Forexpros Daily Analysis - 01/05/08

[ForexAnalysis]

Daily Forex Analysis

 

Today’s USD Trading

 

• USD quiet in Asia, firms in Europe

• GBP and EURO rally after rate cut

• Whipsaw in the majors

 

Today’s Economic Reports

All times EASTERN (-5 GMT)

• 8:15am ADP Private Payrolls, Actual+ 10,000

• 8:30am Advance GDP q/q 0.2%0.6%, Actual +0.6, -0.2%

• 8:30am Advance GDP Price Index q/q 3.0%2.6%

• 8:30am DECI q/q 0.8%0.8%

• 9:45am Chicago PMI 47.548.2 Actual 48.3

• 2:15pm FOMC, actual 25 BP cut

 

Looking Ahead to Thursday

All times EASTERN (-5 GMT)

• 7:30am Challenger Job Cuts y/y 9.4%

• 8:30am Personal Spending m/m 0.2%0.1%

• 8:30am Core PCE Price Index m/m 0.1%0.1%

• 8:30am Unemployment Claims 363K342K

• 8:30am Personal Income m/m 0.4%0.5%

• 10:00am ISM Manufacturing Index 48.048.6

• 10:00am ISM Manufacturing Prices 83.583.5

• 10:00am Construction Spending m/m -0.8%-0.3%

 

USD two-way again, GBP rallies back, Fed cuts

 

As expected the FOMC cut interest rates 25 BP today and changed the wording of the statement suggesting that the Fed is taking a more neutral course in the coming months. Analysts are debating that the Fed would like to see the effect of both the new liquidity windows and the government rebate-stimulus package before weighing in on further rate cuts. The Fed made clear that it is still considering the inflation pressures seen recently and the bottom line to the rate cut is a “wait and see” attitude. In response the USD whipsawed trader’s on the news; initially rising against some pairs and then getting slammed later. Forex Traders note that the rally in GBP as well as EURO are “knee jerk” responses to trade volatility and don’t expect a serious change in trend; most agree the USD “squeezed” weak longs initially. For the record, the GBP rallied on news starting this morning as other US news was not USD friendly but popped higher on stops and short-covering above the 1.9800 handle for a high print at 1.9897 before finding offers at technical resistance around the recent developing down trend. Traders note that cable has been exceptionally volatile the past several weeks and today was no exception; if the rate follows suit the next 24 hours we should see a return to the 1.9600 handle by the end of the week. EURO rallied initially on the news for a high print at 1.5645 and looks set to continue higher but offers in the 1.5650 area and 1.5680 area are said to be getting thicker so this rally off the lows may be a dead-cat bounce. Look for a lack of follow-through overnight. USD/JPY broke under the 104.00 handle in heavy trade for a low print at the 103.68 number at last look; traders note that the rate has had good selling from CTA types and exporters around the 104.60/80 area this morning. USD/CAD and Swissy also taking their lumps but not nearly as aggressively as other pairs; OK to hold open shorts across the board and let the overnight action work for us. Tomorrow is a light day for news so expect a rotation in the USD; especially against GBP.

 

GBP/USD

 

Resistance 3: 1.9950

Resistance 2: 1.9900/10

Resistance 1: 1.9820/30

Latest New York: 1.9883

Support 1: 1.9820/30

Support 2: 1.9780

Support 3: 1.9750

 

Other Things to Watch/Open Trades/News

 

4-30-08 SELL GBP/USD 1.9820 OB Stops@ 1.9920

(Should be short from this afternoon)

 

Whipsaw still evident, selling into the top of the trend line and volatility.

 

Comments

Rate under 1.9720 area important but rally back clears weak shorts. major stops likely under the 1.9600 handle; likely to be challenged soon but given conditions a bounce is coming first (which happened after FOMC) Upside remains limited in my view but ranges can be wide as evidenced by the past few days of trade. Sell rallies if not short; buying dips dangerous in my view.

Drop to under the MA’s very important, long selling wick makes sell side attractive for further losses. Need down bars with higher volume to confirm.

Overnight data unfriendly with more to come, Some pressure from EURO also.

Rate attracting bids from momentum players so look for stops close-in overnight.

 

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

 

2:00am GBP Nationwide House Prices m/m -0.5%-0.6%

 

EUR/USD

 

Resistance 3: 1.5700/10

Resistance 2: 1.5680

Resistance 1: 1.5650

Latest New York: 1.5615

Support 1: 1.5580

Support 2: 1.5540/50

Support 3: 1.5520

 

Other Things to Watch/Open Trades/News

 

4-22-08 SHORT EURO/USD 1.6000 Stops @ 1.5750

4-24-08 SHORT EURO/USD 1.5650 Stops @ 1.5750

 

ROLL Stops to 1.5750 on entire position; look to add to shorts again later today.

 

Close under the 1.5550 area sets up a test of stops.

 

Comments

Market has failed at 1.6000 area resistance with confidence now, be patient on the potential break. Overhead resistance is heavy above the 1.5750 area now with 1.5660 first; traders say offers extend into the 1.5800/30 area with stops above. Two-way trade at resistance to start on Monday suggests a deeper pullback is in the works. Strong long-liquidation break is still coming; test of the lows as expected Wednesday. Watch for two-way volatility. Be ready to add quickly if a rally happens; rate has BIG stops under the 1.5520 area and a break under the 50 bar MA could be swift. Rally after FOMC is a “head fake”; look for retreat within 24 hours.

 

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

 

All Day EUR Holiday: Labour Day

 

Analysis by: Forexpros.com written by Jason Alan Jankovsky

 

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