Daily Analysis

Today’s US Dollar Trading
•    USD whipsaws in two-way action, ends flat
•    Yen above the 98.00 handle in light trade
•    Stops in range drive action both ways

Overnight Preview

•    Look for the USD to continue consolidating
•    Majors setting up for a rally in my view

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
•    10:00am USD ISM Non-Manufacturing PMI
•    10:00am USD Treasury Sec Geithner Speaks
•    10:30am USD Crude Oil Inventories
•    12:00pm USD FOMC Member Lockhart Speaks
•    2:00pm USD Beige Book

The USD is ending today flat to weaker after whipsawing traders all day in both directions; speculation regarding US stimulus actions and upcoming fundamentals is providing both sides with fuel for their argument. After starting weaker in Asia the USD rallied into New York action today extending highs against most pairs by the London fix. Into the afternoon as equities also went two-way the Greenback retreated from highs in most pairs giving bulls a reason to lighten up. GBP low prints in New York were 1.3982 before rallying a full handle higher to end the day back in the 1.4080 area after reaching the 1.4100 handle briefly in the morning. Traders note that sovereign bids were seen near the lows in both GBP and EURO suggesting that dips are attracting large names as support holds. EURO suffered a similar fate and tracked the GBP lower to extend losses into a 1.2520 low print before rallying back to the 1.2600 handle briefly before settling back to the 1.2580 area; traders note that stops in-range helped to push the rate into lows but dips were bought as shorts covered and possibly new longs entered. USD/JPY extended gains to the 98.00 handle but encountered strong headwinds at the 98.50 area only able to lift to a high print at 98.61 before dropping back. Traders note model accounts active above the 98.00 handle again as they were last week suggesting late buying. The rate closes New York above the 98.00 handle will likely encourage additional buying but sellers are willing into the highs. USD/CHF rallied as well but failed to extend into the 1.1800 handle topping out at 1.1791 before dropping back to the 1.1750 area making the second close above the 1.1700 handle in the past three days suggesting bids are willing on dips but traders note volumes were again on the low side. USD/CAD rallied to a 1.2977 high print in post-London fix action but was unable to hold the 1.2900 handle in late New York dropping to the 1.2880 area in thin conditions. Across the board volatility remained high and the majors covered a lot of the same ground twice; traders remind that there are several market-moving fundamentals due up the next few days and more two-way action is likely. In my view, the budget hearing and testimony from the children currently babysitting the US economy only serve to confuse the fortunes of the USD. Today’s focus on what the Treasury Secretary had to say only serves to increase the reluctance of the average investor to make a move. Until that changes the underlying fundamentals for the USD will continue to weaken. At some point the dam will burst as holders of USD for reasons that have nothing to do with investment are forced to liquidate. I think the USD is setting up for a massive reversal; get ready for a major shift in sentiment.

GBP/USD Daily  

Resistance 3:  1.4380
Resistance 2:  1.4300/10
Resistance 1:  1.4250
Latest New York: 1.4069
Support 1:  1.4020/30
Support 2:  1.3950
Support 3:  1.3900


Rate rallies overnight then falls back to test support in NY again, low prints at 1.3982 above major bids said to be around 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; bounce off the lows back to 1.4080/90 area suggests bids are increasing. 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 Wednesday: All times EASTERN (-5 GMT)
4th-6th GBP Halifax HPI m/m
4:30am GBP Services PMI
5:30am GBP BRC Shop Price Index y/y


Resistance 3:  1.2780
Resistance 2:  1.2720
Resistance 1:  1.2680
Latest New York:  1.2584
Support 1:  1.2520
Support 2:  1.2500
Support 3:  1.2480


Rate follows GBP lower and cross-spreading likely adding pressure; rate holds a test of 1.2520 area again 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 cleared at 1.2630/50 area for now; likely layered above 1.2680 through 1.2750 area now. 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 Wednesday: All times EASTERN (-5 GMT)
4:00am EUR Final Services PMI

Forex Analysis by – Written by Jason Alan Jankovsky

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