Forex Daily Analysis

Overnight Asia/Europe

• USD firmer to mixed
• EURO extends losses
• GBP bounces

Today’s Economic Reports

• UK GDP +2.5 y/y, lowest in 3 years
• 9:00 AM CDT Consumer Sentiment forecast 63.3

Looking Ahead

• Too much to list! Main US releases are GDP and FOMC Wednesday, ISM Thursday and NFP on Friday

Summary
The USD is two-way and mixed to start New York; overnight action was muted ahead of the weekend. In Asia the USD had narrow ranges with the release of higher-than-expected Tokyo CPI data having no effect on the Greenback; higher equities also had little impact. Traders note that the USD/JPY had attracted a lot of large names yesterday and today’s action appears to be consolidative despite the rate posting a new weekly high overnight Europe at 104.83 last night. USD/JPY is trading in lower volume ahead of US data due for release today and most desks suggest the USD may have run its’ course for the week. EURO is again weaker building on heavy losses from yesterday; low prints at 1.5554 found technical support but the rate has broken down through the 1.5600 handle with authority and more losses are expected near term. Ahead of the weekend traders expect a short-covering rally as shorts cover ahead of the weekend but so far no sign of bid interest being there in size. GBP is higher as cross-traders liquidate EURO-Sterling crosses; highs in GBP at 1.9887 were enough to trigger our shorts again. Volumes modest and lower GDP numbers released in the UK did little to dampen the mood of the bulls. Swissy is opening New York higher on follow-on buying; high prints in USD/CHF at 1.0433 driven by stops and technical factors. The rate is above previous trend line resistance and stops said to be cleared in size leaving the rate vulnerable to a pullback. In my view, the USD has had an important technical week. With the FOMC meeting next week the market seems to be signaling that the Fed is done with the rate cut cycle. I think it is still premature for the USD to make a sustained turnaround and I think this rally needs to be seen in context of things are not improving yet. Look for the USD to pullback from these gains next week; I think we are still a ways away from a firm USD recovery. Additionally, other major central banks are still holding rates firmer than the US which I think has a longer-time frame impact and will continue to pressure USD near-term. Changing the bearish sentiment will take more than a three-week rally in my view.


GBP/USD Daily

Resistance 3: 1.99950
Resistance 2: 1.99920
Resistance 1: 1.9880
Latest New York: 1.9832
Support 1: 1.9800
Support 2: 1.9750
Support 3: 1.9700

Comments

Rate bounces nicely on lighter volume, should be a “dead cat bounce” Closing under the 1.9800 handle yesterday likely set the stage for a return to lower prices early next week.

Upside is limited in my view but ranges can be wide as evidenced by the past 72 hours of trade. Sell rallies if not short; buying dips dangerous in my view.

Look for the London fix to see long-liquidation as the pair continues to flirt with the long-term MA’s which are still bearish in my view; looking for a close under the 100 bar MA today which would be roughly the 1.9820 area.


EURO/USD Daily

Resistance 3: 1.5720/30
Resistance 2: 1.5690/1.5700
Resistance 1: 1.5640/50
Latest New York: 1.5593
Support 1: 1.5550
Support 2: 1.5520
Support 3: 1.5500

Comments

Market has failed at 1.6000 area resistance with confidence now, be patient on the potential break.

Overhead resistance is heavy above the 1.5750 area; traders say offers extend into the 1.5800/30 area with stops above.

Strong long-liquidation break is still coming; look for a test of the lows again within 24 hours. Watch for two-way volatility. Be ready to add quickly if a rally happens; likely to fail quickly.

Keep working the add order on a reasonable bounce.

Analysis by: Forexpros.com written by Jason Alan Jankovsky

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