Forex Daily Analysis - 12/08/2008

[ForexAnalysis]

[B]Today’s US Dollar Trading[/B]
• USD finds stops and advances
• USD Sellers attempting to take control
• Volumes lighter on the advance

[B]Overnight Preview[/B]
• Advance likely to suffer profit taking
• Longs due to liquidate

[B]Looking Ahead to Tuesday[/B]
[B]All times EASTERN (-5 GMT)[/B]
• 8:30am USD Trade Balance
• 10:00am USD IBD/TIPP Economic Optimism

Big day for the GBP and the Yen for data.

[B]Summary[/B]
The USD continued its march higher against the major pairs today after putting in a fragile bottom overnight. Despite the lack of volume and the key support numbers trading in Asia USD traders continued to find offers outweighing bids for the New York session. Leading the drop lower was EURO dragging GBP behind it; low volume breaks into the overnight low at 1.4908 were bought by large names traders say but that was not enough to prevent a break into stops under the 1.4900 handle for a low print at 1.4880. Cable was forced lower as well finding stops at the 1.9100 handle and 1.9080 area for a low print at 1.9066; Forex traders note that stops were the main driver into the lows in GBP and EURO suggesting that buyers have been active on the dips but offers still are larger near-term. USD/JPY stalled at the 110.40/50 area and was unable to extend overnight gains as the rate continued to lag the other pairs. Cross-spreaders for EURO and GBP continued to underpin the majors against the Yen and traders expect more from the Yen on the downside near-term but admit that order books are getting thin on the decline. USD/CHF also stalled for a high print at 1.0882 overnight and held firm all day near the highs but still was unable to extend gains. In view of the Majors dropping to technical support twice in the past 48 hours the USD appears to be overbought across most studies. A reversal is due and depending on the strength of that reversal it is possible that the USD is trying to develop a new uptrend. In my view, the correction in the long-term USD downtrend is still valid but the correction is due to end and the downtrend is due to resume. Look for US data tomorrow to be USD neutral to weaker. Volumes have been lighter on this rally than last week and large names are buying the dips; it appears the USD rally is about done despite excessive extension of the ranges.


[B]GBP/USD Daily[/B]

Resistance 3: 1.9300/10
Resistance 2: 1.9280
Resistance 1: 1.9250/60
Latest New York: 1.9093
Support 1: 1.9050/60
Support 2: 1.9020
Support 3: 1.9000

[B]Comments[/B]
Rate falls back in sympathy with EURO; rate is under pressure from stops. Volumes lighter into the lows. Stops and technical buying seen from some desks, buying seen from semi-official names on Friday and possibly the early higher action today signals a bottom is in. Stopped out of another long but keep looking at the long side. Rate has likely flushed out every long now and shorts will likely take gains soon leaving the rate vulnerable to a sharp rally. Possible buying from semi-official names so watch the news. Offers above the market mixed with stops from late shorts so be ready for whipsaw the next few days. Traders expect GBP to track EURO through this week. Continue to expect a lot of cross-trading.

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

4:30am GBP CPI y/y
4:30am GBP Core CPI y/y
4:30am GBP DCLG HPI y/y
4:30am GBP RPI y/y


[B]EUR/USD Daily[/B]

Resistance 3: 1.5220
Resistance 2: 1.5150/60
Resistance 1: 1.5080
Latest New York: 1.4900
Support 1: 1.4880
Support 2: 1.4850
Support 3: 1.4800/10

[B]Comments[/B]
Rate making lows in early trade but then bounces hard, technical selling evident from model accounts traders say suggesting that the rate has finally bottomed. Gap lower has been filled making for a technical buy signal from the lows. Market is heavily short now so expect a rally. Larger names buying traders say. Likely the rate has flushed all longs. Macro accounts seen selling on the break Friday. Aggressive traders can buy this dip for a return to resistance although we were stopped out of first attempt at a long. Rate continues to track Cable and vice-versa. Now that stops are cleared a rotation higher is coming. US data this week likely to be unfriendly so be ready for whipsaw.

Data due Tuesday: All times EASTERN (-5 GMT)
2:45am EUR French CPI m/m


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