Daily Analysis

Today’s US Dollar Trading

•    USD mixed to start Asia, firms in Europe
•    BOK sells USD to support WON
•    Stops in-range in most pairs, tech trading dominates

Today’s Economic Reports
•    USD holds gains against most pairs, stops and two-way action
•    Equities fail at key support
•    US data weaker again

Overnight Preview

•    Look for continued two-way action
•    USD to weaken into mid-week

Looking Ahead to Tuesday

All times Eastern (-5 GMT)
•    8:00am USD FOMC Member Lockhart Speaks
•    10:00am USD Fed Chairman Bernanke Testifies
•    10:00am USD Pending Home Sales m/m
•    All Day USD Total Vehicle Sales

The USD holds on to gains as lower equities and falling Gold prices pushed investors into flight-to-quality instruments lifting USD to better levels against most major pairs. The one exception is USD/JPY which has failed to extend gains for a second day; high prints overnight at 97.92 went unchallenged in New York as did lows  at 96.90 but the rate spent most of the day under the 97.50 area making today an inside range day with a neutral close. Traders note that dips near the 97.00 handle were met with quality bids but the lack of upside follow-through suggests that the rate is topping and due for a deeper correction. Most analysts point out that the USD DX is at a three year high on lighter volume suggesting also that the USD is near a top near-term. Should the USD/JPY break into stops said to be resting between 96.50 and 96.80 area there could be a sharp break pulling all the USD pairs lower. GBP fell through stops under the 1.4020 area finding a low print at 1.3955 before rallying out of the hole to trade a full handle higher in late New York around the 1.4070 area suggesting that shorts are still likely to get squeezed. Should the rate score overnight gains near the 1.4300 handle there is a good chance that upside stops have been rolled down closer to the market. EURO is holding firm above low prints at 1.2544 just under the 1.2600 handle into the close suggesting that shorts could get squeezed as well; traders note that large bids were seen but liquidity was still thin. Both the ECB and the BOE hold regular meetings this week Thursday on interest rates with most analysts suggesting that a 50 BP rate cut by either back in well-factored into current pricing. Should the EURO and the GBP hold today’s lows by mid-week a “buy the rumor/sell the fact” scenario could develop with both rates adding to the upside to finish the week. US data due this week is heavily focused on NFP data Friday suggesting that poor US news to end the week may discourage the USD bulls after a solid advance to end February. USD/CHF is holding gains in thin volume with high prints at 1.1798 unchallenged in New York but a test of the 1.1701 lows was seen; the rate finishes mid range at the 1.1750 area making today one of the best closes of the year but analysts remind that the best close of the year was followed by a sharp 400 point break only a week or so ago. If the rate is setting up as it did then it would be reasonable to expect lower action by mid-week. USD/CAD continued to advance as weak Canadian GDP data suggested more room to the upside scoring a high print at 1.2911; aggressive traders need to be ready to sell the rate on any advance above the 1.2920 area near-term. In my view, the USD is continuing to set-up a top. US fundamentals continue to worsen and flight-to-quality can’t continue forever. Look for more two-way action and be ready to sell rallies. GBP/USD Daily
Resistance 3:  1.4380
Resistance 2:  1.4300/10
Resistance 1:  1.4250
Latest New York: 1.4052
Support 1:  1.4020/30
Support 2:  1.3950

Rate tests support in NY at 1.3950 area; shorts are gaining confidence for a break under 1.4000.  Rally to clear close in stops above 1.4300 and a close over the handle suggest more upside and a short-squeeze; today’s break to lows likely put’s that scenario on hold. Two-way action between existing S/R the past 72 hours likely to continue. Stops likely building on both sides increasing the chance for whipsaw. Traders report stops in-range adding for two-way action. Long-term 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 with initial support now at 1.3900 in play. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom.    
Data due Tuesday: All times EASTERN (-5 GMT)
4:30am GBP Construction PMI
7:01pm GBP Nationwide Consumer Confidence

Resistance 3:  1.2780
Resistance 2:  1.2720
Resistance 1:  1.2650
Latest New York:  1.2578
Support 1:  1.2550
Support 2:  1.2500
Support 3:  1.2480

Rate follows GBP lower and cross-spreading likely adding pressure; rate holds a test of 1.2550 area but rally is needed to hold support zone otherwise another low is likely. Stops building on both sides as the rate tests for stops on the downside first. Upside stops likely now rolled down to the 1.2630/50 area for now; likely layered through 1.2750 area. Key 1.3030 area likely next; failure to hold 1.2900 likely going to be the test for the bulls this week. Close above key 1.3030 area needed for further upside until then rallies likely to be sold so expect more two-way action. Bulls are still attempting to find a bottom. 100 day MA falling to key resistance area of 1.3030 area by next week likely to add to overhead resistance. Technical levels around the 1.2920/50 area now likely to offer resistance so expect two-way action and consolidation underneath.  
Data due Tuesday: All times EASTERN (-5 GMT)
2:00am EUR German WPI m/m
12:30pm EUR ECB President Trichet Speaks

Analysis by: – Written by Jason Alan Jankovsky


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