Forexpros.com Daily Analysis - 19/05/08

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Today’s US Dollar Trading

•US data a mixed bag, housing head-fakes everyone
•Stops drive a reversal after early strength
•Majors under support near-term

Overnight Preview

•Look for two-way consolidation on Monday
•More losses for USD coming I think

Looking Ahead to Monday
All times EASTERN (-5 GMT)
•10:00am USD Leading Index m/m
Almost no news for Monday anywhere. Trading should be largely technical

Summary
The USD bulls got their horns sawed off today as better-than-expected Housing data sucked the late long into the top for the week. Across all pairs the USD rallied on the news but was unable to score new weekly highs and within an hour of the news the Greenback was under dire pressure and made lows across the board in heavy volume. Reaching technical support after the London Fix the rest of the day was spent in clean-up as the volumes dropped off and the majors went sideways to consolidate their gains. Cable rallied into stops and blasted through several layers of serious offers to post a high print at 1.9601 making a new high for the week on a Friday suggesting the rate will advance early next week. If holding longs look to add on a pullback for an attempt at the 1.9700 area by mid-week. EURO rallied for a new weekly high as well and flushed stops above the 1.5550 area for a high print at 1.5602 and failed to attract serious sellers. Traders note that aggressive offers by sovereign names as well as private Swiss bank selling failed to absorb bids; most order books were wiped clean of offers and it is likely the rate will advance early next week as well. Some analysts suggest that high Oil prices had an effect of firmer EURO but I think that is an attempt to lay blame for late selling. USD/JPY fell through several layers of support exposing large stops in the process. Stops at 104.40 by late longs were enough to make a low print under the 104.10 area exposing stops at 104.00, 103.80 and 103.60; the latter attracting bids but not before a low print at 103.51 washed out the last late long. The pair briefly rallied to regain the 104.00 handle but some of that may be residual short-covering after the early bloodbath. Swissy and Loonie also saw slippage with all major cross falling back as well. In my view, the USD has set-up for further declines next week. Due to the intraday volatility I would expect a lot of two-way action but today’s one-way slide suggests that the market is unable to attract serious buying the next 72 hours. USD bears need to sell rallies and look for the majors to cover a lot of the same ground twice; day Forex traders will have a lot of money to make next week in my view. Monday is a light day for news and the whole week is likely to be technical trading so if not positioned with a lead be patient. There will be a lot of opportunity in my view.

EUR/USD Daily

Resistance 3: 1.5680
Resistance 2: 1.5630/40
Resistance 1: 1.5600/10
Latest New York: 1.5588
Support 1: 1.5550
Support 2: 1.5500
Support 3: 1.5480


Comments
Rate hammers the shorts; close above the 1.5550 area argues for additional follow-on buying but expect offers on the approach to 1.5630/40 area. Crude prices likely offering a bit of volatility. Traders like the rate to the upside as stops have been cleared underneath for now; longs likely to have rolled up stops under the 1.5520 area so volatility possible; don’t expect one-way action Monday. OK to re-short at 1.5620/30 area but be nimble; the rate is setting up for a potential upside recovery. Rally back from dip under the 1.5400 handle suggests active buying on dips; traders say lots of official and sovereign names seen buying dips. More losses are coming but the jury is out on the length of the bounce in progress.

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

USD/JPY Daily

Resistance 3: 105.00
Resistance 2: 104.80
Resistance 1: 104.50/60
Latest New York: 104.15
Support 1: 103.70/80
Support 2: 103.50
Support 3: 103.00


Comments
Stops drive the rate lower but the recovery off the low prints is a caution to bears. Upside will be labored now in my view but be nimble on shorts; ok to add to the rate on further losses. Bids held the rate up for a test of the 105.00 handle this morning but the weakness is there into the end of New York so look for light volume rallies to sell into. Conviction of the sellers being challenged but I think the weak hands are the longs as the volumes are increasing on the breaks and lighter on the rallies. Look for the rate to fall on the news today but intraday volatility likely. Double-top remains strong sell signal suggests resistance area is getting thicker. Traders note that the market continues to trade technically and expect stops to be run in both directions near-term; close-in stops under the 104.30 area cleared overnight. Day traders continue to get a lot of opportunity as the rate will likely cover a lot of the same ground twice on the hourly time frame. Stops could be in size at the 102.50/80 area also but active selling needed. Resistance at 105.50 area remains significant now and rallies should be sold. Traders looking for a struggle to get over the 105.50 area.

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

7:50pm JPY Tertiary Industry Activity Index m/m 1.7%
Tentative JPY Overnight Call Rate

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Analysis by: Forexpros.com written by Jason Alan Jankovsky

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