Daily Forex Analysis

Today’s US Dollar Trading

• USD rallies after Government bails out housing
• USD cuts gains by end of day
• Possible head-fake brewing

Overnight Preview

• Look for the USD to weaken overnight
• Should get quiet ahead of US data

Looking Ahead to Tuesday
All times EASTERN (-4 GMT)
• 9:00am USD Fed Chairman Bernanke Speaks
• 10:00am USD Pending Home Sales m/m
• 10:00am USD IBD/TIPP Economic Optimism
• 10:00am USD Wholesale Inventories m/m

Summary
The USD continued its overnight advance today making fresh highs in most pairs during US trade with the exception of the Yen. Forex traders note that volumes into the highs were light and order flow was patchy suggesting that the USD may be again reaching for an extreme price level before a much-needed corrective break. Stops were the main driver in most pairs as early longs in the majors were taken out; with most pairs rallying back slightly into the close. GBP fell to a new multi-year low at 1.7468 just tagging our stops from longs set this morning; the rate rallied back a full handle from the lows leaving a buying wick suggesting the rate may have finally made an exhaustion low. Traders note that the initial rally to the 1.7977 high was on better volumes suggesting that the rate will remain two-way the next few days as traders attempt to re-set longs and shorts attempt to press their advantage but order boards have been wiped clean after the very large 500 point range today. EURO tracked GBP lower as well eventually breaking under the 1.4100 handle again taking out our longs set this morning; low prints at 1.4053 were on low volume and stop driven. Traders note that speculation is high that the EURO could test below the 1.4000 handle soon but the recent hard fall and lack of relief rally suggest that at the very least shorts will cover on such a move leaving the rate vulnerable to a sharp rally. USD/JPY was unable to rally and ended the day well off the highs and below the 50 bar daily MA. Traders note that the Yen is benefiting from cross-liquidation making the USD/JPY vulnerable to further losses this week. Swissy rallied to clear stops for a high print at 1.1375 on stops but offers were able to cap the move significantly and the rate fell back to the 1.1320 area as enthusiasm for further gains evaporated. In my view, the USD’s response to today’s government-sponsored bailout of the housing market has effectively drawn in more USD buyers but with both price and sentiment reaching the extreme end of the range it seems that today may have put the highs in for the week. Failure to follow-through will no doubt cause many to stand aside that normally would be buyers; look for the USD to soften overnight tonight. Tomorrow’s US data is not expected to be friendly and with the equities market unable to hold gains as well it looks like a massive head-fake for USD strength in my view.

GBP/USD Daily

Resistance 3: 1.7970/80
Resistance 2: 1.7900
Resistance 1: 1.7850
Latest New York: 1.7567
Support 1: 1.7450/60
Support 2: 1.7410/20
Support 3: 1.7380


Comments
Rate firms into the close but still way off the highs; further losses expected but volumes were light on the drop and the move was stop-driven. Major support numbers still are coming into view. Stops noted both ways overnight. Profit-taking bids continue as well. Hook reversal from the toolbox still valid. Price drop likely over-extended on sympathy selling from EURO. Oil no doubt helping to drive trade but rate is becoming severely oversold. Drop is drawing profit-taking bids suggesting the bottom is finally trying to form near-term. Overdue for a short-covering rally. Likely an exhaustion drop. Close back above the 1.7780 area needed to take some of the pressure off. This stop-driven break is likely a head fake in my view. Traders expect GBP to track EURO through this week. Continue to expect a lot of cross-trading.
Data due Tuesday: All times EASTERN (-4 GMT)
4:30am GBP Manufacturing Production m/m
4:30am GBP Industrial Production m/m


EURO/USD Daily

Resistance 3: 1.4420
Resistance 2: 1.4380
Resistance 1: 1.4330
Latest New York: 1.4129
Support 1: 1.4050/60
Support 2: 1.4000/10
Support 3: 1.3960


Comments
Although we were stopped out the rate is very close to a bottom as suggested by the almost one-full handle rally off the low and no re-test of the traded low. Stops suggesting bottom-picking is still being tried by early longs. Traders report offers in size being absorbed but whipsaw likely scared out both sides overnight. Rally to high print on good volume but bottom still not secure. Likely stops rolled down to around the 1.4400 area have been cleared leaving the rate vulnerable to retracement. Likely an exhaustion drop as the rate is attracting professional buying. Rate is overdue for a short-squeeze. Traders suggesting that the rate is trading technically. Market is heavily short now so expect a rally. Rate continues to track Cable and vice-versa. Now that more stops are cleared a rotation higher is even more likely. US data this week likely to be unfriendly so be ready for more whipsaw.

Data due Tuesday: All times EASTERN (-4 GMT)
2:00am EUR German Trade Balance

Join us for the Afternoon US Dollar Wrap-Up daily at 3:15 pm Central/Chicago time (GMT -6)

Analysis Provided by: Forexpros.com - Written by Jason Van Jankovsky

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