Forexpros.com Daily Analysis - 25/09/2008

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Today’s US Dollar Trading

• USD covers the same ground twice in two-way action
• Volumes modest
• Traders remain focused on bailout options

Overnight Preview

• Look for the USD to remain two-sided
• Potential to rally increasing

Looking Ahead to Thursday
All times EASTERN (-4 GMT)
• 8:30am USD Core Durable Goods Orders m/m
• 8:30am USD Unemployment Claims
• 8:30am USD Durable Goods Orders m/m
• 10:00am USD New Home Sales
• 10:35am USD Natural Gas Storage
• 1:00pm USD FOMC Member Warsh Speaks
• 7:30pm USD FOMC Member Fisher Speaks
• 7:45pm USD FOMC Member Plosser Speaks

Summary
The USD is on the offensive this afternoon although volumes are light and trade seems driven by rhetoric and technical factors. Forex Traders remain nervous over the delay in passing the bailout bill and adding insult to injury today’s testimony by Paulson and Bernanke on Capitol Hill has been largely a repeat of yesterday’s discussion suggesting that legislator’s are dragging their feet or just plain need to have something told to them twice. Equities have been two-sided as have been traditional hedges such as gold and bonds. Traders note that if much more “talking” instead of “acting” were to continue then investor confidence may begin to turn south. GBP continued to trade within existing ranges but had a sharp break lower mid-day as the USD had a rally late; low prints at 1.8474 are still a healthy 10 handles off the lows but the charts are looking a bit bearish this afternoon. EURO suffered the same breaking back to new lows in New York trade for a low print at 1.4628; traders note that stops were triggered on new lows in both pairs suggesting that late longs were buying dips. USD/JPY tried for a new high but has encountered strong resistance at the 106.20/30 area as the pair rallied back from low prints in New York at 105.34 to trade 106.10 late in the day. This kind of whipsaw is to be expected but the key thing is for the rate to hold under the 106.30 area in my view. Swissy rallied as well making new lows this morning then bouncing to new highs this afternoon; high prints at 1.0915 were offered by technical traders but more whipsaw is expected. Across the board the Greenback is under duress as technical factors favor two-way trade but fundamentals favor lower prices; today’s existing home sales again showed a decline but as expected traders are remaining focused on the bailout plan. Should congress fail to reach at least a reasonable agreement the next 24 hours I think the markets will vote “no confidence” in any plan by early next week. Despite the recent rally in the majors a pullback is to be expected and with the uncertainty it would be reasonable to expect large volatility near-term. If holding USD shorts it is wise to either lighten up or go flat completely. Look to exploit a USD rally by selling into the move should the USD have a retracement.


GBP/USD Daily

Resistance 3: 1.8700
Resistance 2: 1.8680
Resistance 1: 1.8620/30
Latest New York: 1.8512
Support 1: 1.8480
Support 2: 1.8420/30
Support 3: 1.8380


Comments
Rate two-way overnight, remains near unchanged to open New York; two-way action continues. Some selling pressure seen but rate is likely to press for highs on more bad news. Resistance is cleared the other side of the 1.8500 handle so expect a pullback to be bought hard. Aggressive traders can buy the next dip but also look to lighten longs into the 1.8700 area if it comes. Equities pullback vote of “no confidence” so far on the bailout. Possible sovereign interest on the rally as semi-officials seen on dips in both EURO and GBP recently. Some stops triggered along with active buying. In my view, the GBP has weathered the storm fairly well and it suggests no serious down move near-term. Traders note stops mixed with offers above the market also. Major support has held for two weeks now, any weakness likely to be bought hard. Profit-taking bids continue as well. Close above the 1.8500 area for the week likely argues for another leg higher to end the month.


Data due Thursday: All times EASTERN (-4 GMT)
8:40am GBP MPC Member Barker Speaks


EURO/USD Daily

Resistance 3: 1.4800/10
Resistance 2: 1.4780
Resistance 1: 1.4710/20
Latest New York: 1.4627
Support 1: 1.4620/30
Support 2: 1.4580
Support 3: 1.4550


Comments
Late pullback on technical factors; some spillover from GBP. Rate two-way and dips are being bought, follows GBP higher but lots of stops and active buying seen. Light pressure intraday easily absorbed despite fear of pullback. Weekly high below major resistance and rate is inside range so far today suggests a point of indecision. Likely support will hold at the 1.4330 area. Some upside drawn from Cable no doubt. Expect more two-way action with upside bias; traders note the rate is firm on dips so far despite the uncertainty in the market. Volumes better during European trade than in Asia overnight. Traders report offers in size being absorbed. Traders suggesting that the rate is trading technically but likely this rally forced techies to the sidelines. Close over the 1.4700 area to end this week will make a lot of shorts nervous next week possibly extending a short-covering rally. Expect a solid higher close for the week. If long, look to add to positions on any weakness. Likely a dip back to the 1.4300 handle will offer a solid buy opportunity.

Data due Thursday: All times EASTERN (-4 GMT)
2:00am EUR GfK German Consumer Climate
4:00am EUR Italian Trade Balance
4:00am EUR M3 Money Supply y/y
4:00am EUR Private Loans y/y

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 Van Jankovsky

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