Forexpros.com Daily Analysis - 02/09/2008

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Overnight Asia/Europe

 

• USD rallies as commodities drop

• Stops drive trade

• Japan PM Fukuda resigns

 

Today’s Economic Reports

All times EASTERN (-4 GMT)

• 10:00am USD ISM Manufacturing PMI

• 10:00am USD Construction Spending m/m

• 10:00am USD ISM Manufacturing Prices

 

Looking Ahead to Wednesday

All times EASTERN (-4 GMT)

• 7:30am USD Challenger Job Cuts y/y

• 10:00am USD Factory Orders m/m

• All Day USD Total Vehicle Sales

• 2:00pm USD Beige Book

 

Summary

The USD is sharply higher this morning as FX trading gets back to full swing after the Labor Day holiday in the US. Sharp falls in commodity prices most notably Crude Oil after damage from hurricane Gustov is expected to be light is driving USD bids this morning; Forex traders note most of the action appears to be resting stops. All pairs saw option related defense on the rally but the USD is trading at new highs for the quarter so far to start New York. Cable has dropped to a low print at 1.7780 despite profit-taking bids as stops fired off under the 1.7900 handle. Traders report selling has been in sympathy with EURO as that rate breaks through reported major bids; Cable now set to challenge the 1.7740 area as momentum favors the bears but traders note that large names have been seen buying on the dip to the 1.7810 area. EURO has a low print at 1.4465 despite the presence of Swiss private bank buys above the market on the break. Traders also note Russian names on the bid as well. EURO fell through stops layered under the 1.4550 area and traders note sympathy selling along with Cable making you wonder which pair is leading on the break; traders note the sharp $7.00/BBL fall in crude prices as having the most effect on pricing so far this morning. After an early start to the downside USD/JPY has rallied along with other pairs during late Asia with little initial reaction to the resignation of PM Fukuda last night; traders note that the low prints saw light buying but the offers were not there after the lows at 107.76 traded in Asia leaving the rate under reversal; traders report Asian Reserve Managers selling USD across the board but unable to stop the rise higher. Exporters and option defense noted as well as the rate rallied to the 108.80 area for a high print in late Europe at 108.95. Swissy has also rallied hard to trade the 1.1100 handle. High prints at 1.1133 saw stops trigger above the 1.1080 area and the rate is firm above the 1.1100 handle for now. USD/CAD has traded back to the recent highs forming a double-top at the 1.0720/30 area before falling back; traders note that the rate appears to be tracking oil as well. For the first day of September the USD is on the offense across the board most likely as a vote of confidence that energy prices are falling. Despite the large amount of selling interest on the move the momentum is with the bulls today. With poor US data expected this week it will be unlikely that this rally can hold in my view. Look for topping action on lower volume the next 48 hours; the Greenback has likely run its course for the week.

 

 

GBP/USD Daily

 

Resistance 3: 1.8120/30

Resistance 2: 1.8080

Resistance 1: 1.8000/10

Latest New York: 1.7845

Support 1: 1.7780

Support 2: 1.7740/50

Support 3: 1.7720

 

Comments

Despite sharp drop during holiday trade the rate is attracting bids from larger names traders say; price drop likely over-extended on sympathy selling from EURO. Oil no doubt helping to drive trade but rate is becoming severely oversold. Overnight volumes lighter traders say; cross-spreaders active in Sterling and EURO. Drop is drawing profit-taking bids suggesting the bottom is finally trying to form near-term. Overdue for a short-covering rally. Likely an exhaustion drop. Close back above the 1.8020 area needed to take some of the pressure off. This stop-driven break is likely a head fake in my view. Traders expect GBP to track EURO through this week. Continue to expect a lot of cross-trading.

 

Data due Wednesday: All times EASTERN (-4 GMT)

Tentative GBP Halifax HPI m/m

4:30am GBP Services PMI

5:30am GBP BRC Shop Price Index y/y

 

 

EURO/USD Daily

 

Resistance 3: 1.4630

Resistance 2: 1.4600

Resistance 1: 1.4550

Latest New York: 1.4512

Support 1: 1.4460/70

Support 2: 1.4420

Support 3: 1.4400

 

Comments

Sympathy selling from GBP and lower oil drives rate into large stops under the 1.4550 area; likely an exhaustion drop as the rate is attracting professional buying. Volumes note impressive on the move traders say. Rate is overdue for a short-squeeze. EX reversals are now negated near-term if a close today is under previous support at the prior low of 1.4570 area. Traders suggesting that the rate is vulnerable to a short squeeze. Market is heavily short now so expect a rally. Aggressive traders can continue buying this dip for a return to resistance. 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 Wednesday: All times EASTERN (-4 GMT)

4:00am EUR Final Services PMI

5:00am EUR Retail Sales m/m

5:00am EUR Revised GDP q/q

 

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

 

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