Forexpros.com Daily Analysis - 20/05/08

Daily Forex Analysis

Today’s US Dollar Trading

•USD rallies in light volume
•Traders say today was a “stop hunt”
•Short-term traders active


Overnight Preview

•USD likely to fall back, European data may lift EURO


Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
•8:30am USD PPI m/m 0.4%
•8:30am USD Core PPI m/m 0.2%
•9:00am USD Fed Vice Chairman Kohn Speaks
•9:00am USD IBD/TIPP Economic Optimism 38.0
•10:00am USD Fed Publishes TAF Summary


Summary
The hardly-watched LEI data today came out better-than-expected this morning and the USD saw a stop-driven rally ensue until after the London fix when the Greenback came under renewed pressure. Forex Traders note that volumes were not high and that it was clear that the majors had a short-lived stop-driven break; S/R held as expected and aside from a few wrong-footed panicked accounts the day was really a typical no-news day. I think the rally in the USD was seen as a bit too much for current conditions and waiting for both US and European news due out the next 24 hours. Overnight in Europe is German IFO and ZEW data likely to help the EURO build on a recovery off today’s 1.5484 low prints; highs in Europe this morning at 1.5634 went unchallenged in NY trade today. Absent were official names seen on the bid the past few sessions with most of their activity well below today’s lows suggesting that major names are unconcerned with today’s volatility. GBP fell back on stops as well tracking EURO lower until the low prints at 1.9452 where bids finally took a stand. Trading to within a few pips of the 1.9500 handle after the break the GBP remained under the 1.9500 handle through the close. Should EURO rally on positive economic news the GBP might go with it as there is nothing of note on the books for the UK overnight. USD/JPY and USD/CHF both had a strong stop-driven rally but both pairs finished well off their highs on the day and generated strong sell signals. USD/JPY had a high print at 104.71 before reversing to finish under the 104.30 area. USD/CHF had a high at 1.0575 and also finished under the 1.0530 area; both rates were rallying largely on light volumes and the moves were mostly exaggerated I think. I would look for both rates to fall back overnight and continue to attract selling on rallies. Ahead of US data in the morning I would look for some book-squaring; German data will likely cause a little volatility so leave stops where they are if holding positions. We were stopped out of short USD/CHF today but added to short USD/JPY; tomorrow should be an interesting day and I expect USD downside to follow-through as today’s trade was a “head-fake” I believe.


USD/JPY Daily

Resistance 3: 105.00
Resistance 2: 104.80
Resistance 1: 104.50/60
Latest New York: 104.33
Support 1: 103.60
Support 2: 103.20/30
Support 3: 103.00


Comments
Stops drive the rate higher and after Friday’s stop-driven break the order boards are likely wiped clean. Failure to score the 105.00 handle very significant in my view. Strong sell signal from the toolbox today so OK to add to the open shorts. Upside will be labored now in my view but be nimble on shorts; we need a solid close under the 103.80 area next. 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 continue sideways overnight as today’s stop-frenzy was unexpected. 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 103.50 area likely in size today. 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 104.80 area remains significant now and rallies should be sold.

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

7:50pm JPY Tertiary Industry Activity Index m/m 0.5%
Tentative JPY Overnight Call Rate 0.50%
2:00am JPY BOJ Monthly Report
Tentative JPY BOJ Press Conference

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Analysis by: Forexpros.com written by Jason Alan Jankovsky

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