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Today’s US Dollar Trading

• USD weakens in early New York, rallies to end the day
• Traders note unexpected action and stops driving trade
• Volumes lighter on the rally, volatility likely scares off some traders


Overnight Preview

• Look for the USD to remain two-way
• Technical action likely as well


Looking Ahead to Wednesday
All times Eastern (-4 GMT)
• 10:30am USD Crude Oil Inventories
• 2:00pm USD Federal Budget Balance


Summary
It was a wild ride in the major pairs today as the USD fell sharply ahead of the New York open only to reverse hard and make highs in some pairs ahead of the close; traders note that participants were caught “wrong footed” after the New York open and stops from late longs in some pairs liquidated trades done expecting a higher close in the majors. Despite a 300 point rally by the DJIA today the USD continued to attract buyers after the London fix but traders note that the rally in at least two pairs was on thinner volume possibly exaggerating the moves. USD JPY rallied back to the break-down point of 98.80 area after posting lows at 97.89 in early trade narrowly missing large stops said to be resting under the 97.80 area; no doubt today’s recovery will encourage some follow-on buying overnight by technical traders but offers are said to be heavy on the approach to the previous week’s highs near the 99.60 area with more said to be ready ahead of 100.00 area of the 100 day MA. USD/CHF was the big mover on the day making monthly lows at 1.1432 before rallying to make new highs on the day at 1.1647 and holding the 1.1600 handle into the close; Forex traders note large stops in-range driving the pair to highs and note that CTA-type accounts active on the buy side of USD. USD/CAD ended lower on the day but not before bouncing off 1.2724 to recover back to the 1.2880 area of former stops. Offers are still expected on any further strength to the 1.2920/50 area. GBP fell through in-range stops cleared overnight to the upside that were set during the day making a mess of balance sheets both ways; traders note that forex signals low prints at 1.3688 were completely unexpected by most desks and attracted possible sovereign interest after the London fix. The rate recovered back to unchanged after highs in early New York at 1.3907 resulted in profit-taking but no one expected a complete reversal traders say. EURO held the bar for the majors remaining on the plus side all day despite a stop-driven move to the downside from high prints at 1.2823; overnight lows at 1.2578 remained untouched but the rate did drop to technical support at the 1.2620 area before recovering modestly back to the 1.2650 area. Across the board the volatility was huge and traders are still scratching their heads over the retreat seen during the day. Analysts will need to reevaluate potential in both directions because both highs and lows were significant from both the bulls and bears perspective. In any case, the volatility is increasing which will likely put many players on the sidelines for a short-time until things become more clear as to near-term price action. In my view, more USD whipsaw is to be expected ahead of another light economic calendar tonight and into tomorrow. Look for the recent action to drop off noticeably overnight and a rise in equities likely will keep the USD two-way into tomorrow’s trade.


GBP USD Daily

Resistance 3: 1.4250
Resistance 2: 1.4220
Resistance 1: 1.4150
Latest New York: 1.3740
Support 1: 1.3650/60
Support 2: 1.3600/10
Support 3: 1.3500/10


Comments
Rate whipsaws hard, both sides get hurt as stops cleared first to the upside and then to the downside putting the 23 year lows in sight. Reversal off weekly highs a negative technical; Likely an upside rally is still in the works but the rate needs to rebound hard to wash-out the shorts again. After today’s action I think both sides will take a break. 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 long-term support at 1.3500 area now in play. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom. Short squeeze may be on hold.
Data due Wednesday: All times EASTERN (-4 GMT)
5:30am GBP Trade Balance


EUR USD Daily

Resistance 3: 1.2780
Resistance 2: 1.2750
Resistance 1: 1.2720
Latest New York: 1.2652
Support 1: 1.2550/60
Support 2: 1.2480
Support 3: 1.2450


Comments
Rate follows GBP in two-way action, holding support now above the 1.2600 area once again. Aggressive traders can add to open longs on this dip but BE CAREFUL as volatility is just huge. Test of today’s lows likely at this point but traders note big names on the buy side on dips under the 1.2600 and 1.2620 area. Cross-spreaders supporting rate as GBP drops. Upside stops likely building in the overhead resistance at 1.2720/30 area now with stops likely the other side. 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. Forex 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 (-4 GMT)
3:00am EUR German PPI m/m
7:00am EUR German Factory Orders m/m

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 Alan Jankovsky

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