Daily Forex Trading Analysis
Overnight Asia/Europe

• Majors rally on G-7 plan
• Governments add liquidity and guarantees
• Technical factors assist the major’s rally


Today’s Economic Reports
All times EASTERN (-4 GMT)
• 10:00am USD IBD/TIPP Economic Optimism
• 12:30pm USD FOMC Member Plosser Speaks
• 2:00pm USD Federal Budget Balance


Looking Ahead to Wednesday
All times EASTERN (-4 GMT)
• 8:30am USD Core Retail Sales m/m
• 8:30am USD PPI m/m
• 8:30am USD Retail Sales m/m
• 8:30am USD Core PPI m/m
• 8:30am USD Empire State Manufacturing Index
• 10:00am USD Business Inventories m/m
• 1:15pm USD Fed Chairman Bernanke Speaks
• 2:00pm USD Beige Book


Summary
Despite a bank holiday in the US yesterday and low volumes the USD is beginning to show signs of topping against the majors. The G-7 meeting over the weekend has inspired confidence in the financial sector due to the response by the affected governments to assist the bailout. Led by Germany and the UK, the US announced additional measures to restore liquidity to the banking sector. Hundreds of billions in cash is being guaranteed by the major central banks including inter-bank lending, deposits, and customer obligations. Although the full impact of the plans will not be known for some time the confidence level of traders around the world is rising and slowly volume and liquidity is returning the FOREX markets. Equities markets around the world are rallying on the news with a record rise in the DJIA yesterday in holiday trade. The USD is weaker against the GBP, EURO, CAD and CHF from Friday’s close and higher against JPY as risk-aversion mitigates across the board. Cable is back trading on the 1.7500 handle to open New York today after a high print at 1.7606 overnight. Traders note that the heavily oversold market is correcting technically against the cross-rates as well and more time is needed to see if there is a firm bottom in the rate near-term. EURO is also higher with a high print at 1.3753 in early New York; traders report good buying by large names previously on the offer the past week suggesting at least some short-covering. Technical analysts suggest that a close this week back above the 1.3880 area signal a near-term bottom but whipsaw in both EURO and GBP is expected as the full impact of the bailout programs need to be better understood before the USD is heavily sold-off. USD/JPY is higher benefiting from unwinds of risk-aversion activity lately; traders note that offers above the markets are mixed with stops making for potential two-way trade as the USD attempts a return to the 103.00 handle; high prints overnight at 103.08. USD/CHF is lower; high prints overnight at 1.1338 but opens New York around 1.1270 area. USD/CAD had a massive rally on Friday that apparently was completely unrealistic as today the rate is a solid 6 big figures off the highs; opening New York at 1.1350 area after a high at 1.2127 Friday; traders note offers are thick on rally’s and the toolbox has signaled a reversal. In my view, the USD has turned the corner on this recent strength. Expect the majors to whipsaw a bit as traders settle back into a “sell USD” mode the next few weeks. Aggressive traders can look to buy dips in the Greenback this week.


GBP/USD Daily

Resistance 3: 1.7720
Resistance 2: 1.7680
Resistance 1: 1.7630/40
Latest New York: 1.7593
Support 1: 1.7440
Support 2: 1.7380
Support 3: 1.7300


Comments
Rate recovers after announcement by G-7 and central banks, likely to pullback to support around the 1.7380 area for a buy point. Cross-spreading liquidation likely supporting the rate. New Lows around the 1.6800 area likely to draw additional bids, traders note quality bids on the dip suggesting a bottom is in here somewhere. A solid close over the 1.7300 handle will likely help the longs. Aggressive traders can look to the buy side again on any dip the next day or so. Volumes lighter after the open. Follow-on selling likely to attract short-covering on further weakness. Follow-on selling likely from technical’s but spillover strength from EURO likely to be better to end the week. Look for a recovery back to the 1.8000 handle near term; two-way action likely to continue. 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. Traders report cross-spreading for Sterling crosses likely driving the rate near-term.
Data due Wednesday: All times EASTERN (-4 GMT)
4:30am GBP Claimant Count Change
4:30am GBP Average Earnings Index y/y
4:30am GBP Unemployment Rate


EURO/USD Daily

Resistance 3: 1.3880
Resistance 2: 1.3820
Resistance 1: 1.3780
Latest New York: 1.3738
Support 1: 1.3580
Support 2: 1.3520
Support 3: 1.3480


Comments
Cross-spreading is mitigating and EURO/JPY is recovering driving support for EURO; bailout plan is likely to fuel recovery. Two-year low on a Friday likely a bottom near-term. Rate at a buy point, OK to buy the next dip. Aggressive traders can add to open longs on a close over the 1.3700 area. Pullback under the 1.3400 handle this week on lighter volume would be a great buy in my view. 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 two-way spills over into pricing; weaker oil helps pressure also. Traders note stops building above the market along with offers. 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. Traders note official names on the bid.
Data due Wednesday: All times EASTERN (-4 GMT)
2:00am EUR German Final CPI m/m
5:00am EUR CPI y/y
5:00am EUR Core CPI y/y

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Analysis Provided by: Forexpros.com - Written by Jason Alan Jankovsky

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