Forexpros Daily Analysis 02/05/08

Daily Forex Analysis

Today’s USD Trading

• USD weakens in Asia, goes two-way in Europe
• Asia and Europe minor holidays, volumes light
• USD rallies hard in NY trade, US data neutral

Overnight Preview

• Expect a book-squaring session
• Not a lot left to drive the greenback

Looking Ahead
All times EASTERN (-5 GMT)
• 8:30am Nonfarm Employment forecast -80K
• 8:30am Unemployment Rate forecast 5.2%
• 8:30am Average Hourly Earnings m/m forecast 0.3%
• 10:00am Factory Orders m/m forecast 0.2%

Summary
The USD roared back today from a disappointing set of data this morning and recovered a lot of lost ground against most of the pairs. USD/CHF rallied the most hitting stops said to be resting above the 104.50/60 area for a high print at 1.0511 before falling back a bit. Traders note that today’s slew of minor US data had no real market moving information to it but a general tone of USD recovery helped underpin the Greenback for most of the day; higher equities also underpinned along with cheaper oil. GBP fell back from a European high print at 1.9912 to find the usual volatility seen of late; lows after the London fix at 1.9710 again making for huge whipsaw. Traders who are holding GBP shorts can rest easy overnight as the rate is trading under the 100 bar MA today and as long as it remains under the “sell zone” at 1.9750 area a test of the 1.9600 handle is likely. EURO also had a down day falling through several layers of stops; traders note that the big stops rumored to be at 1.5520 area actually were a bit lower at 1.5480/90 area and the rate accelerated for a low print in NY at 1.5429. Traders now believe the EURO is headed under the 1.5400 handle for a test of the first fib defense around the 1.5350 area; in my view the next rally needs to be sold aggressively as the lead we have on the trade is getting quite large. Aggressive traders can roll stops down to the 1.5650 area also. USD/JPY was trading under the 104.20 area most of the day until equities rallied above gains of 125 points and then broke out for a try at heavy offers at 104.80 area; high prints shy of there at 104.60 and the offers were thick traders say. Aggressive traders holding shorts can look to add on a close under the lows today at 103.53. USD/CAD rallied along with Swissy and scored the 1.0200 handle for a high print at 1.0240 before dropping back to close under the 1.0180 area. I hate getting stopped out but the numbers are still valid for holding shorts in my view; we will look for that tomorrow. All in all today’s as-expected ISM fell to the back seat as USD one-way volatility took everyone by surprise; look for a bout of book-squaring overnight and a lower end to the week after NFP tomorrow; NFP likely to come in on the low side so expect whipsaw in the AM.

GBP/USD

Resistance 3: 1.9850/60
Resistance 2: 1.9820/30
Resistance 1: 1.9780
Latest New York: 1.9740
Support 1: 1.9700/10
Support 2: 1.9650
Support 3: 1.9600/10

Comments
Rally back from “sell zone 1.9730/50 area” clears weak shorts. major stops likely under the 1.9600 handle; above 1.9900 rejected soundly; fall back to the “sell zone” at 1.9720/50 significant. Close under the 1.9700 handle again needed to wash out the longs. Upside remains limited in my view but ranges can be wide as evidenced by the past few days of trade. Sell rallies if not short; buying dips dangerous. Drop to under the MA’s very important, long selling wick makes sell side attractive for further losses. Need down bars with higher volume to confirm. Overnight data unfriendly with more to come, Some pressure from EURO also. Cross-spreading for Yen, Swissy and EURO evident; look for additional sell-off to end the week.

Data due Friday: All times EASTERN (-5 GMT)

4:30am Construction PMI forecast 47.0

EUR/USD

Resistance 3: 1.5700/10
Resistance 2: 1.5680
Resistance 1: 1.5650
Latest New York: 1.5615
Support 1: 1.5590/1.5600
Support 2: 1.5540/50
Support 3: 1.5520

Comments
Rate clears stops and attracts aggressive selling after 1.5490 area falls; drop to 1.5420 area likely to draw a bounce but upside likely limited to 1.5520/30 area. Look to sell a bounce. Two-way trade at resistance Thursday in Europe (1.5650 area) suggests rate has limited upside. Deeper pullback still in the works. Strong long-liquidation break is still coming; test of the lows as expected by end of the week. Watch for two-way volatility. Be ready to add quickly if a rally happens; close under the 50 bar MA could attract active selling.

Data due Friday: All times EASTERN (-5 GMT)

4:00am Manufacturing PMI (r) forecast 50.8

In association with Forex Trading Edge

Analysis by: Forexpros.com written by Jason Alan Jankovsky

DISCLAIMER:
Trading Futures and Options on Futures and Cash Forex transactions involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.