents of the bill suggest that spending will help the economy recover faster but many analysts and traders doubt that the method of investment will have little lasting effect. Only history will tell if today was the beginning of a faster economic recovery for the US. Despite weaker equities and better-than-expected overseas data the majors retreated to their worst levels of the day in early New York trade before cutting losses to finish above what many consider to be key support. Cable fell to a low print at 1.4122 overnight and those lows went unchallenged in New York despite a brief show under the 1.4200 handle; the rate began a steady recovery to hold back above the previous 1.4250 support level and is in the top 50% of the day’s range. EURO dropped into stops said to be resting at the 1.2650 area and below for a low print at 1.2561 in thin conditions; traders note that during the break semi-official and some possible sovereign bids were seen into the 1.2590 area absorbing offers to close back above the 1.2600 handle. USD/JPY held gains above the 92.00 handle after overnight highs at 92.77 went unchallenged in New York ending around the 92.40 area; traders note that political influence from Secretary of State Clinton’s visit to Asia may help lift the USD a bit but expect heavy sell interest ahead of 93.00 area suggesting the rate may have a hard time joining the lift seen elsewhere. USD/CHF stalled at the monthly double-top at the 1.1780 area for a high print at 1.1781 before retreating a full handle back to the 1.1680 area late in the day; traders note that higher gold prices may be underpinning CHF putting the USD on the defense into the end of the week. Analysts note that today’s close is below yesterday’s highs suggesting that the USD may have put in highs for the week despite the strong showing early. USD/CAD held above the 1.2600 handle after a high print at 1.2676 and looks set to challenge the 1.2700 handle overnight but if the Greenback fails to rally overnight traders expect heavy stops in the 1.2580 area from longs set this week. In my view, the USD is stalling again at resistance and without better news from the US this week it is likely the majors will recover into New York tomorrow. Look for more two-way action overnight ahead of US housing data tomorrow.    


Resistance 3:  1.4700/10
Resistance 2:  1.4650
Resistance 1:  1.4600/10
Latest New York: 1.4259
Support 1:  1.4250/60
Support 2:  1.412030
Support 3:  1.4000

Rate falls back to next support level at 1.4130 area but bounces on large names on the bid. Traders note technical action continues. Rate needs to return to the 1.4500 area fairly fast and a close above 1.4700 area to keep bulls happy near term. Traders note stops and active selling as the rate drops back under 1.4320 area Monday again; tech resistance now at 1.5000 area likely to cap near term but stops are building above and the 1.5000 handle is a big psychological number. 23 year lows are very likely to hold on any break. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom. Rate trading on technical’s now. Spillover from EURO likely but modest.   
Data due Wednesday: All times EASTERN (-5 GMT)
4:30am GBP MPC Meeting Minutes
6:00am GBP CBI Industrial Order Expectations


Resistance 3:  1.3080
Resistance 2:  1.3020/30
Resistance 1:  1.2990/1.3000
Latest New York:  1.2604
Support 1:  1.2790/1.2600
Support 2:  1.2550/60
Support 3:  1.2500


Rate drops through support Monday and Tuesday to a multi-week low; traders report large names absorbing offers ahead of 1.2600 and slightly below suggesting a potential buy point. Rate fails to hold firm on the 1.2900 handle but dips appear to be a test of support rather than a move lower so far. Aggressive sellers likely to try and cap above key 1.3030 area; failure to hold 1.2900 likely to signal a further test of the lows but be patient. The dip is a buy opp but be nimble. Cross-spreaders likely pressure as crosses are unwound. Close above 1.3030 needed for further upside until then rallies likely to be sold into support around 1.2620/30 (?).Bulls are still attempting to find a bottom. 50 bar MA failed now likely to offer resistance and a close above suggests the bottom will be in. Technical levels around the 1.2920/50 area now likely to offer resistance so expect two-way action and consolidation underneath.  
Data due Wednesday: All times EASTERN (-5 GMT)
Analysis by: – Written by Jason Alan Jankovsky

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