Daily Analysis - 03/02/2009


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Today’s US Dollar Trading

• USD off its highs scored in New York
• Volumes light, most action at the fix
• Likely stops building to the downside

Overnight Preview

• Look for two-way action and the USD to remain range bound under resistance
• Volumes likely to be light ahead of US data tomorrow

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
• 8:30am USD Core PCE Price Index m/m
• 8:30am USD Personal Spending m/m
• 8:30am USD Personal Income m/m
• 10:00am USD ISM Manufacturing PMI
• 10:00am USD Construction Spending m/m
• 10:00am USD ISM Manufacturing Price

Despite a weaker start overnight and into early New York trade the majors were able to cut losses against the USD this afternoon and the USD ends well off its highs but not before extending highs to the next level of critical S/R. Traders note that volumes remained thin and most of the action was ahead of the London fix with non-USD cross-spreaders working the GBP and Yen pairs. The big move to the upside in EURO corrected a lot of oversold sentiment as the rate rallied to a high print of 1.2900 before backing off a bit ahead of the close. Low prints in early New York at 1.2705 attracted technical buyers as the stops under the 1.2750 area dried up leaving the rate ready to rally. Aggressive traders can ADD to open EURO longs set this morning under the 1.2750 area in the next 24 hours if the critical 1.2850 area holds as support on dips; closing under that area today is likely going to encourage late sellers and if they can’t run with the ball expect another round of short-covering into US data tomorrow. GBP was two-way off the lows seen in early New York to trade back above the 1.4250 area but off the highs; low prints at 1.4049 attracted short-covering and the close is two big figures off the low leaving a nice bid-wick for the technicians. USD JPY continues to trade sideways between 90.02 on the high and 80.80 on the lows; holding above the 89.50 area into the close bodes well for the bulls in my view but warn of further two-way action with stops said to be resting under 80.80 area. Forex traders note bids ahead of 80.50 suggesting any further weakness will be bought near-term. USD/CHF rallied for a low-volume high at 1.1689 before falling back under the 1.1600 handle for a low-print at 1.1577 before regaining 1.1620 area into the close. Traders note that stops are likely building somewhere under the 1.1560 area with large stops likely now around the 1.1480 area or thereabouts. USD/CAD held gains all day in thin conditions with a high print in New York at 1.2470 area and holds gains into the close above the 1.2450 area suggesting at least a bit more upside coming. Aggressive traders can sell into the 1.2520 area if it comes overnight as the rate is back into the resistance area around 1.2520 to 1.2580 zone. In my view, the majors are drifting while attracting buyers on dips. USD analysts suggest the USD is about topped-out ahead of a correction; the question is how deep of a correction and will that correction lead to a reversal. Look for the USD to remain bid into resistance overnight and expect the majors to cover more of the same ground twice.


Resistance 3: 1.4400
Resistance 2: 1.4350
Resistance 1: 1.4280
Latest New York: 1.4267
Support 1: 1.3980
Support 2: 1.3920
Support 3: 1.3880

Rate drops back after an up week last week; likely a correction and a buying opportunity as the 23 year lows are very likely to hold. Last week’s Blanchflower comments help underscore the rate on dips but that support didn’t show this morning. Possibly unwinding of GBP crosses pressuring the rate above the 1.4300 handle. Light stops seen on the move under 1.4250 with likely active selling dropping into new lows at this writing. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom. Short-squeeze taking a break; need sharp rally after this dip to argue for continued upside. Rate trading on technical’s now. Signs of the bottom may be showing up as “smart” buyers reported in GBP last week. Spillover from EURO likely but modest. Look for two-way action into this bottom. A short-covering rally is increasingly likely now. Late sellers likely in or hurting.
Data due Tuesday: All times EASTERN (-5 GMT)
4:30am GBP Construction PMI


Resistance 3: 1.3020/30
Resistance 2: 1.2980
Resistance 1: 1.2920
Latest New York: 1.2849
Support 1: 1.2700/10
Support 2: 1.2650
Support 3: 1.2620

Rate follows GBP lower then rebounds, cross-spreaders likely pressure as crosses are unwound during the day. One-way action overnight in light volume as stops get triggered under 1.2750 area and below but sellers run out on support at the 1.2700 handle. Major resistance is now back at 1.3030 area and a close back above there argues for another test of the 1.3300 area weekly highs. Downside bias may be running out as rate is now on solid support numbers around the 1.2700/20 area. Pullback argues the squeeze is over. Bulls are still attempting to find a bottom. 50 bar MA failed now likely to offer resistance and a close above suggests the bottom will be in. Technical analysis levels around the 1.3300 area now likely to offer resistance so expect two-way action and consolidation. Aggressive traders can look to buy the next dip.
Data due Tuesday: All times EASTERN (-5 GMT)
2:00am EUR German Retail Sales m/m
5:00am EUR PPI m/m

Join us for the Afternoon US Dollar Wrap-Up daily at 3:15 pm Central/Chicago time (GMT -6)

Analysis Provided by: - Written by Jason Alan Jankovsky

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