Forexpros.com Daily Analysis - 08/10/2008

Daily Forex Analysis

Today’s US Dollar Trading

• USD remains range-bound
• Traders see two-way action and stops as the main event today
• Fundamentals being ignored in favor of rhetoric

Overnight Preview

• Look for the USD to back and fill ahead of US news tomorrow
• Expect current ranges to hold

Looking Ahead to Wednesday
All times EASTERN (-4 GMT)
• 7:45am USD FOMC Member Plosser Speaks
• 10:00am USD Pending Home Sales m/m
• 10:35am USD Crude Oil Inventories

Summary
The USD is mixed to end New York after a solid two-way session driven mostly by active buying and selling. Although stops were triggered for part of today’s volatility in most pairs, the majors remained inside established ranges for most of the day. Today’s fundamental news was benign and not market-moving; traders remained focused on how global leaders will attempt to restore confidence to the financial system. Finance leaders today meeting in Luxemburg made a token gesture to guarantee bank deposits up to 50K EURO in the Eurozone but most traders saw that as only a minor step. Most are looking toward a US Fed rate cut sooner rather than later with some calling for a rate cut this week. The Fed increased the lending window using the TAF program to include more potential securities or collateral but the markets appear heavily focused on a rate cut by the Fed as well as other Central Banks. While waiting for that to happen the major pairs remained whippy inside established ranges and remained two-way all day. GBP rose to a high print at 1.7660 in early trade before backing off to the 1.7500 area and slightly below; traders note stops both ways during the day. EURO rallied in sympathy with Cable for a high print at 1.3744 before falling back as well; traders note that the lows of 1.3479 are a technical low suggesting that the larger range today off the lows may be a near-term bottom. In my view, the USD is severely over-bought near-term and a long-liquidation break is likely soon. I like buying the EURO and the GBP on dips and the markets should give us at least one try this week. USD/JPY whipsawed all day first making highs overnight at 103.30 before dropping back to trade under the 101.70 area; the rate rallied hard on news that the RBA had cut rates but sellers were active at the highs. In the USD/JPY the threat of a coordinated rate cut scenario by the three largest CB’s is keeping the Yen well-bid; traders expect more losses by the USD/JPY near-term. In my view, the USD is setting up for a break lower—keep vigilant and be ready to move on further USD strength.


GBP/USD Daily

Resistance 3: 1.8180
Resistance 2: 1.8050
Resistance 1: 1.7880
Latest New York: 1.7493
Support 1: 1.7310/20
Support 2: 1.7280
Support 3: 1.7200


Comments
Rate is two-way on the way down to trade under support around the 1.7300 area; volumes better and traders note large names on the bid possibly covering shorts. Rate is likely heavily over-sold. Follow-on selling likely to attract short-covering on further weakness. Follow-on selling likely from technical’s and spillover from EURO. Aggressive traders can buy this dip around the 1.7380 area; look for a recovery back to the 1.8000 handle near term. Two-way action likely near-term; heavy focus on bailout plan. Possible sovereign interest on the dip as semi-officials seen on dips in both EURO and GBP recently. Some stops triggered along with active selling; traders note profit-taking bids. Major support has held for two weeks now, any weakness likely to be bought hard. OK to buy any time in my view. Let price orders work near-term.

Data due Wednesday: All times EASTERN (-4 GMT)
Tentative GBP Halifax HPI m/m
5:30am GBP BRC Shop Price Index y/y
10:30am GBP CB Leading Index m/m


EURO/USD Daily

Resistance 3: 1.3900/10
Resistance 2: 1.3880
Resistance 1: 1.3800/10
Latest New York: 1.3623
Support 1: 1.3480
Support 2: 1.3440
Support 3: 1.3400

Comments
Rate has inside range day but rallies on news of potential rate cut; OK to look at the buy side on weakness to the bottom of the range. Pullback to the 1.3400 handle on lighter volume. Rate is an absolute screaming buy in my view. Aggressive traders can buy anytime under the 1.3900 handle in my view. Traders note stops triggered on the way down along with technical selling. Oil weaker helps pressure also. Traders note stops building above the market but those likely remain out of range today. Expect more two-way action with upside bias; traders note the rate is finding profit-taking bids on dips so far despite the uncertainty in the market. Traders suggesting that the rate is continuing to trade technically. A bottom is due soon but the question is where.
Data due Wednesday: All times EASTERN (-4 GMT)

2:45am EUR French Government Budget Balance
2:45am EUR French Trade Balance
6:00am EUR German Industrial Production m/m

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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