Forexpros.com Daily Analysis - 02/06/08

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Overnight Asia/Europe

 

• USD mixed, volumes modest

• UK news disappoints Cable

• Technical trade overnight

 

Today’s Economic Reports

All times EASTERN (-5 GMT)

• 10:00am USD ISM Manufacturing Index

• 10:00am USD ISM Manufacturing Prices

• 10:00am USD Construction Spending m/m

 

Looking Ahead to Tuesday

All times EASTERN (-5 GMT)

• 9:00am USD Fed Chairman Bernanke Speaks

• 10:00am USD Factory Orders m/m 0.0%

• Tentative USD Domestic Vehicle Sales 10.8M

 

Summary

The USD is starting the week mixed in New York this morning as overseas news drives early interest in the USD. Negative news in the UK prompted a strong selling day in the GBP today, Cable dropping to a low print at 1.9595 before attempting a recovery. Reports of forex traders increasing short sales of UK retailers’ stocks, negative press on Prime Minister Brown and reports that a large number of UK households have slipped into negative equity weighed on Sterling to start. Cross spreaders have had a great start to the week as the Sterling side of everything has pushed all the rates sharply higher. This has hurt EURO as the two pairs are tracking each other; EURO unable to extend gains from Friday and is trapped in the lower end of its early range; low prints at 1.5513 and highs at 1.5571 are making for dull trade. Good demand from Asian sovereign names was seen traders say around the opening range at 1.5550 area but offers from a well-respected German name capped the potential rally early. EURO trading right down the middle of the range in early New York at 1.5530 area. USD/JPY is slightly weaker with lows at 104.64; traders note stops on the break triggered at 104.90 area and the USD bulls are now on the defense. Asian volumes were lighter but the USD/JPY will likely remain on the defensive this week as no real news from the Japanese is seen as potentially market moving but US data due later will likely have an impact; look for the rate to continue to trade two-way with a lower bias for the week. If holding shorts in the rate look to add soon depending on the quality of the close today. Ideally, you would like a failed low-volume rally to sell into. Swissy continues to grind lower as well but has found some technical support overnight at the May daily pivot point at 1.0390; Monday’s low so far at 1.0389. Traders note that large stops are building in the 103.80/90 area suggesting that the late longs form last week are set to bail. Support is not heavy until the 1.0280 area and a hard break could be in the works there. In my view, the USD is set to resume its downward action this week. I would look for two-way action into the NFP data on Thursday with a break coming later in the week. For the most part the higher action against the GBP is a near-term “head fake” and not indicative of the overall market bias. Look for the EURO and GBP to recover higher by mid week.

 

 

GBP/USD Daily

 

Resistance 3: 1.9780

Resistance 2: 1.9720

Resistance 1: 1.9680

Latest New York: 1.9610

Support 1: 1.9600

Support 2: 1.9550

Support 3: 1.9520

 

Comments

Rate reverses hard again after strong rally on Friday, Rate likely to see support come in around the 1.9630 area but volatility could whipsaw from that area. Fundamentals still suggest a lower GBP and the failure to extend gains above the 1.9850 area so soon after Friday’s reversal argue for a continued downside after a bounce is possible. Continue to expect a lot of sympathy trade with EURO; the cross-spreaders are having a field day with the Sterling crosses and I think the GBP may track EURO near-term. Need a close below the 100 bar MA to build argument for the short but volatility is higher so expect a rally back to test the breakdown.

 

Not a lot to do but wait in my view.

 

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

 

Tentative GBP Halifax House Price Index m/m -1.1%

4:30am GBP Construction PMI 45.7

7:01pm GBP Consumer Confidence Index 68

 

 

USD/CHF Daily

 

Resistance 3: 1.0550

Resistance 2: 1.0500/10

Resistance 1: 1.0480

Latest New York: 1.0422

Support 1: 1.0380

Support 2: 1.0350

Support 3: 1.0310/20

 

Comments

Rate weakens in early Asia and now remains two-way in light directionless trade. Traders say stops are likely building under the 103.80 area and a drop into lows mid-week is expected now that the rate failed again at the 1.0520 area. The late longs will have to bail if the rate slides back under the 1.0400 area; some of them likely out overnight. Look for rallies to be sold and the 104.80 area to hold key resistance on an upside rally. News this week is likely to remain non-eventful until NFP later. In my view, the rate needs to be sold on any strength; possible short at the 1.0450/60 area for today but that is a long-shot due to the trade under the 1.0400 area already.

 

Looking to re-short the next 24 hours—our stop just close enough today to tag us out.

 

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

 

1:45am CHF CPI m/m 0.4%

 

 

Analysis Provided by: Forexpros.com written by Jason Alan Jankovsky

 

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